March 12, 2013
Washington, DC – The National Consumers League (NCL), the nation’s pioneering consumer and worker advocacy organization, today urged the Federal Trade Commission (FTC) to investigate recent allegations that the multi-level marketing company Herbalife is, in actuality, a sophisticated pyramid scheme. Herbalife’s business practices have recently come under intense investor scrutiny, and NCL is now calling on federal regulators to examine both the claims lodged against Herbalife and Herbalife’s responses. NCL wants the federal agency to evaluate the evidence on both sides and make a determination that will serve as an important guide to consumers.
In December 2012, Pershing Square Capital Management, a New York-based hedge fund, published the results of an 18-month investigation of Herbalife. This report claims a range of potential violations of federal and state consumer protection and anti-pyramiding laws, including Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” Herbalife responded in kind by arguing that both its products and its business model are legitimate, and that the company is a bona fide multi-level marketing enterprise.
“Having reviewed this report, Herbalife’s responses to it, and associated analyst and media coverage, we believe that the FTC should conduct a thorough investigation,” said Sally Greenberg, NCL Executive Director. “Allegations that Herbalife’s business model is a pyramid scheme are serious charges with serious consequences for consumers and those who are recruited to sell Herbalife’s products. The FTC is the federal agency with the right mandate and expertise to explore these allegations.”
The National Consumers League itself has special expertise in this area. NCL’s letter to the FTC notes that, “[I]n 2009, with a grant from the Direct Selling Education Foundation, NCL launched an consumer education campaign to help consumers spot the differences between legitimate multi-level marketing (MLM) plans and fraudulent pyramid schemes.”
NCL’s letter also notes that “NCL’s anti-pyramiding checklist informs consumers that the central difference between a legitimate MLM business and a pyramid scheme is that an MLM succeeds largely by selling products and services, whereas a pyramid scheme makes profits primarily by recruiting new distributors.” NCL is asking the FTC to determine whether Herbalife falls into the MLM category, as company officials claim, or is in fact dependent for its profits on recruiting distributors rather than selling its products.
“We believe a thorough FTC investigation looking at both sides of this issue is called for at this time,” said Greenberg.
To read NCL’s letter to the FTC, click here.
About the National Consumers League
The National Consumers League, founded in 1899, is America's pioneer consumer organization. Our mission is to protect and promote social and economic justice for consumers and workers in the United States and abroad. For more information, visit www.nclnet.org.