Herbalife Corporate Imaging Belies “Unfair or Deceptive Acts Affecting Commerce” $HLF

Writing off $30 million of Venezuelan Bolivar cash or 3% of Revenue isn’t material at this point. Herbalife has been using Venezuela as a hub/mechanism for all LatAm capital flight and money laundering. It will be interesting to see how the instability in VEN impacts the rest of their LatAm business, which is far more significant.  When John Hempton says that Herbalife management are moral and good people because they stay in VEN to “do the right thing” for their VEN distributors, I wonder if management and distributors laugh out loud that they are running a money transfer scheme and Hempton is their unpaid defender spokesperson. At least Alan Hoffman and Pamela Jones Harbour get paid millions for selling out their service.

I have a friend who markets liquor in LatAm and the Carribean for a global corporation. Most of LatAm was family owned liquor companies. That’s been changing, in part because of the acquisition and growth strategy of this global liquor giant.  Part of that deliberate growth strategy (which I thought was very “smooth”) was what I call “Corporate Imaging”. As they acquire family brands, ramp up marketing and sales, they know they are going to get community and/or government blow back – they are selling liquor, after all, in large part to a poor population. So, they ramp up the corporate imaging campaign, the local sponsorships, bring in the pop stars and host/fund the charity events, etc. This may be an extreme analogy, but Pablo Escobar built lots of soccer fields and housing in Colombian barrios. I’ve written about The Herbalife Family Foundation being akin to a Frank Lucas Turkey here.  (Frank Lucas was the largest Heroin dealer in Harlem (New York), also beloved by many because of his “charity”, including giving away free turkeys on Thanksgiving.)  John Gotti, the NY mob boss was beloved by his local community for his “charity” and local 4th of July neighborhood block party and fireworks.  Let’s not pretend these folks are humanitarians.  Oh yes, and they donate regularly to politicians.  In my friends case, he’s selling liquor to the masses or the poor. The charity and all that is a means to an economic end.  Without the opportunity to sell the liquor, there would be no other stuff.  Period.  They profit 100x what they “give back”; it’s a cost of doing business… and it has enormous leverage in Corporate Imaging value.  I’m sure the charity has done lots of good.  But I’m not sure they’d want to measure it against the harm the profit seeking venture has caused.

I may or may not like the idea of selling liquor to the poor, but my opinion doesn’t matter because it is legal. The government(s) regulate and tax it.  Governments are partners in alcohol, tobacco and gambling – ALL essentially taxes on the poor.  I’m surprised government hasn’t yet taxed the Multi Level Marketing (MLM) industry.  I’m not talking about just the sale of product.  Add in the sale of leads and the tools scams… it is a massive industry.

For the most part, people know what they are getting into with alcohol, tobacco and gambling.  Up until recently, you had to travel to legally gamble because of the havoc it caused to individuals and communities if it was regularly available to the everyman.  The massive liability that came out of tobacco was regarding the deception. The companies knew of the harm to consumers, but concealed it.  I’ve been a smoker at points in my life and I’ve always said… “nobody owes me free healthcare for my poor choices. In fact, my health insurance and life insurance has, at times, cost me a fortune because of poor choices.” The problem comes in when a company misrepresent the true nature of its product or service, I invest time, effort, money and therefore I’ve been deceived – that’s fraud. Which brings me to MLMs (multi level marketing, post-1979) and Herbalife.

I believe Herbalife is no more than gambling (unregulated and untaxed no less), but it is unlawfully marketed as a business opportunity.  That is fraud innumerable ways.

Michael Johnson, the former President of Disney International and current Chairman and CEO of Herbalife, is a brilliant, high energy, branding and marketing executive. He is doing exactly what my friend at the global liquor company is doing. When he came to Herbalife, he said selling the product (is the product shake mix or a dream of riches? You see, they are stapled together) was just like selling any other product, and he had lots of experience manipulating modest income people (mothers in particular) into buying Disney products. But there’s no fraud in selling overpriced Mickey Mouse DVD’s.

Here’s the problem (a huge oversight): When an overpriced shake mix (nothing wrong with overpricing, or shake mix per se) gets stapled to a 99%+ money losing business opportunity and you offload the corporate sales and marketing expense to “independent” distributors and enticed them to sell the product for you with the promise of profits, of which there are none, that is fraud.

It’s important to look at groups of participants/distributors, not any individual experience.  The only group making any money are the Top Recruiters (the men/women up on stage at Extravaganzas and in Recruit Videos motivating the new recruits), and they are NOT truly independent of Herbalife.  They are functionally employees or hired guns – they are hiring/recruiting a sales force for Herbalife, and in fact that sales force meets with so much difficulty in actually selling the products, that they and their family and friends become the customers themselves, before they churn out and quit. Then a new crop of hopefuls is brought in with the same promise – pitched by the same Top Recruiters who have been selling the Lie for 15,20,30,35 years (the “independent” folks, right?).

Michael Johnson made a HUGE error in judgment, enticed by huge profit margins and the lure of riches (of which he has certainly cashed in) because Herbalife is a fraud perpetrated upon an unsuspecting and unsophisticated public. What Herbalife does is, according the FTC Act, “unfair or deceptive acts affecting commerce” and it is a crime.

It is unconscionable that Herbalife is allowed to recruit 6,000 new people EVERY DAY to functionally pay Herbalife for the job of selling their products. (That’s what happens when they don’t make a profit, but lose money.  e.g. If you recruited a salesman, paid him nothing, he bought inventory from you and he lost money selling your product… he PAID YOU for the privileged of selling your product.)  Herbalife doesn’t tell people, but this is what they are doing! It is surreal to me that so few see it.

I have no idea why or how Herbalife has gotten away with telling the world that 70% of participants are really “members” who join to get a discount on their products. It is laughable. And to insult us further, they tell us that the vast majority of the balance of participants simply join to make a few extra dollars a month. The data says that is laughable. (And you must not listen to anyone who is currently in the scam, because they are drinking the Kool-Aid, they are hypnotized by the rhetoric.) If any of that nonsense is true, why does Herbalife put so much effort/emphasis on the Extravaganzas, which are designed to show off wealth and success?  The overwhelming majority of Herbalife target customers just want a discount or a few extra bucks! (I can’t stop laughing as I write this!) I can’t believe Costco hasn’t adopted the Herbalife Extravaganza model to attract discount customers.

To have any chance at finding a Direct Sales Organization, you need to blow up the last 35 years. You have a much better shot at finding one pre-1979 when Amway hoodwinked Administrative Judge Timony, and FTC Chair Pitofsky and Commissioner Elizabeth Dole (yes, that Dole) turned that nonsense into “legal fact” and set off an explosion of pyramid schemes and frauds in the U.S. and around the world.

I wonder how Judges Timony, Pitofsky and Elizabeth Dole feel about their actions – tens and tens and tens of millions of human beings have been defrauded of money, opportunity and hope because of the fraud they allowed.  And the fraudsters wrapped it in some twisted version of American Capitalism, because they had a “seal of approval”.  That needs to be revoked.

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