FTC Settlement with Herbalife—OMG!

Spenser Reece Legal Perspective: What Does It Mean?

New York Post

Network marketing is in the midst of a rapidly advancing Orwellian era. It’s been slow to develop, starting in 1996 when the Ninth Circuit Court of Appeals issued its decision in Webster v. Omnitrition, but it’s snowballed in the past two years.  Today the snowball grew exponentially with the announcement that the Federal Trade Commission and Herbalife have reached a settlement agreement.

Watch for detailed updates and analysis on the settlement. We’ll break it down into many little pieces to determine how it will impact your business. But today we just have time for a broad sweep so I’m just going to address some critical topics.

The obvious first question is: “Does this settlement affect my business?” It’s certainly an important question. After all, the FTC was investigating Herbalife and analyzing Herbalife’s program, so why should it apply to any other company? The answer is two-fold. There’s the technically correct answer, and the real-world practical answer. The technically correct answer is that the FTC settlement with Herbalife has no binding impact on any other network marketing business. The real-world answer is quite different.  The changes that Herbalife must implement offer a clear roadmap to the standards that the FTC expects all direct sellers to conform, and those are the standards that it will pursue in future cases against direct sellers.

Breaking Herbalife News: NOT Found To Be Pyramid Scheme!

Herbalife Will Restructure Its Multi-level Marketing Operations

Multi-level marketer Herbalife will pay $200 million back to people who were taken in by what the FTC alleges were misleading moneymaking claims. But when it comes to protecting consumers, that may not be the most important part of the just-announced settlement. What could matter more than $200 million? An order that requires Herbalife to restructure its business from top to bottom – and to start complying with the law.

“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Ramirez said. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”

For example:

  • The company will now differentiate between participants who join simply to buy products at a discount and those who join the business opportunity. “Discount buyers” will not be eligible to sell product or earn rewards.
  • Multi-level compensation that business opportunity participants earn will be driven by retail sales. At least two-thirds of rewards paid by Herbalife to distributors must be based on retail sales of Herbalife products that are tracked and verified. No more than one-third of rewards can be based on other distributors’ limited personal consumption.
  • Companywide, in order to pay compensation to distributors at current levels, at least 80 percent of Herbalife’s product sales must be comprised of sales to legitimate end-users. Otherwise, rewards to distributors must be reduced.
  • Herbalife is prohibited from allowing participants to incur the expenses associated with leasing or purchasing premises for “Nutrition Clubs” or other business locations before completing their first year as a distributor and completing a business training program.

Network Marketing News Report: Judge Calls Herbalife Settlement Fair and Reasonable

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Nature’s Sunshine Products Named One Of America’s Healthiest Companies For Eight Consecutive Years! – Nature’s Sunshine Products NATR, -1.02% (“NSP”), a leading natural health and wellness company engaged in the manufacture and direct selling of nutritional and personal care products, was named one of the Healthiest Companies in America in 2014 by Interactive Health of Chicago, IL. Interactive Health evaluates approximately 2,000 companies each year, and in 2014, only 158 companies nationwide earned this recognition. Nature’s Sunshine Products was one of only two companies in America that has received this award for eight consecutive years.

Judge Beverly Reid O’Connell called the settlement “fair, adequate and reasonable.” – A Los Angeles federal judge signed off on a $15 million settlement of a class-action lawsuit brought by a former Herbalife Ltd. salesman who alleged the Los Angeles-based nutrition company was operating a pyramid scheme that victimized hundreds of thousands of people a year.

Forbes Reports Avon Valuation Could Fall 40% WHY? – Avon has been on a downhill journey since 2011 (its last profitable year) as its direct selling model is losing market share to retail outlets and online shopping.Our current price estimate of $8.14 for Avon Products is at a more than 10% premium to the current market price. In this article, we list down key scenarios which can lower our valuation for the company by almost 40%.

Hyperwallet’s Board Selects Former SecureNet Executive to Spearhead The Next Phase of Growth – SAN FRANCISCO, May 19, 2015 /PRNewswire/ — Hyperwallet Systems Inc. (“Hyperwallet”), a global leader in the payments industry, today announced Brent Warrington has joined the company as the new Chief Executive Officer. As CEO, Warrington’s top priority will be the expansion into new global markets, such as the emerging collaborative economy segment. Additionally, Warrington will develop tactical alliances with financial services organizations and strategic partnerships with emerging high-tech, high-growth companies.  

Vorwerk Innovations Generate Surge In Sales 2014 Fiscal Year – Wuppertal, May 21, 2015 – Vorwerk is looking back on an extremely successful fiscal year 2014: In the 131st year of the company’s history, the Vorwerk Group closed with a consolidated sales volume of 2.8 billion euros, representing a year-on-year increase of 5.8 percent – a new best result for the Wuppertal-based, family-owned company. The current year also got off to a promising start with sales at the end of the first three months of 2015 already up 19 percent on the corresponding period of the previous year.

Mary Kay Continues Its Commitment To End Domestic Violence – In the US, through August 15, 2015, Mary Kay Inc. will donate $1 from each sale of the limited-edition* Beauty That Counts NouriShine Plus Lip Gloss in two new shades, “Create Change” and “In Harmony.” The initiative provides funding to support The Mary Kay Foundation. During the past 15 years, the Foundation and Mary Kay Inc. have given $50 million to domestic violence prevention and awareness programs to women’s shelters across the country in an effort to end the cycle of abuse.

Why Are Critics Down On Longaberger Baskets? – The company has struggled since the death in 1999 of founder Dave Longaberger. A combination of bad economic times and changing tastes in home decor sent sales from a peak of $1 billion in 2000 to about $100 million last year.  In the most-recent episode, executives at parent company CVSL announced last week that Longaberger will close its retail stores in outlet malls and return to selling products solely through its direct sales force. That announcement followed the shocking departure from the Newark basket-maker of Tami Longaberger, who resigned as CEO of the company her father founded, marking an end to the family’s leadership of the firm.


Breaking MLM News: Study Reveals 3.3% of U.S. Adults, or 7.9 Million, Purchased Herbalife Products for Personal Use in Last Three Months

LOS ANGELES–(BUSINESS WIRE)– Herbalife Ltd. (NYSE:HLF) today released the results of a study conducted to determine the penetration of Herbalife distributors and end users in the U.S. Herbalife engaged Nielsen, a leading global provider of information and insights into what consumers watch and buy, to conduct the research.


Conducted online during April and May of 2013, the survey was completed without intervention from Herbalife and the Company’s sponsorship was not disclosed. The survey was conducted among a nationally representative sample of entirely adults, aged 18 and over in the U.S., and balanced by key demographic indicators from the U.S. census, including age, gender, race, personal income and geographic region. With a sample size of 10,525 consumers, the survey had a margin of error of +/- 0.96%.

According to the research, 3.3% of the general population reported that they had purchased Herbalife products within the past three months, indicating that Herbalifecurrently has approximately 7.9 million customers when projected to the total U.S. adult population. Herbalife customers would include their distributor network, which totaled approximately 550,000 in the U.S. as of the end of the first quarter 2013.1

“This survey, conducted by one of the world’s most respected research organizations, confirms what we at Herbalife already know to be true: that Herbalife’s products have a broad consumer base here in the U.S. — nearly 8 million in the last three months — and that the majority of individuals that purchase Herbalife products do so for personal consumption,”1 stated Michael O. Johnson, Herbalife’s chairman and CEO. “Many of the national polls sponsored by major news organizations during the recent presidential election relied on sample sizes of 800 to 1,000 participants. Importantly, in this research, the sample size of more than 10,000 consumers and the corresponding very low margin of error give this survey strong credibility. Throughout our 33-year history, Herbalife has been committed to having a positive impact on the lives and health of our consumers while addressing global public health concerns: weight management and nutrition. We look forward to continuing to create meaningful results and value for all Herbalife stakeholders.”

Additional findings from the market research include2:

  • Past three month purchasers also claim to purchase Herbalife at a mean rate of every 2.2 months.
  • Weight Management is the most commonly purchased type of Herbalife product for personal use, with 95 percent of past three month Herbalife purchasers claiming to have bought this type of product.

Johnson concluded, “We believe the results of this study substantiate our belief that many of those who attack our model lack a clear understanding of the direct selling industry, and Herbalife in particular. Meanwhile, Herbalife continues to deliver record results in sales and profitability as our independent distributors go deeper into existing markets, developing more customers using our nutrition products every day.” (Click here for full report)

Herbalife News: Herbalife CEO Michael Johnson Plots Bill Ackman & Pershing Square Hedge Revenge

Herbalife CEO Michael Johnson

I wrote about Bill Ackman’s possible $ 1 Billion Dollar mistake last Friday (Read Here). On January 5th 2012, Michelle Celarier over at the N.Y. Post wrote a great article covering what Herbalife’s “badass CEO”, Michael Johnson is planning for this weeks investor meeting.


Herbalife CEO plots Ackman hedge revenge

Watch your back, Bill Ackman, Herbalife’s “badass” CEO is coming after you.

Michael Johnson, after seeing shares in his 32-year-old weight management and nutritional supplement distribution company tumble nearly 40 percent after Ackman publicly labeled it a pyramid scheme, is planning to return fire this Thursday.

In an anticipated investor meeting in New York, Johnson, sources told The Post, is likely to wheel out a former Federal Trade Commission regulator — along with a point-by-point rebuttal of Ackman’s plan.

In addition, Johnson, who has been the top dog at Herbalife for a decade after a 17-year career at Disney, could use the company’s connection with former Secretary of State Madeleine Albright to boost its bona fides.

Albright’s advisory firm, Albright Stoneridge Group. has been a consultant to Herbalife since 2008.

Johnson tried to woo Albright to the event — but her firm said she is not going to attend the meeting. Still, her role enhances the firm’s reputation.

The December battle between Ackman and Herbalife — which resulted in $1.8 billion of value being wiped out — captivated Wall Street as Ackman, one of the best-known hedge-fund managers, hit CNBC, Bloomberg TV and other media outlets to publicize his theory.

Herbalife is “the best-managed pyramid scheme in the history of the world,” Ackman crowed.

The New York activist, who has shorted more than 20 million shares of the Cayman Islands-based company, said he expects regulators to eventually shut down the company — and for the shares to hit zero.

The founder of $11 billion Pershing Square Capital told The Post he has not covered nor hedged his short.

Ackman’s certainty has made Johnson’s Thursday morning performance even more important.

Critics of Ackman have already started to pounce.

They say his comments are nothing new. Defining a pyramid scheme is “a very gray area,” said analyst Michael Swartz of Suntrust Robinson Humphrey, noting that the FTC has looked at the company but not acted in Herbalife’s 32 years of existence.

“But when Ackman gets up on a podium, it carries more weight than the average investor,” he added.

Ackman’s power with other investors riles hedgie Bob Chapman, a longtime Ackman foe who recently, after trying Herbalife protein shakes, became an even bigger believer in the company.

Chapman called Ackman “the PT Barnum of hedge funds.”

Chapman thinks Ackman, whose hedge fund he admits has been “extremely successful,” may have met his match in Johnson. Chapman called the Herbalife CEO “a singular American badass” for his aggressive tactics.

Eventually, these critics think Ackman will be forced to cover his short. Herbalife announced a $950 million share-buyback program, which it won’t be able to start until after it announces earnings.

Already, Herbalife shares have popped 42 percent since bottoming out at $26.06 following Ackman’s onslaught — but are still off about 50 percent from the first shots taken at the company by Greenlight Capital’s David Einhorn in a May investor call that triggered a Securities and Exchange Commission inquiry that went nowhere.

Ackman says his “smoking gun” is that the company’s “so-called earnings disclosure statements for the distributors are false and materially misleading.”

Most of the distributors’ income comes from recruiting other distributors, he said, adding that 93 percent of the distributors make no commissions.

Ackman said he is prepared to wait it out, and he can afford to do so. “After all, it took five years for our work on MBIA [the bond insurer he shorted] to be recognized by the market,” said the money manager. “ I think it will take a lot less time here.”