Herbalife Class Action Settlement Reveals "Secret" Business, Similar to Amway/Quixtar's Exposed on NBC Dateline

July 14, 2004

A $6 million settlement reached by attorneys for victims of Herbalife and its recruiting organization, The Newest Way to Wealth, reveals the same type of "secret" business that was exposed at Amway/Quixtar in the May 7, 2004 NBC Dateline. Both Amway/Quixtar and Herbalife are members of the Direct Selling Association.

Pyramid Scheme Alert has formally requested that the FTC investigate Amway/Quixtar's recruiting practices. It is now expanding this request to also include Herbalife, which follows the same pattern of deception.

The victims of Herbalife's recruiters tell the same story as those interviewed during NBC's exposé on Amway/Quixtar. They are lured to recruitment meetings and told about the extraordinary income opportunity in the business, in which speakers claim they have personally become wealthy. Recruits are then told they also need to purchase books, tapes, marketing materials and attend seminars offered by the kingpins in order to become as successful as they are.

According to a story in the Los Angeles Business Journal where Herbalife is based, "The suit… alleged that top-level distributors made more money selling independent promotional materials, which were supposed to help the lower-level distributors drive sales, than on the actual sales of Herbalife products."

This is exactly the charge made to NBC Dateline by top-level Amway whistle blowers. They stated that the claims by Amway's kingpins of high income from Amway product sales are false and that actually the top-level recruiters earn most of their money from the recruitment business itself, not from the Amway business. The NBC report focused on the recruitment operations of Amway kingpin Bill Britt of North Carolina

Victims in both cases, Amway/Quixtar's and Herbalife's, stated that these recruiting programs operate as secret pyramid schemes in which the upper level recruiters pay the lower levels a portion of the money gained from sales of these recruitment-based products (books, tapes, seminar fees, etc.) when they bring in new recruits. These products are not resold to the public on a retail base. They operate as an "endless chain" in which investments can only be recouped by recruiting others who would then do the same.

The Direct Selling Association, of which Herbalife and Amway are members, is currently lobbying state legislatures and the US Congress (HR 1220) to enact a new law that will legalize non-retailing endless chain marketing schemes. It would also exclude the sales of "tools" sold to recruits from the definition of a pyramid scheme. Pyramid Scheme Alert has sent warnings to all members of the House Subcommittee on Commerce, Trade and Consumer Protection, which is reviewing the bill, alerting them of the harm this bill will inflict on consumers and informing them of the special interests that are promoting it.

Pyramid Scheme Alert has also called on Congresswoman Sue Myrick of Charlotte, North Carolina to withdraw her name from sponsorship of the bill. Mrs. Myrick has been an Amway distributor, spoken at Amway recruitment meetings where these deceptive practices occur and has received hundreds of thousands of dollars in political contributions from Amway/Quixtar kingpins.