Herbalife Faces New Attack From State Senator Seeking Lawby
Herbalife Ltd. came under a fresh attack from a New York state senator, who called the company a pyramid scheme and said he’s found more victims of its “shakedowns.”
State Senator Jeff Klein, holding an event in New York, said he has spoken with more than a dozen victims of Herbalife, including one man who claimed to lose $100,000. Klein is introducing legislation Friday to crack down on the practices, he said.
Klein previously went after Herbalife in October, when he compiled complaints about the company from 56 victims. They lost an average of $20,000, he said at the time. The investigation also looked at 60 so-called nutrition clubs -- the groups that help sell Herbalife’s weight-loss shakes and supplements -- in the Bronx, Queens and Brooklyn.
After October, Klein said he found more alleged victims.
“They are saying you can achieve the American dream,” he said Friday. “The only thing that does happen is people lose lots and lots of money.”
A spokesman for Los Angeles-based Herbalife declined to comment.
Herbalife shares briefly dipped into negative territory on after Klein began his presentation. The stock rebounded, trading up 2 percent to $56.80 as of 3:21 p.m.
Herbalife relies on independent distributors to sell its products, which range from weight-loss shakes and supplements to snack bars and skin creams. Its critics include billionaire Bill Ackman, who has waged a more than three-year campaign against the business. Herbalife has repeatedly denied Ackman’s accusations that it’s a pyramid scheme, but the criticism prompted a probe by the U.S. Federal Trade Commission.
Ackman’s firm, Pershing Square Capital Management, has been involved in Klein’s effort. Representatives from the hedge fund met twice with staff from his office, Pershing Square said last year. On Friday, Klein said his staff consulted the MirRam Group, which does work for Pershing Square on its Herbalife campaign, when it was putting together that October report. MirRam is a New York-based political consultant and lobbying firm that has done campaign work for Klein.
Pershing Square also donated $10,000 to Make the Road New York, a Latino advocacy group that began an anti-Herbalife campaign in 2013. It has since teamed up with Klein and was part of Friday’s press conference. That money from Pershing Square was eventually returned to avoid the appearance of a conflict of interest.
Klein’s bill would require multilevel marketing firms to provide more disclosures, such as average incomes and percentage of revenue coming from people within the network. It would also regulate marketing materials and fine parent companies for breaking the rules.
The source of Herbalife’s revenue is at the heart of Ackman’s claims that it’s an illegal operation. Ackman says sales are driven by people being recruited into selling Herbalife products, not legitimate consumers. Herbalife disagrees, although it hasn’t provided its own documentation to back that up. The company has instead pointed to third-party surveys showing it has millions of consumers.
The investigation from October focused on nutrition clubs, which were also at the center of a three-hour presentation Ackman made in 2014. He said they are being used as a ruse to lure people into becoming distributors. Herbalife has denied these allegations, saying the clubs are proof that its products have legitimate customers.