Pyramid Scheme Alert (PSA) provides current and historical news items that are of interest to our members and visitors. None of the reports or commentaries is intended to imply that any of the referenced companies have been charged or convicted as illegal pyramid schemes.
Warning Signs of Financial Harm and Deception
Abound at Herbalife
Herbalife, one of the oldest and largest America-based multi-level marketing schemes exemplifies most of the classic warnings signs of a financial trap, a pyramid scheme and marketing program that is steeped in deception.
Consider recent news and developments:
- The president of Herbalife resigned after it was disclosed that he had published false academic credentials.
- European Health Officials Investigate Herbalife's Product Safety Spanish Authorities along with other European regulators are investigating potentially dangerous lead levels in Herbalife products.
- Charges of fraud and health risks against Herbalife go back to the 1980's. An ABC Evening News report, April 22, 1985 hosted by Peter Jennings detailed controversy over Herbalife diet products and pyramiding sales structure. The health risk issues centered around Dr. Richard Marconi who promoted Herbalife products. It was revealed that Marconi received his Ph.D. through a mail order course from an unaccredited school. In that report other nutritionists described Herbalife products as primarily laxatives and diuretics with potential of potassium deprivation.
- Herbalife lures consumers to invest in its "business opportunity" as "Supervisors" - and requires them to buy $3,000 of products. An independent analysis of Herbalife's actual commission payments revealed a top-loaded pay plan in which 85% of all commissions are transferred to less than 1% of distributors at the top, and financial losses suffered by 99% of the rest of the distributors. 60% of the "Supervisors" quit within a year. The average Herbalife payment to the Supervisors is just $10.55 a week. Herbalife must replace all the dropouts each year.
- Herbalife has no sustainable customer base. 80% of all its distributors quit the scheme within one year and there is no evidence that the distributors engage in profitable retail selling. The schemes gains its revenue by recruiting unwitting consumers into a bogus "direct selling" business and inducing them to buy "inventory."
- The charges of business fraud against Herbalife are not new. A recently certified class action lawsuit against Herbalife and several of its marketing groups makes many of the same charges now leveled against Herbalife operating an "endless chain" in violation of California law, and causing widespread losses to consumers who are lured by the unproven health claims and false income promises.
- The class action case against Herbalife addresses one other area of fraud accusations the collaboration of Herbalife with infamous "lead generation" schemes. The lawsuit charges that Herbalife distributors not only are lured into a pyramid recruitment scheme but are also induced to purchase thousands of dollars in basically worthless sales "leads" which they are told they will need to "succeed." (99% of all Herbalife distributors never earn a profit.)
- A similar 2004 case against Herbalife was settled several years ago with millions paid back to consumers in restitution. The case documented the lead scheme mostly unknown to distributors and shareholders that enriches some Herbalife's upliners and further impoverishes the recruits.
- Canadian authorities have fined Herbalife in the past for making false income claims.
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