Herbalife International

Herbalife International, headquartered out of Los Angeles, CA, is a multi-level marketing corporation that is in the business of selling personal health care products. It was founded in 1980 by Mark Hughes, and today operates in over 95 countries and employs around 8000 people. The company stock (HLF) trades on the NYSE, currently at around $62, with a market capitalization of around $5.6 Billion Dollars.

The Business Model

Herbalife initially started out of the founder's trunk, much like Dish Network. As the business grew, it turned to Multi-level Marketing and distributing to speed up company growth. In this type of business structure, distributors generate profit from sales of the company products as well as earn commissions from sponsoring or bringing into the company other distributors and their sales. The more these downline distributors sell and/or recruit others to join and sell the company product, the more commission earned for the original "upline" distributor. When this chain of distributors is visualized, it looks a lot like the pyramid on the back of the U.S. Dollar (but that's another scam...errr ah I mean, story for another time).

The Big Bad Wolf

Herbalife and similarly structured companies tend to constantly run afoul of the law for their business model. From early in its inception, Herbalife had to defend itself in regards to the efficacy of its products several times, but it wasn't until 2004 when it first had to defend its multi-level marketing business model in a court of law after nearly 25 years in business. Herbalife was accused of unfair business practices and of being an "endless chain scheme". It settled this case out of court while never admitting guilt, wrong doing of any kind or changing their business model.

Then six years later, Herbalife had to defend its business practices in a Belgian court where it was again accused as a pyramid scheme. Herbalife was found to be a pyramid scheme by a Belgian court in November 2011. Upon appealing that decision, on December 3, 2013 the Belgian appellate courts overturned the original ruling and stated that Herbalife's business model was in full compliance with Belgian law.

The Billionaire That Cried "Big Bad Wolf!"

Meanwhile, in the United States of America, Herbalife had to also endure accusations of being an illegal pyramid scheme. In December of 2012, Billionaire Bill Ackman of Pershing Square Capital, denounced Herbalife as a pyramid scheme and took a short position of $1 Billion Dollars against Herbalife and its stock. Ackman was the loudest of Herbalife's detractors, finally getting the FTC to start an investigation of Herbalife and its practices in March 2014. In July 2016, Herbalife settled with the FTC. They agreed to pay a fine and to change their business model. The fine was $200 Million, with a large portion being refunds to the distributors of Herbalife, while the change to the business model revolved around paying distributors commissions based on product sales and not based on recruitment.

Herbalife has since continued to thrive and grow. The business model change was mostly semantics. People are still getting paid, the difference is that now its commission from sales rather than recruitment. Bill Ackman wound up losing several hundred million dollars going against Herbalife stock. And yet even today companies like Coinbase or even Citi Bank continue to use the sales tactic of paying for recruiting others to join, become members, open a bank (lending account because the bank will use your money to LEND IT OUT) account and/or make purchases.

Full Steem Ahead!
07/14/2017