Herbalife FTC settlement announcement by end of the week?
An end to the Herbalife investigation to the FTC might finally be in sight, following a report that a settlement might be announced tomorrow.
Citing an unnamed source “close to the matter”, the New York Post are reporting
an announcement of a deal could come as soon as Wednesday, although the agreement is not final and could still fall apart.
“I do not believe the FTC is requiring a substantial change in the business model,” a source close to the matter said.
Herbalife has, though, agreed to pay a hefty fine, the source said.
Details of the settlement “could not be learned”.
Purportedly the FTC are announcing a law enforcement matter this Wednesday, and while
the exact topic of the matter isn’t disclosed, sources believe it relates to the Herbalife probe.
In what is easily the longest running saga I’ve covered here at BehindMLM, a resolution to the FTC’s investigation would obviously be welcome.
The way I see it, any fine is an admission of guilt on Herbalife’s behalf, with ordered changes to their business model aimed at curbing ongoing violations.
If we look at what the FTC objected to in the Vemma case, hopefully Herbalife will finally have to make an honest effort to generate genuine retail sales.
Update 26th May 2016 – CNBC’s Scott Wapner, host of The Halftime Report, claims an unnamed source told him:
No $HLF decision expected this week. Discussions said to be ongoing. Several issues still on the table.
Cue Neverending Story theme song…
cant say for sure whether this is a false alarm about a herbalife/FTC settlement, but its worth keeping an eye on any announcements as the time seems ripe!
sources believe any announcement of a herbalife/FTC settlement may be on friday after markets close.
i’m predicting a fine and an injunction, with the injunction listing the changes already made by herbalife over the last two years which includes a better buyback policy, no direct buy-in to the supervisor level, and a cap on initial product orders at a 1000$, among others.
as we know, the bostick class action settlement order had found herbalifes argument that members joined herbalife to enjoy discounts, satisfactory. there were also unconfirmed press reports that the NY AG’s office and the DOJ had closed their investigations into herbalife, upon finding satisfactory sale of products to actual consumers.
the way i see it, is that a fine and injunction mean herbalife IS NOT a pyramid scheme, which has been the argument of herbalife detractors.
if herbalife was a pyramid scheme the FTC would move court to shut them down, and not settle with a fine and injunction.
ackman had started this debate back in 2012, and he’s going to get socked where it hurts. serves him right.
vemma had no retail margin and no differentiation between retail customers, discount members and distributors. vemma had [effectively] mandatory autoship. comparing vemma to herbalife is a futile exercise!
Or that they’ve made an effort to change (which isn’t enough), with a fine plus additional business model changes mandated through an enforcement action.
The FTC aren’t fining them because they don’t like the shade of green Herbalife use in their logo. Any fine is because Herbalife was/is a pyramid scheme. It’s like those “we don’t confirm/deny” settlements the SEC reaches.
We all know the person is guilty, but this way they save a little face. Doesn’t change the fact they are scammers though.
Hopefully we find out by the end of the week.
so, vemma is a suspected pyramid scheme and the FTC gets a TRO [temporary restraining order] and then an injunction from court which effectively halts vemmas business in its tracks.
then, herbalife which is much much bigger than vemma is suspected to be a pyramid scheme, and the FTC haggles with them and settles for a fine and injunction?
NO sir, if herbalife is a pyramid scheme then the FTC would Litigate. this is black or white, and there can be no wishy washy excuses abut herbalife being a pyramid and guilty as hell, but but but the FTC just fined them and settled with an injunction and some small business changes!
remember that herbalife has had a previous fine and injunction in the state of california, and this did not imply that herbalife was a pyramid scheme. in fact the california injunction recognized herbalifes self consumption as equivalent to a retail sale:
so, a fine and injunction mean that herbalife was NOT found to be a pyramid scheme, but probably guilty of less serious offences like misleading advertisement or insufficient disclosures or insufficient compliance etc.
you bet. the suspense is killing!!
the meeting on wednesday is a closed door meeting, with no ‘announcement’ expected.
sources expect any announcement to be made after markets close on the exchange on friday.
the FTC calendar states:
Well if we’re lucky Friday, otherwise early next week.
That’s if the enforcement is related to Herbalife and resolved tomorrow.
Re. Vemma/Herbalife: Herbalife have made some changes, perhaps enough to not warrant an injunction (hard to say at this stage). Vemma made some token adjustments and carried on believing next to no retail was acceptable.
They learnt the hard way when their new comp plan was rejected that affiliates != retail customers.
Herbalife have made some documented changes to their comp plan. Anything insufficient enough to identify actual retail volume could be addressed in the enforcement action.
Let’s not forget Vemma are still open for business, they’re just forced to rely on retail sales instead of ignoring them.
Same could happen to Herbalife.
the last few years in the MLM industry, following the burnlounge appeal order of the ninth circuit court, the noise and subsequent investigations into herbalife, and the FTC action against vemma, have seen a heated debate about ‘internal consumption’ and definitions of ‘ultimate users’ of MLM products.
this debate sufficiently jangled the nerves of the DSA, which lobbied and caused the creation of a ‘caucus’ of congresspersons to voice the concerns of the MLM industry.
this has further culminated into the introduction of a new bill by congressperson marsha blackburn on 13th,may,2016.
this new bill is called H.R.5230 – Anti-Pyramid Promotional Scheme Act of 2016 [114th Congress (2015-2016)]
the MLM industry is cheering this bill on, while critics are slamming it and calling it a bill which will legalize ‘product based pyramids’.
the bone of contention appears to be the definition of ultimate users as proposed by HR 5230:
personally, i think self[personal] consumption is a natural and integral part of MLM.. AS LONG AS…it is not tied to qualification for commissions.
self qualifying personal consumption on autoship, will make an MLM a product based pyramid in my opinion, and this is where i would draw the line regarding personal consumption.
in 2004, the FTC had written an advisory to the DSA which specifically warns against such autoship:
i don’t know how bills are passed in the american congress, but i suppose they will invite the views of regulatory agencies like the FTC, on the subject.
i believe genuine ‘unforced’ self consumption should be commissionable, and i hope the MLM industry does not believe that the passage of HR 5320 will be a ‘license’ to run product ‘autoship’ based pyramids.
Chorus of every no-retail product-based pyramid scheme out there: “But we don’t force our affiliates to purchase product!”
the full text of HR 5320 can be read here;
this is how it defines ‘inventory loading’ :
i disagree with this definition, in that it ‘effectively’ says that an MLM which ‘requires’ participants to purchase ‘reasonable’ amount of products for personal use will not be considered inventory loading!!
^^ this is the definition of a ‘product based pyramid’. an MLM cannot ‘Require’ product purchase.
a ‘no retail’ MLM will quite clearly be a pyramid scheme.
self consumption is tenable only where an MLM can demonstrate market demand for their product via retail. in such cases ‘unforced’ self consumption should be commissionable. the buying pattern of participants will expose whether the buying is ‘forced’ or not.
mandatory autoship is clearly ‘forced’ consumption, and will attract vemma like FTC litigation, and stringent injunctions requiring the MLM to survive primarily on retail.
MLM that do not have ‘forced’ self consumption will not attract such stringent injunctions.
Article updated with Scott Wapner’s claim that there is no pending settlement.
What’s the bet “issues still on the table” are retail sales and/or recruitment commissions related?
there is no MLM caselaw which puts a percentage number on retail sales vis a vis recruitment sales.
at best, MLM caselaw advises that every MLM company should be individually tested as to whether products sales are encouraged over recruitment.
herbalife has product sales at retail and via bonafide self consumption. only recently the federal court in the bostick settlement found that many herbalife members are recruited into the program to enjoy products at discount.
i continue to believe that there will not be any drastic changes to the herbalife model [buying club model as explained by the FTC in its 2004 advisory to the DSA].
herbalife has already made changes which have not materially affected its business. it has cleaned its house, so to speak.
herbalife will not settle with the FTC if there are any severe business changes expected. they would prefer litigation, in my view.
commentators all over the net, are raising the specter of a vemma like injunction on herbalife requiring over 50% retail.
vemma is NOT CASELAW. it is a specific injunction against a specific company for its specific marketing plan.
neither can the FTC demand 50% retail from herbalife as a matter of legal right, and neither will herbalife capitulate to such a requirement without a court fight.
i think the haggling between the FTC and herbalife may be about the monetary value of the settlement and the dotting of the I’s and crossing of the T’s in the injunction, as it is a legal document with long term relevance.
Obtained by the same regulatory agency investigating Herbalife, for a lack of retail sales (which results in defacto affiliate autoship recruitment).
Yeah no, totally different.
Worked out swell for Vemma. Bring on the litigation…
FTC: Herbalife has bugger all retail sales and are running an affiliate autoship recruitment scheme.
Herbalife: Lulz, our affiliates are retail customers because we intentionally don’t track genuine retail sales.
Judge: So you have no idea what your retail sales figures are?
Herbalife: No. But I can tell you we do eleventy billion dollars in retail sales every year.
Judge: What on Earth is that based on?
Herbalife: We had Christiano Ronaldo to say it in an ad.
Herbalife: *big cheesy Faith Sloan grin*
Judge: TRO granted. Prelim hearing next week.
Herbalife lawyers: But Anjali told us…
yeah, that’s Right!!
at this point ackman must be Cursing Himself for not listening to anjali and losing eleventy billion dollars!!
yes, but though the regulatory agency is the same, vemma and herbalife are DIFFERENT. get??
the FTC has not revised or retracted its 2004 advisory to the DSA. this advisory still stands and is still referenced in court orders.
the vemma action is based on the FTC’s opposition to autoship programs which is clearly mentioned in this advisory.
the FTC’s view on the buying club model which companies like amway and herbalife follow, is clearly recorded as favorable by the FTC, in this same advisory:
IF the FTC has changed its view on the buyers club model, it would have updated this advisory to the DSA, BEFORE demanding vemma style injunction for herbalife.
the california state injunction against herbalife in the 1980’s predates this advisory but had the same logic.
the recent bostick settlement order also echoes this advisory.
i follow this advisory in my personal interpretation because the FTC has not indicated any change in its posture.
if there is a change in the FTC’s stance today, they would have to litigate against herbalife to get an injunction of their choice.
NO LITIGATION means a settlement which will be easily acceptable to herbalife and not change its business model much, like the changes herbalife has already incorporated.
No retail and autoship recruitment in one MLM company is the same in any other.
Don’t care. Vemma litigation in 2015 trumps 2004.
with around only 15% distributors at supervisor level, who are on autoship, herbalife cannot be classified as an autoship program. vemma had almost everyone on autoship.
its alright that you dont care, but the law does care.
in burnlounge, the FTC tried to enforce the omnitrition dicta that retail sales could only be to non participants, but the court cut them down saying there was No Basis for this stance in caselaw, and because the FTC’s Own 2004 Advisory held that the amount of internal consumption was not the issue on which a pyramid scheme could be identified. ie self consumption Can Be Legal in an MLM ‘in the right conditions’.
in fact, the federal appellate court in burnlounge, included the relevant part of the 2004 FTC advisory In Its Order!
so, the FTC advisory is still relevant as the latest caselaw in MLM stands.
the FTC has still not indicated any change in its stance on the 2004 advisory inspite of the burnlounge order!!
If the majority of affiliates are purchasing product each month to qualify for commissions on recruited affiliates purchasing product each month, it’s autoship by any other name.
There’s a reason Herbalife deliberately don’t track retail sales (there are none).
It’s Vemma 2.0.
it’s good you started your statement with ‘IF’ because you have no data on what the majority of affiliates [members and distributors] in herbalife purchase and how often.
if herbalife’s data was was wrong the FTC would have moved the court and not offered a settlement.
its not like vemma had no retail, because the court did find around 20% retail in vemma. its vemma’s [effectively] mandatory autoship that did it in.
there is no regulation or caselaw which demands that an MLM has to track its retail sales or publicize it via annual disclosures.
there are the amway rules which were accepted by the courts where distributors keep records of their sales via the 10 customer and 70% rules, which an MLM company is expected to supervise with a compliance dept. there is no other legal standard for tracking retail sales that i am aware of.
herbalife has admitted that around 30% of its sales volume is shipped to non distributor addresses.
Herbalife intentionally has no data on retail sales.
Or it could just be as simple as the FTC demanding Herbalife identify legitimate retail activity, and Herbalife refusing (because they know there is none).
Think back to Vemma trying to pull a fast one with the FTC and their new “affiliates are retail customers” compensation plan. That went back and forth before the court adopted the FTC’s stance that less than 50% retail = pyramid scheme.
well, we are all imagining different scenarios about the herbalife/FTC negotiations, and i think you have a very very creative imagination 🙂
MLM attorney kevin thompson has also published a video about his ‘imaginations’ of this negotiation.
he feels that there is a standoff between the FTC and herbalife over the vemma 50% rule. he thinks herbalife may capitulate to this demand, as they get only 12% of their business from the US, and can take the hammer in the US business-wise.
i think just the opposite, i think herbalife will not accept any difficult injunction and will prefer litigation, as thompson himself admits that current caselaw is in herbalife’s favor.
i think as herbalife has only 12% business volume from the US, it can afford to litigate and ultimately prevail. even amway was stuck in litigation with the FTC for four years and came out stronger.
but really people! it will not come to litigation, the FTC and herbalife will settle, with the FTC maintaining the spirit of its 2004 advisory and within the ambit of current case law, because the FTC is not an idiot.
neither is the FTC a regulator which can do as it pleases, as thompson has implied. FTC’s recent actions against burnlounge and vemma were all within the parameters it has laid down in its 2004 advisory.
so let’s all give our imaginations a rest, and wait for an announcement from the FTC [and secretly pray that anjali will be RIGHT!! 🙂 ]
kevin thompsons video is not copiable but can be viewed on his facebook page.
Well, you’re also quoting someone very pro-MLM, who actively defends MLM in court, and who hard a very difficult time wrapping his head around the Vemma decision at first.
When he finally did understand it, he released a recommendation that all MLMs track their retail sales and comply.
yes, it seems kevin thompson is pretty cut up about the vemma injunction. it seems to have given him the impression that the FTC leadership is getting ahead of themselves, and crossing the line.
like many in the MLM industry he belongs to the school of thought that personal consumption on autoship is legit, and not inventory loading, and should be commissionable. if the vemma case completes trial, this question will be answered. i disagree with this premise, but the court is the final adjudicator, and none of us can be sure that our stand is correct.
there is no specific law governing MLM in the US and most of our world, and this makes MLM issues a grey, hotly debated topic, with opinions scattered all across the spectrum to both extremes.
in this context, the introduction of HR 5320 in the US congress is a good event, in my view. i don’t agree with portions of the proposed bill, like the definition of ‘inventory loading’ and ‘ultimate users’, but it is a good start. i am sure it will be put through the fire, and corrected before it is passed.
right now, MLM is developing slowly and painfully through caselaw, and we all have to keep adjusting our stand to reflect the current state of the law. so, nobody can be blamed for changing their stance from time to time.
i would like to add here that its great when people are willing to adjust their viewpoint and accept change. when people get stuck in the rut of their opinions, it is worrisome and impedes change and growth.
as it is often said, change is the only constant in our personal journeys and our journey as a human society.
the national consumers league [NCL] wrote to the FTC on may 13th, 2016, after news of a possible ‘settlement’ with herbalife broke in early may.
the NCL has asked for a ‘meaningful’ settlement which will include the following ‘reforms’:
Those are fair points, anjali.
Regarding the NCL request, I’m not sure how useful many of those reforms would be. Most people joining can’t be bothered to look carefully at an income disclosure statement.
I do think it’s a good idea to provide all that info on principle and for those willing to review it. The more transparency you can create in the industry, the better.
yesterday in an interview with CNBC.com carl icahn commented that “Ackman is completely and totally wrong on this company”.
though this is stock market ‘talk’, this comment is important in the context of herbalife’s announcement last month, that it is in ‘advanced’ talks with the FTC regarding a potential settlement.
carl icahn is the largest stockholder of herbalife, and is said to be guiding herbalife through the regulatory problems it is facing, which were initiated by ackman’s shorting of its stock and making pyramid scheme ‘allegations’.
it is ‘telling’ that icahn has made a public comment about ackman’s views on herbalife, when herbalife is at the cusp of reaching a settlement with the FTC.
If Herbalife wasn’t a product-based pyramid scheme, they wouldn’t be in settlement talks with the FTC. The investigation would have come and gone without incident.
Anything from Icahn is as potentially biased as from Ackman, both of whom should be ignored (and have been on here) pending the outcome of the FTC investigation.
We’ve come this far, let’s not let the stock market crap creep in on the home stretch.
the NY post is reporting some fresh news about the herbalife/FTC settlement talks which are in progress:
even i think that herbalife and the FTC are wrangling about language and possibly the monetary fine, but not over 50% retail requirements or tracking of retail.
there is no legal basis for requiring 50% retail from herbalife.
the FTC shuts down product based pyramids it does not settle with them.
the FTC investigation may find herbalife guilty of smaller offences [and not running a pyramid scheme] and fine them for that.
on june 15, 2016 the FTC has forwarded a ‘report to congress’ regarding ‘Combating Fraud in African American and Latino Communities – The FTC’s Comprehensive Strategic Plan’.
herbalife has been accused by critics of defrauding the latino community, and some observers say that this FTC report could be a precursor to the expected herbalife/FTC settlement… ie while the FTC settles with herbalife, it is making clear its tough stance against ‘frauds’ perpetrated in latino communities.
the 15 june FTC report notes:
All of this is irrelevant. I have been “invited” to join many MLM’s over nearly 50 years. IN EVERY case there was no attempt to sell me any product.
Instead I was told of a “business opportunity” and given a “sales pitch” to make some kind of “investment” (time, energy, sharing contacts, or purchasing inventory and or product for personal use).
In evaluating the “business model” in each case as well as the documents, agreements, and contracts it became quite evident that there was virtually no reasonable or rational Return on Investment.
What I was being sold was a retail purchase in the guise of business opportunity.
Could I have purchased product at a “reduced value”? Possibly, however in EVERY case I was able to purchase equivalent (as good or better) products in retail markets for less than my discounted price.
The only way to obtain the goods at commercial retail values was to organize a sales group under me and gain some “recovery”.
The bottom line: There is NO such thing as an HONEST and good MLM.
If they approach you with a “business opportunity” and there is little or no possibly income stream unless one has tens to hundreds of “enrollees” below them then it is nothing but a scam!
The average “Supervisor” in industry has between 4 and 8 reports below him. He earns about 70K per year to manage them. The average Manager has between 8 and 25 reports below him, and he earns about 100K. There is no way that one could earn 75K for bringing 8 reports into their chain.
The entire idea of MLM is just fraud and usury by the originators. Read all you want to on this blog.
Read about the fights between those that want to leave and MLM and start their own. Ever wonder why?
Because the number of people interested in being duped is limited. The more MLMs out there the less each can make!