Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Senator seeks information about Herbalife Ltd.’s business practices, (Jan 23, 2014)
Organizations Mentioned:Herbalife Ltd.
By Jody Coultas, J.D.
Senator Edward J. Markey (D-Mass.) sent letters to Herbalife Ltd., the FTC, and the Securities and Exchange Commission (SEC), requesting information regarding the company’s business practices. The letters stemmed from complaints by participants in Herbalife’s distribution system of improper pressure and financial hardship. The senator is requesting that the FTC and SEC investigate the company’s business practices.
Herbalife sells nutritional and weight-loss products through individual distributors, and promises its distributors significant monetary compensation in the form of additional bonuses and royalties if they recruit new sellers and establish their own network of product distributors. Although most sellers did not take advantage of this process, the compensation system seemed to strongly favor distributors who focus on selling to other distributors rather than the general public. Senator Markey noted that this is a common feature of pyramid schemes. Herbalife also allegedly aggressively markets its business opportunities to lower-income and vulnerable communities. According to 2012 data from the company itself, 88 percent of product distributors received no payments from the company at all.
Senator Markey noted that a family Massachusetts lost $130,000, including the family’s entire 401(K), investing in Herbalife. Another Massachusetts resident claimed to have been pressured to spend money to buy more Herbalife products so that she could qualify as a “Supervisor” in the Herbalife system.
“There is nothing nutritional about possible pyramid schemes that promise financial benefit but result in economic ruin for vulnerable families,” said Senator Markey. “Herbalife may be a purveyor of health and wellness products, but some of its distributors are suffering serious economic ill-health as a result of their involvement in the company. I have serious questions about the business practices of Herbalife and their impact on my constituents, and I look forward to receiving responses to my inquiries.”
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