Herbalife wins Belgian pyramid scheme appeal
In November 2011, after seven years of litigation, the Commercial Court in Belgium ruled that Herbalife was a pyramid scheme.
The case was brought forward by the non-profit organisation “Test Aankoop” and claims that Herbalife breached the WPMC (market practices act) by running a pyramid scheme.
Herbalife filed an appeal against the case, arguing that their ‘sales model is in full compliance with Belgian law’. Yesterday a decision was made on Herbalife’s appeal, with a Belgian court granting it and effectively reversing the earlier pyramid scheme decision.
As with everything Herbalife these days however, the finer details are murky and there’s much to be said about the the basis the appeal was granted on.
I haven’t been able to find anything official from a Belgian source, so instead am using Herbalife’s own December 3rd press release – which states,
Herbalife welcomes the judgment by a Belgian Appeal Court that states the company’s sales model is in full compliance with Belgian law.
This judgment overturns a previous ruling by the lower court, in response to claims brought by Belgian consumer organization Test-Aankoop, that Herbalife was operating a pyramid scheme.
Herbalife always believed that the first judgment contained factual errors and was based on misinterpretations of its direct-selling sales method, and was confident that the original judgment would be overturned on appeal.
Herbalife continues to focus on supporting its independent distributors and their customers in Belgium, and the company remains committed to an open and transparent relationship with those distributors and customers, as well as regulatory authorities and all other stakeholders.
What the errors Herbalife cites is unclear, but it’s important to note that the appeal seems to have been granted not on the basis of Herbalife not being a pyramid scheme, but rather because it’s sales model is in compliance with Belgian law.
Herbalife’s sales model is MLM, which is of course not illegal in Belgium. Sounds to me like they got off on a technicality as the issue of whether or not they primary source revenue from recruited affiliates, at least according to what Herbalife have released, was not considered.
In handing down the original 2011 pyramid scheme decision, the Commercial Court noted
the provided incomes out of the distribution network are significantly higher as the provided incomes from the same amount of clients (retail customers).
There is a chance of a compensation which is derived primarily from delivering (recruiting) new distributors into the system then out of the sale or the usage of the products.
Furthermore the most purchases were performed against a discount percentage of 25% and 35%, which shows that Herbalife is getting the biggest part of her profit out of the distributors.
Following the foregoing shows that it is a lot more profitable for a supervisor to sell to a distributor, rather than selling directly to a consumer.
The above quite obviously spells out a pyramid scheme, as revenue from recruited distributors is “significantly higher” than retail revenue.
If I had to take a punt, I’d guess the crux of the matter might be in the phrasing “There is a chance of a compensation which is derived primarily from recruiting new distributors into the system”.
There is a chance is something you could take and run with in court, arguing that it’s not necessarily what is happening.
The big question then is whether or not Herbalife actually disclosed their retail sourced revenue vs. distributor revenue. The court’s noting that recruited distributor revenue was “significantly higher” than retail revenue would certainly seem to suggest they already had. So what happened there I’m not sure.
Presumably for the court to make such an observation the revenue figures would have had to have been sourced from Herbalife themselves, which begs the question of how Herbalife weaseled their way out what the figures revealed in the appeal.
Despite Herbalife’s feigned committal to “transparent relationships”, the company still refuses to release its retail revenue vs. recruited distributor revenue figures in the US.
With that I’m thinking there’s a chance that the retail vs. distributor revenue figures might have been provided by plaintiff Test Aankoop, but then the notion Herbalife could argue the figures were incorrect without showing the actual figures doesn’t add up.
Either way, without those revenue figures being publicly revealed it’s impossible to determine whether or not Herbalife are indeed running a pyramid scheme. A fact which Herbalife are obviously aware of, and likely to be the reason they haven’t released the figures to date.
Perhaps claiming to not be a pyramid scheme without releasing those figures, and hiding behind the general legality of the MLM sales model is totally in “full compliance with Belgian law”.
Pending some actual transparency from Herbalife on their retail revenue figures, the anything but transparent veil of secrecy the company hides behind remains intact.