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December 25, 2012 6:06 AM   Subscribe

Pershing Square Capital's CEO Bill Ackman Takes On Herbalife.

Pershing Square Capital Management has published a web site (initial disclaimer requires agreement) that provides the public with information about the MLM company Herbalife, including a trove of original source materials that substantiate the firm's accusation that Herbalife, a publicly traded company (ticker symbol HLF) with a market capitalization of over 8 billion dollars, operates as a illegal "pyramid scheme." Pershing Square CEO and "activist investor" Bill Ackman's investigation is available as a (10mb) PDF of a massive PowerPoint presentation, or as a webcast presentation. (Webcast requires registration; PDF, amusingly titled "Who wants to be a millionaire?", is freely downloadable and contains over 300 slides).

Pershing Square's "Facts About Herbalife" website includes:
"Herbalife distributor presentations, recruiting scripts and presentations, distributor lifestyle videos, nutrition club photos, third-party investigative reports, Herbalife Today magazines, court hearing and deposition transcripts, archival video and other materials on the history of the company, lead generation systems, SEC correspondence, and other data that will assist the public in understanding the facts about Herbalife."

From the Forbes article (same as primary FPP link above) by Helaine Olen:
"[Ackman, CEO of the Pershing Square investment firm] claims his ultimate goal is not to profit from his short position – he’s announced he’s giving all money he earns from it to charity – but that he would like the federal government to shut Herbalife’s 32-year-old nutritional supplement business down. 'A lot of people have been harmed here,' he said in an interview with Bloomberg last week. Needless to say, Herbalife is crying foul, and Herbalife Chief Executive Officer Michael Johnson says he will respond to what he describes as 'blatant market manipulation' by Ackman in an day to be held in early January, 2013."

This follows an May 1, 2012 episode where David Einhorn, a prominent hedge fund manager for Greenlight Capital, raised similar questions in a conference call with Herbalife investors.

For further commentary on Herbalife, see "Deja Vu's" Dec. 23 article on SeekingAlpha.com: "But Mr. Ackman, Herbalife is a Sustainable Pyramid Scheme", which points out:
"[Herbalife's] 'innovation' of blaming the victim for not getting paid back allows Herbalife to import a steady supply of new victims each year, suck them dry and discard them. Much like a ravenous herd that grazes a range down to the bare ground and moves on to the next grassland, Herbalife sustains itself by moving from one demographic group to the next - African Americans, Koreans, Chinese, stay at home moms, college students, etc. Herbalife sucks each group dry over a period of years and then moves on to the next. This explains how Herbalife has stayed in business for 32 years in the US. Internationally, it's much simpler, Herbalife simply moves on from one set of countries to the next."

(Deja Vu, an anonymous author for Seeking Alpha who claims to be a CEO of a medical device company, also discloses a short position in Herbalife, FWIW.)
posted by spitbull (69 comments total) 14 users marked this as a favorite

 
Whoops: the typo "an day to be held in early January, 2013" is actually in the main linked article, and I didn't catch it. Not even sure what it's supposed to say, but obviously it says HLF plans to respond after the new year.
posted by spitbull at 6:11 AM on December 25, 2012


How is herbalife different from amway?
posted by empath at 6:20 AM on December 25, 2012 [1 favorite]


Well, for one big thing, Amway (which works in similar fashion, of course) is privately held, not publicly traded, which makes it less accountable to federal regulation and investor pressure like this.

Although I wouldn't have said this in the FPP, I for one am checking my own portfolio to make sure none of my funds are invested in HLF. I heartily recommend others do the same, as the stock has dropped almost 50% year to date.
posted by spitbull at 6:22 AM on December 25, 2012 [1 favorite]


Pershing Square currently maintains a substantial short position in the common stock of Herbalife Ltd. (“Herbalife”). This position does not include any options or puts.

Pershing Square will profit if the trading price declines for common shares of Herbalife and will lose money if the trading price increases for common shares of Herbalife.


That's clever.
posted by dunkadunc at 6:26 AM on December 25, 2012


Clever yes, but note that Ackman a) discloses his short position and b) claims he will give any short-selling profits from his position in HLF to charity.
posted by spitbull at 6:27 AM on December 25, 2012 [7 favorites]


Yeah I was roped into Amway a couple decades ago and even then the culture was very, very heavily biased towards "if you have the right attitude then you can be a millionaire (and here is a catalog full of $20 motivational tapes, including a monthly subscription option to help you get that attitude)" so that when you wash out you don't ask questions about their fucked up business model but instead just sigh and know it happened because you didn't have what it takes.

It's hearsay but my understanding is that the motivational speaking and lecture businesses that orbit around the MLM schemes are vastly more profitable than the products sold by the schemes. After all, there's only so much soap you can buy, but there's always another tape to listen to, or lecture or conference or rally you simply must attend!
posted by seanmpuckett at 6:28 AM on December 25, 2012 [6 favorites]


Heh, this is fantastic: Herbalife just announced a new factory with 500+ jobs in my city.
posted by sonic meat machine at 6:31 AM on December 25, 2012


Rob Cockerham of cockeyed.com did some great civilian investigative reporting on Herbalife a while ago, it's a good read with tons of interesting feedback.
posted by jpeacock at 6:34 AM on December 25, 2012 [5 favorites]


I also saw and enjoyed reading this piece which is the counter-argument as to why Ackerman is wrong.
posted by procrastination at 6:41 AM on December 25, 2012


They should shield themselves from all this by becoming a religion. Then, if you complain about what they're doing, they can call you a bigot for mocking their deeply held beliefs.
posted by dunkadunc at 6:42 AM on December 25, 2012 [17 favorites]


procrastination, only fair to point out that Kid Dynamite, the author of that article, discloses being long on HLF and bullish on the company. I found that article to be so much special pleading, and in the middle of it he basically admits Ackman's most substantive charges are true, but basically says there is nothing illegal about taking suckers for their cash.
posted by spitbull at 6:45 AM on December 25, 2012 [1 favorite]


The presentation is damning morally, but I guess I'm not sure why the business model isn't sustainable. The fact that 93 percent of distributors are making 0 dollars, and have made that much for decades makes me feel like there are a near inexhaustible supply of fools to part money from. Unless the FTC shuts it down, I don't see it going anywhere.

I don't know how the CEO sleeps at night, though.
posted by empath at 6:58 AM on December 25, 2012 [1 favorite]


He probably sleeps on a mattress filled with cash.
posted by spitbull at 6:59 AM on December 25, 2012 [12 favorites]


january 2013: parasite vs. parasite... to the death!
posted by ennui.bz at 7:00 AM on December 25, 2012 [4 favorites]


In my experience, most sales jobs are marketed as "if you have the right attitude then you can be a millionaire" too.

Also, please explain why Bill Ackman is a parasite.
posted by Daddy-O at 7:08 AM on December 25, 2012 [2 favorites]


Oh yeah, spitball, it is totally fair to point that out. I don't know who is right, I just like seeing the counterarguments to overwhelming presentations. I will be watching to see what happens with interest, but with no money on the line.
posted by procrastination at 7:12 AM on December 25, 2012


I'll explain why Ackman is a parasite. He's a hedge fund guy that makes $100s of millions "restructuring companies" often at the expense of jobs, the company's long term health, etc...
posted by ill3 at 7:20 AM on December 25, 2012 [5 favorites]


Amway vs. Herbalife as pyramid scheme or legit MLM enterprise - there is actually a framework established by the FTC for differentiating the two. Its a function of how much is made from the sale of products and how much is made from kicking up revenue from other recruited salespeople.

Ackman's claim is that Herbalife uses some questionable accounting practice to inflate the amount of revenue from third party sales to get away from the FTC cracking down on them. Of course the fact it took him 350 pages of PPT is pure Ackman.

This is also sort of his schtick, especially his appeal to the government.

The Charity donation is not as altruistic as it sounds unless he donates his investment management services to his fund. TCI does the same thing, but then they still charge the charity 2 and 20.
posted by JPD at 7:25 AM on December 25, 2012


Based on my eavesdropping experiences, these kinds of businesses are probably responsible for about 25% of the sales in suburban coffee shops.
posted by srboisvert at 7:26 AM on December 25, 2012 [4 favorites]


I'll explain why Ackman is a parasite. He's a hedge fund guy that makes $100s of millions "restructuring companies" often at the expense of jobs, the company's long term health, etc...

That's not really his schtick. He's actually most well known for his short investments and some distressed investments he made. Well and his one notoriously failed Target activist approach where he basically got rebuffed by shareholders.

Activism only works when the target is truly fucked up to the point that the shareholders will fire the board - this is really rare.
posted by JPD at 7:29 AM on December 25, 2012


The slightest bit of googling on my part would have shown me that Ackman is a hedge fund guy and not a mutual fund CEO or manager as I assumed. My thanks and apologies.
posted by Daddy-O at 7:40 AM on December 25, 2012


The only difference between a hedge fund guy and a mutual fund guy is a compensation scheme.
posted by JPD at 7:43 AM on December 25, 2012 [3 favorites]


He doesn't need the FTC to step in for his short position to make sense. His later slides about the number of new markets that Herbalife has entered hint that they are running out of suckers. Since the top 7% are making all the revenue, and the top .1% are making all the profit, they need a regular intake of new unburned suckers to keep the scheme rolling. Hence their constant expansion into new territory (see pop and drop slides). Obviously you aren't going to be able to get much new volume when you start trying to expand into countries where the per capita GDP is so low no one can afford to sign up.
posted by BrotherCaine at 8:25 AM on December 25, 2012


The FTC thing only matters to make the timing work out better, I agree. Fundamentally all public MLM businesses go away, it just a matter of how long it takes. Like you said, eventually you run out of marks - even for the legit ones. But that always takes longer than you think it will.

That's also why he went public . Its one of the reasons why shortselling is really hard even if you have nearly permanent capital.

You could be short herbalife but since the short thesis is predicated on thinking mgmt is shady and likely to manufacture good news whenever they can, you could sit around being short, but right while the stock doubles or triples on you - which if you run a concentrated book can be really problematic. You might be OK with having 10% of your portfolio short HLF because you think its a fraud, but at 30% you might decided better to take a loss to reduce your exposure. There is some maximum position size where even a very small risk of being wrong is too big a risk.

The Ackman/Einhorn approach is sort of a solution to that issue. Go public with what you think, and once you have rep for being right it becomes self-perpetuating. Buffett does basically the same sort of thing on the long side these days. Some old school HF guys hate the public short presentation thing. Think its in bad taste. Certainly it puts things out in the public sphere that used to be kept much closer to the vest.
posted by JPD at 8:37 AM on December 25, 2012 [6 favorites]


Seems to me to be the whole point of a regulated market in publicly traded securities that factual information of any sort that is germane to an investment decision should in fact be made public, and that anyone who wishes to should be able to compile and publicize that already public information in the interests of assessing the company's investment value.

So in this case, hedge fundamentalists and robber barons aside, the market is doing its job. What would *really* matter is for a very simple version of this analysis to be published in multiple languages and distributed very widely around the world. Even if FTC thinks Herbalife is legal, I can't imagine anyone with an ounce of intelligence reading this presentation and not walking away from having anything to do with the business.

These guys basically thrive on secrecy. The analogy to religion (or a "cult") is quite telling. I'm sort of amazed they ever took it public, assuming stock investors are as gullible as their marks or as greedy as their management. That is, investors may be greedy and gullible (we know they are) but in the end they make decisions, or have decisions forced on them, by accounting facts, not mythological fantasies of wealth creation (well, they do engage in that during bubbles, of course; an MLM is basically a bubble-machine).
posted by spitbull at 8:41 AM on December 25, 2012 [1 favorite]




Lose beta now, ask me how!
posted by chavenet at 8:42 AM on December 25, 2012 [3 favorites]


I should also mention that many years ago I lost a friend to another MLM cult (Shaklee). Really, it was like one day she was normal and the next she was gone, wild eyed and completely delusional about obvious ways she was being taken for a ride. That remains my motivation for *despising* MLM schemes.

You know how you can tell MLM cultists in a crowd? They are the ones with no friends left. They instrumentalize and alienate everyone they know, just as they have been instrumentalized by their "upline." It really is one of the most insidious ways of destroying people's lives, at a level that goes far beyond financial ruin.
posted by spitbull at 8:48 AM on December 25, 2012 [11 favorites]


I wonder how many distributors also own stock in herbalife?
posted by empath at 8:48 AM on December 25, 2012


Wow! Who needs government regulations when you have saintly folks like Bill Ackman policing the marketplace! Soon, the Market Almighty will have sifted out the good companies from the bad and the public interest will be served. Praise be to the Market.
posted by indubitable at 8:58 AM on December 25, 2012


My opinion: Herbalife are despicable bottom-feeders, but Ackman's motives aren't all that altruistic either. While he may not earn any money from this, he's also making sure that he doesn't lose any either, and one can lose an awful lot of money shorting stocks.
posted by Skeptic at 9:09 AM on December 25, 2012


That cockeyed.com article jpeacock linked is pretty good and really illustrates how far Herbalife goes to keep the nuts and bolts of their operation secret. It makes the really good point that if every distributor even signed up two distributors per month, a goal which the promotional literature implies is reasonable, then the company would have burned through the world's population in just a couple of years.
posted by localroger at 9:22 AM on December 25, 2012


Sadly, the target demographic for Herbalife where I live likely can't read any of this because it's not in Spanish.
posted by carsonb at 9:26 AM on December 25, 2012


Hey. I have a soccer jersey with the Herbalife logo. If I have to get another soccery to be up to date with corporate sponsors I am going to be very upset.
posted by xmutex at 9:33 AM on December 25, 2012 [1 favorite]


indubitable, I didn't say we didn't *need* government regulation, nor did I call Ackman "saintly." So are you responding to my comment? If so, nice strawman.

Also worth pointing out that Ackman is accusing Herbalife of breaking the law and *calling specifically* for government action.
posted by spitbull at 9:34 AM on December 25, 2012


I wonder how many distributors also own stock in herbalife?

Actually, I'm going to elaborate on this -- A) would they have been better off buying stock in herbalife they wanted to make money? and B) if herbalife is lying through their teeth to their distributors, why would they be honest with their investors?
posted by empath at 9:44 AM on December 25, 2012


I'm not responding to your particular comment, spitbull, just my usual oblique way of approaching my point. Which I suppose is, the real story here is not that the Randian superman capitalist is stepping in with the forces of The Market to correct evil deeds, but that our government has failed to prevent something like Herbalife from existing in the first place. So in this vacuum, we are left to be... thankful? that some unimaginably wealthy dude figured out that he could make a ton of money through generating outrage and cajoling the government into acting.

And I don't believe for a minute that he won't directly profit from his position moving in his favor. This is a man who made a fortune as a high class grifter hedge fund manager. He'll find a loophole wherein what he said was technically true, but misleading (JPD has already mentioned one possibility).
posted by indubitable at 9:56 AM on December 25, 2012 [1 favorite]


The scary truth behind Herbalife is that politicians are willing to add more regulation to our lives, yet are clearly unable to enforce the regulations we have. This will not end well.

By any measure, from what I'm reading, Herbalife should have been shut down as a pyramid scheme long ago. Even now, lawyers should be recruiting former sellers of Herbalife products to form a class-action suit.

BTW, I found this story through a blogger who specializes in forensic accounting. Over a couple of posts, she lays out the basic argument and defenses in the case. Here are a couple of examples: Bill Ackman on his Herbalife Short, Herbalife does not track retail sales (this is in violation of a consent decree with the courts), and If Herbalife was a Pyramid Scheme It Would Have Collapsed By Now.
posted by Bill Peschel at 10:18 AM on December 25, 2012 [3 favorites]


I got in an email row over this company a few years ago when an infected cousin tried to start recruiting in the family. I'd like to send this thread to that list but I fear it would be seen as unChristmasy.
posted by gerryblog at 10:26 AM on December 25, 2012 [1 favorite]


My concern is for the sari sari shop owner in a tiny village in the Philippines who invested her meagre savings to set up a Herbalife shop at the market. Her master's degree holding daughter, who works in Singapore as a domestic, was so proud of her mother's increase in income.

[insert rude words here]
posted by infini at 10:26 AM on December 25, 2012 [2 favorites]


Just out of curiosity, is there any market where Herbalife is popular enough to potentially cause an Albania '97 kind of scenario or is that only possible with a ponzi / pure pyramid scheme?
posted by BrotherCaine at 10:49 AM on December 25, 2012


Just out of curiosity, is there any market where Herbalife is popular enough to potentially cause an Albania '97 kind of scenario or is that only possible with a ponzi / pure pyramid scheme?

Well, as all these links show, Herbalife is a pure pyramid scheme. It's difficult to know how big it is in each market, though, because they are so stealthy.
I wonder whether one thing that could lead to their downfall (and probably one of the reasons for their stealth) would be tax compliance and in particular sales taxes. I really wonder how they manage to comply with Value-Added Tax rules in Europe, because VAT is charged on the end sale.
posted by Skeptic at 11:37 AM on December 25, 2012


hahahaha fuck you LA Galaxy.
posted by 7segment at 11:48 AM on December 25, 2012 [2 favorites]


I think they charge VAT on the full MSRP to the people buying "inventory"
posted by JPD at 11:48 AM on December 25, 2012 [1 favorite]


the top 7% are making all the revenue, and the top .1% are making all the profit

Sounds like Capitalism in its purest and most successful form to me.
posted by oneswellfoop at 11:52 AM on December 25, 2012


JPD: "BTW - here is another supposed MLM fraud."

A whole bunch of people I went to high school with have gotten into Body by Vi - I see them post about it on Facebook ALL THE TIME.

Also, all sorts of those "Start your own business from home" ads on the radio are for Herbalife.
posted by SisterHavana at 12:12 PM on December 25, 2012 [1 favorite]


I think they charge VAT on the full MSRP to the people buying "inventory"

I don't think so: according to this 2004 Belgian court ruling (which already deemed Herbalife to be a pyramid scheme), Herbalife's distributor agreement explicitly requires its "distributors" to get a VAT number and act as "independent entrepreneurs". "Inventory" sales to them must thus be VAT-free. If the "distributors" end up consuming most of the stuff themselves, or throwing it away, I think this would qualify in the eyes of most European tax authorities as a massive VAT fraud.
posted by Skeptic at 12:21 PM on December 25, 2012 [2 favorites]


Aaand...indeed, this SEC filing from Herbalife indicates that it has had some run-ins with tax authorities in several countries (see point 5, "Contingencies"), mainly on VAT-related issues, but they claim to have been able to fend them off in court so far. They must have really good lawyers.
posted by Skeptic at 12:37 PM on December 25, 2012 [1 favorite]


Sounds like Capitalism in its purest and most successful form to me.

Except that the participants are actually providing capital and only getting returns if they are early adopters, not sure if there's a term for that as an economic system.
posted by BrotherCaine at 12:42 PM on December 25, 2012 [1 favorite]


OK, my apologies for getting my dander up indubitable. I am not proffering Ackman as some sort of Randian superman at all (although I don't share the completely anti-heroic view you're espousing either, because hey, it's capitalism yes, have you got an alternative in mind?).

I'm glad that one kind of greedy capitalist bastard can, with math and money, make life hard for an even worse kind of greedy capitalist bastard, is all. In some ways, we all know (those of us who have read Marx, anyway) that all of capitalism is one big giant Ponzi scheme (especially if you throw in religion and mass entertainment as distractions and the occasional war for some "creative destruction").

Fact is there are millions of people who are seriously hurt by these MLM enterprises. Millions. And despite the law being sort of there to prevent this stuff, it's also sort of not there, and it isn't really enforced, and if you lie well you can circumvent it. So anything that hurts these enteprises saves a lot of people from bankruptcy and misery, and exposes the ways these con jobs work around the law.

Nonetheless there is a big difference between a private con game and a publicly held one. Even the most ardent capitalist booster understands that open markets work efficiently on trust AND transparency. It shocks me that any major exchange allows any MLM business to list its equities, although one is reminded of the old joke about lawyers, sharks, and professional courtesy.

Fortune magazine had a big article on MLMs back in late October, which I just discovered. Points out how many of these companies headquarter in Utah (where Sen. Hatch and the LDS Church have both defended the broad freedom of nutritional supplement companies to lie with impunity) and also calls attention to how the Romney and Huntsman families both have their connections to NuSkin, another terrible MLM.

From that link:
Nu Skin also has long-standing ties to Republican presidential nominee Mitt Romney. In 1999 the company was among the first corporate backers of the Romney-led Winter Olympic Games in Salt Lake City. Sponsorship by a supplement company was controversial at a moment when the International Olympic Committee was warning athletes to avoid supplements, since they might contain banned substances. But Romney defended Nu Skin after it submitted its products to independent review. He told the Salt Lake Tribune: "This is the model of testing and labeling we would like other nutritional-supplement companies to adopt." Romney appeared at Nu Skin's convention in 1999, according to the Deseret News, offering an endorsement. Both Nu Skin and the Olympics, he said, are "about taking control of your life and managing your own destiny." The $20 million sponsorship allowed Nu Skin to put the Olympic rings on its products and marketing materials. The value of the affiliation, then-CEO Lund said at the time, was "almost incalculable."

Romney has remained a favorite among Nu Skin executives. Blake Roney co-chaired his national finance committee in 2008. Sandie Tillotson hosted a fundraiser. In the current campaign Steve Lund and his wife donated $3 million to Restore Our Future, a Romney-backing super-PAC, and was a Romney delegate at the Republican National Convention. "Mitt Romney is a pretty close friend," says Lund. "We have been in his house many times. He and Ann had Thanksgiving at our house one year. I have a huge respect for this guy." (A Romney spokesperson didn't respond to a request for comment.)


Nice, huh?
posted by spitbull at 12:43 PM on December 25, 2012 [2 favorites]


Also, I think it is so crucial to point out that the "products" these companies sell are so predominantly of the "nutritional supplement" character, meaning they are essentially worthless if not dangerous products using yet another loophole in the law to make health claims (disclaimed in fine print) and sell people shit they do not need for prices that are absurd. So even if they were selling "products" and not "distributorships," they'd be ripping people off.

The saddest parts of that PDF by the way are the pictures of the Herbalife "nutrition centers" in various poor neighborhoods.
posted by spitbull at 12:47 PM on December 25, 2012 [2 favorites]


And despite the law being sort of there to prevent this stuff, it's also sort of not there, and it isn't really enforced, and if you lie well you can circumvent it.

LIke HSBC and the LIBOR fraud?
posted by rough ashlar at 12:58 PM on December 25, 2012 [1 favorite]


I'll explain why Ackman is a parasite. He's a hedge fund guy that makes $100s of millions "restructuring companies" often at the expense of jobs, the company's long term health, etc...

Not really.

Bill Ackman is also famous for having published Is MBIA Triple A? which was highly critical of MBIA's business model because of their exposure to downside risk in mortgage backed securities and related structured products.

In 2002.

As a result, he got investigated by the SEC, the NY AG, widely derided as an irresponsible market manipulator, as someone who didn't understand the complicated business of structured finance.
posted by atrazine at 1:00 PM on December 25, 2012 [7 favorites]


LIke HSBC and the LIBOR fraud?

Yes. Exactly.
posted by spitbull at 1:05 PM on December 25, 2012


For all those saying I've got Ackman wrong....Look at JC Penney. The business has been largely destroyed (there was another Metafilter post on this not too long ago). Many jobs lost, tons of sales lost and Ackman's lost money too. There are many ways for him to still win if the company fails. Take it private, liquidate the real estate assets, etc... Bad for the company, bad for potentially even the current investors. In mind it's very similar to what many were complaining about Bain/Romney doing. Profiting on a failing enterprise at the expense of the enterprise....
posted by ill3 at 1:45 PM on December 25, 2012


Fortune magazine had a big article on MLMs back in late October, which I just discovered. Points out how many of these companies headquarter in Utah (where Sen. Hatch and the LDS Church have both defended the broad freedom of nutritional supplement companies to lie with impunity)

Did I miss the part of the article where it talks about the LDS Church itself defending MLMs, or is that somewhere else?
posted by weston at 2:16 PM on December 25, 2012


Yeah, no, it's not in that article. But the ties between LDS and the supplement industry in Utah have been covered. I think there was a New Yorker article about it a few years back and I will hunt for some references when I'm not on mobile,
posted by spitbull at 2:58 PM on December 25, 2012


From Time magazine. (Oct 1 2006)

Why Utah? For one thing, the dry air is ideal for storing precious powders. For another, politicians like Senator Orrin Hatch have helped create a fertile regulatory climate. Then there's the long-standing environment of support for the products. Many Utah supplement companies are owned or operated by members of the Church of Jesus Christ of Latter-day Saints (LDS). In the 1800s, LDS founder Joseph Smith blamed traditional medicine for his brother's death and his own traumatic leg surgery. Early Mormon writings praised the "plants and roots, which God had prepared to remove the cause of diseases." In the 1940s, Mormon herbalist John Christopher preached about natural healing. A few decades later, three Utah companies--Nature's Herbs, Nature's Way and Nature's Sunshine--began selling his formulas.

The other layer is the intimate relationship between the supplement industry and MLM, with which it is intertwined.
posted by spitbull at 3:03 PM on December 25, 2012 [1 favorite]


Yeah, the church as a subculture is definitely one in which MLMs seem to spawn and thrive for a lot of reasons: a Mormon strain of the prosperity gospel, social networks that are dense with loose ties, and maybe sales/presentation skills that service in the church tends to foster. Throw in a natureopathic streak in the health code, and mix in a special obsession with perfection within the culture-wide obsession with youth and beauty and success, and you get the MLM beauty-product and supplement industry.

The thing I haven't seen yet, though, is much in the way that directly connects above-regional leadership with the industry. It would be interesting to see if there was some kind of board-service or former employment connection for anybody on this page or maybe this one.

(Not that former employment is necessarily a strong connection. I ended up working for NuSkin corporate for a year a while back; came in through Big Planet, an MLM ISP which they bought, where I'd been hired to help build out an intranet tech support staff could use for reference. Two weeks after I came on, my boss was maneuvered out, my job was absorbed into a NuSkin-wide intranet team, apparently entirely for the purpose of kingdom-building, since I was asked to do nearly nothing afterwards and occasionally pushed back on when I tried to do something useful. I don't really have any complaints about how I was treated otherwise, but it was the most Dilbert-esque and opaque place I've worked, and of course even the arguably useful internet services were not competitively priced... because that's not really what they were selling.)

There's actually some evidence that at least some Mormon leadership is uncomfortable with these organizations and others that seem to grow up in similar ways (foofy life-coaching/block-removing stuff). Periodically you see church-wide communications go out to local congregations telling people *not* to use church rosters, church callings, church property etc for business or any non-church activity, and to be careful of people using church connections to sell products and services. It's pretty hard for me to imagine they're talking about anything else other than MLMs.

Of course, it clearly is not hard for a lot of Mormons to imagine exactly that. :/

As Jesus said, by their natural health-promoting fruit extracts ye shall know them, I guess.
posted by weston at 3:57 PM on December 25, 2012 [1 favorite]


Alright, I'm going to withdraw/rephrase; the LDS church as such has not to my knowledge lobbied on behalf of the supplement or MLM industries. However, the guys (and it's all guys) who run those industries, their lobbyists, their in-the-pocket politicians, and a huge number of people who work in those industries are members of the LDS church, and in many cases in leadership positions within their church (ie, Orrin Hatch is a bishop, and as we all know Romney was too). I'm gonna just venture a guess that MLM money flows to the LDS church as such in ways besides the tithes of members who earn income from MLM.

Then of course there is Frank Van der Sloot, billionaire CEO of Melaleuca, an Idaho-based nutritional supplement MLM that has had some serious problems with the law, and a devout Mormon as well as national co-chair of Romney's campaign finance committee -- as well as someone who sues any journalist who writes something negative about him.
posted by spitbull at 4:53 PM on December 25, 2012


Bill Ackman is also famous for having published Is MBIA Triple A? which was highly critical of MBIA's business model because of their exposure to downside risk in mortgage backed securities and related structured products.

Read what Ackman wrote in 2002 - he was completely and totally wrong.
posted by JPD at 5:05 PM on December 25, 2012 [1 favorite]


What I find truly unreal is anyone claiming that there's a need for MLM for specialty products in the same world that has Etsy and Amazon.

Maybe before the Internet there could be a legitimate niche for the likes of Mary Kay, but not today.
posted by ocschwar at 5:20 PM on December 25, 2012


So here's an interesting tidbit - there appears to be a (I'd presume) fake Julian Robertson twitter that is promoting a pro -HLF viewpoint.
posted by JPD at 5:25 PM on December 25, 2012


However, the guys (and it's all guys) who run those industries, their lobbyists, their in-the-pocket politicians, and a huge number of people who work in those industries are members of the LDS church, and in many cases in leadership positions within their church (ie, Orrin Hatch is a bishop, and as we all know Romney was too)

"Bishop" in LDS circles is a lay office that's more or less like the part-time pastor of a local congregation. The title confers some caché of respectability, and a bishop can be very influential in the thinking and choices of people in their congregation, but it's a very localized influence. I don't think most Mormons would think of Romney or Hatch as part of the leadership of the church.

Not to say that Romney and Hatch aren't influential among Mormons, but that's pretty much from the status conferred by their successes plus the identification factor (like a lot of the influential types you generally see mentioned in these articles).

But if your larger point is to ask why this industry incubates so well among Mormons and seems to be predominately Mormon-led -- well, I certainly agree that's a question that more Mormons and perhaps the actual leadership off the church should come to grips with.

Then of course there is Frank Van der Sloot, billionaire CEO of Melaleuca, an Idaho-based nutritional supplement MLM that has had some serious problems with the law

Melaleuca. I don't know how, but I managed to avoid knowing anything about them for a long time. I still don't know much about them beyond Mr. VanderSloot's publicized activities, but my introduction to that company was through a new boss brought on from Melaleuca to a design company I was working for. Least favorite boss ever. Definitely more than a whiff about the man of a willingness to take advantage of others and bend the truth for his own advancement.
posted by weston at 6:45 PM on December 25, 2012 [1 favorite]


Maybe before the Internet there could be a legitimate niche for the likes of Mary Kay, but not today.

Because it's easy to test that makeup matches your skin tone over the Internet?
posted by BrotherCaine at 9:56 PM on December 25, 2012


I just read through the entire powerpoint PDF. Whew... nothing really stood out as an "ah ha!" moment, but it builds its case page by page.
posted by letitrain at 10:06 PM on December 25, 2012


For me the AHA moment was the part where you aren't allowed into the top tiers on sales alone, you have to recruit. Meanwhile, only one tier below that level makes any revenue, and the revenue that is made is below the average yearly cost for active sellers. Which pretty much is close to saying it's impossible to make money any way other than recruitment, hence pyramid.
posted by BrotherCaine at 12:09 AM on December 26, 2012 [2 favorites]


Herbalife is such shit. I was staggered go hear them mentioned on CNBC lately... "these fucking clowns haven't been shut down?" They are largely responsible for littering much of the Denver area with tons of "work from home" scammy signs years ago.
posted by lordaych at 3:57 PM on December 26, 2012


One Indian distributor who shelled out money for Herbalife and lost his friends said, way back in 2005, “I think they might be dumping these in India now, since people in their country didn't let them get away with it (emphasis is ours). I realised that the truth about this business is that the money is made not by the distributors but by the company, when they coerce you into buying their starter kits and badges and assorted rubbish. When something stinks so bad you've got to get out and close the door. I'm lucky I did that, before I compromised on my ethical standards and lost all my friends to boot.”


This is what happens when an MLM, booted from one country, targets another with spotty regulation. India happens to be one such country.

posted by infini at 3:31 AM on December 27, 2012


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