I wonder if Dr. Vandaele, the “prominent expert economist and former FTC advisor” hired by Herbalife, felt used and manipulated when the company released the results of his business analysis (“all is swell”) on the same day Bill Ackman gave his presentation that the Nutrition Clubs were a cleverly concealed fraud. It’s obvious the company deliberately used his report and resume to blunt the effect of the unflattering presentation. Did Dr. Vandaele know before his report was released that the Nutrition Clubs (40% of company revenue) were about to be challenged as a recruiting-driven scheme? If he did, and still authorized releasing the report, I’d find that shocking. Dr. Vandaele must understand the devastating impact such a finding could have on Herbalife. Managements claim of daily retail consumption by legitimate consumers within Clubs is a lynchpin in their anti-pyramid scheme defense. If he didn’t know, then it underscores the extent to which Herbalife management will go to use any human being in order to perpetuate the lie.
Dr. Vandaele’s underlying analysis and assumptions must not have considered, nor did management share with him, that Nutrition Clubs were being populated by recruits, their friends and family in support of their efforts to “graduate” in the hope of opening their own club. Would that change the conclusions in the report? Why hasn’t anyone asked him or the company? If Dr. Vandaele doesn’t feel hoodwinked, I’ve got a business opportunity to sell him. In the meanwhile, I’ll add Dr. Vandaele to the list; along with Madeleine Albright, Richard Carmona and anyone else still associating their name and reputation with Herbalife.
Herbalife’s response, over and over the past 2 years, has every telltale of a fraud. People are catching on. Credit markets are catching up. D&O Insurers are staying away. On Friday, a mutual fund fiduciary headed in the other direction, following managements (ex-Michael Johnson) token stock purchases. I’ve heard it said, “evidence is all around us, so we are without excuse.” If this fund manager is a Herbalife believer, why buy more stock when such an “interesting and attractive” alternative now exists? Why not buy the convertible bonds, collect 7% to maturity and get 2/3rd of the equity upside if your right and a hope/prayer of getting your principal back if your wrong? Because Michael Johnson filled the punch bowl with his stock, his nonsense and them all drinking the Kool-aid.
Only time will tell for certain if Herbalife is a fraud. After that, we’ll find out if the Federal Government has the backbone to do anything about it.