Herbalife wants its distributors to tell Congress not to look into Herbalife’s business. In a letter asking Herbalife distributors to send letters to Congress for Herbalife, CEO Michael Johnson tells the distributors that its in their interests for basic facts about the company to remain hidden from them! The letter begins, “I have an urgent request for you to email your Member of Congress.”
Which facts? The ones that determine whether it is possible for any distributors except a tiny few recruiters at the top of the recruiting chain to ever make a dime as Herbalife distributors. Herbalife solicits millions of Americans each year to invest in its “business opportunity” as Herbalife distributors. Over 500,000 are under contract each year in the USA. The vast majority quit within a year, after they lose money. Few know why they lost and most are told it is their “own fault.”
Herbalife CEO Michael Johnson sent a “pre-written” letter to distributors for emailing to Congress. The letter leaves out key facts about Herbalife and himself.
Now Johnson is asking the distributors to stay in the dark about the financial realities of the Herbalife business and to help Herbalife keep them that way. An FTC investigation could lead to Herbalife being required to disclose the devastating loss rates, massive quitting rates of distributors and that the business actually is based on endless chain recruiting.
The key fact that Herbalife does not want investigated or revealed is how much of its products are retailed to the public. Without this information, a consumer has no way to know if they can make money from selling Herbalife products or they have to buy products themselves and recruit other distributors to do the same. If they can’t make sustainable profits from retailing and must recruit more distributors, then they are in an “endless chain” – a scam. Less than 1% at the top can ever make money in an endless chain plan, because 99% will always be in the bottom ranks which are always unprofitable. The “profit” of that top 1% comes from the losses of all the others. In fact, 99% of all Herbalife distributors do not make a profit.
Activist investors David Einhorn and William Ackman asked Herbalife to reveal the basic facts about where its money comes from – open market retail sales, or closed market recruiting chain investments. Herbalife has not done so. Now, a coalition of Latino organizations, a consumer protection organization, and Pyramid Scheme Alert, have asked the FTC to investigate Herbalife’s operations. Over 500,000 Americans, about 2/3rds of whom are Latino, are being recruited every year by Herbalife to invest in its hyped up “business opportunity” but the most basic facts about that “opportunity” are hidden from them.
- See the pre-scripted letter Johnson has written for the distributors to send Congress.
- See Pyramid Scheme Alert’s letter to the FTC asking for an investigation.
CEO Johnson not only wants the distributors to accept the secrecy but to lobby Congress to maintain it. In his letter to distributors, Johnson does not reveal why some members of Congress want Herbalife investigated. Instead, he just tells them, “Some Members of Congress have been misled by a billionaire Wall Street hedge fund manager who wants to make more money for himself and his clients by trying to damage Herbalife’s business and reputation.”
Johnson does not explain to the distributors that William Ackman only repeated accusations that were detailed in two class action lawsuits against Herbalife, in which Herbalife paid victims millions to settle. The accusations are the same as those made by a Belgian consumer protection group and confirmed by a European court that concluded Herbalife is a pyramid scheme. News media commentators have also raised the same questions in a documentary. He omits telling them about Herbalife’s role in a deceptive radio ad campaign that falsely promises high incomes “at home” to new recruits and then sells them bogus “sales leads” for thousands of dollars.
Johnson’s reference to a “billionaire” who “wants to make money” is also misleading. In fact, Johnson himself is the one who stands to make millions if the FTC can be kept in the dark. In 2011 he was the highest paid CEO in America and he is Herbalife’s second largest shareholder. An FTC investigation might cause Herbalife’s stock price to decline. It could lead to Johnson losing his job or maybe much worse, legally and financially, for him.
