Herbalife Scam Judgement Day
The day has finally come for the FTC to reveal their judgement of the Herbalife business opportunity. It has been the biggest battle in the business opportunity world for this to finally happen. Will change actually come or will things remain the same?
Herbalife is already trying to spin the judgment:
With our recent settlement with the FTC, we and our 4 million preferred members and distributors are focused more than ever on helping people achieve their goals – whether by losing weight, living a healthy lifestyle or earning some extra money when and how they choose through our direct sales business model.
The terms of the settlement in no way change our business model as a direct selling company but simply build upon current procedures. Because of this, we are confident and excited about the future of our business. – Source Michael O. Johnson, chairman & CEO, Herbalife
Let’s take a look at what the FTC actually says about Herbalife:
Herbalife International of America, Inc., Herbalife International, Inc., and Herbalife, Ltd. have agreed to fully restructure their U.S. business operations and pay $200 million to compensate consumers to settle Federal Trade Commission charges that the companies deceived consumers into believing they could earn substantial money selling diet, nutritional supplement, and personal care products.
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. – Source FTC Chairwoman Edith Ramirez
Herbalife claims that people who participate can expect to quit their jobs, earn thousands of dollars a month, make a career-level income, or even get rich. But the truth is that the overwhelming majority of distributors who pursue the business opportunity earn little or no money.
The average amount that more than half the distributors known as “sales leaders” received as reward payments from Herbalife was under $300 for 2014.
Half of Herbalife’s “sales leaders” earned less than $5 a month on average from selling the product.
Finding themselves unable to make money Herbalife distributors abandon Herbalife in large numbers. The majority of them stop ordering products within their first year, and nearly half of the entire Herbalife distributor base quits in any given year.
The settlement announced today requires Herbalife to revamp its compensation system so that it rewards retail sales to customers and eliminates the incentives in its current system that reward distributors primarily for recruiting. It mandates a new compensation structure in which success depends on whether participants sell Herbalife products, not on whether they buy products.
- 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.
Under the order, Herbalife will pay for an Independent Compliance Auditor (ICA) who will monitor the company’s adherence to the order provisions requiring restructuring of the compensation plan. The ICA will be in place for seven years and will report to the Commission, which shall have authority to replace the ICA if necessary.
The settlement also prohibits Herbalife from misrepresenting distributor’s earnings potential or likely earnings. The order specifically prohibits Herbalife from claiming that members can “quit their job” or otherwise enjoy a lavish lifestyle.
In addition, the order imposes a $200 million judgment against Herbalife to provide consumer redress, including money for consumers who purchased large quantities of Herbalife products (such as many Nutrition Club owners, among others) and lost money. – Source FTC
Separately, Herbalife said it had agreed to a $3 million settlement with the Illinois attorney general. – Source usatoday.com
Herbalife Scam Judgement Day Conclusion
Herbalife is going to have to start operating legitimately and not as a scam. They have been able to dodge the Pyramid scheme title with the FTC, but they will have to change how they have been deceiving people and fully restructure their U.S. business operations. In my opinion, this is good news. The vast majority of MLM companies in America need to stop deceiving consumers into believing they can earn substantial money selling their products.
WE WILL PROVIDE ADDITIONAL GUIDANCE TO THE MLN INDUSTRY. I THINK THIS PROVIDES A INDICATION OF WHAT WOULD CONCERN US. WE WILL PROVIDE ADDITIONAL INFORMATION SOON ON THAT SCORE. – FTC Chairwoman Edith Ramirez