Safety, Methods Questioned : Herbalife: Weighty Profits and Government Probes

Sporting a tuxedo and the smile of a game-show host, Mark Hughes, a former pill-popping juvenile delinquent, scanned the cheering crowd of Herbalife salesmen packed into the Aquarius Theater in Hollywood.

“In a short five years, a lot of things can happen to a company,” said the beaming Hughes, 29-year-old founder and president of Herbalife International, one of the nation’s largest marketers of weight-loss and nutrition products.

Indeed, a lot has happened.

From a company that began in 1980 with just Hughes and his wife working out of an empty wig factory in Beverly Hills, Herbalife has, according to the company, achieved sales of $500 million annually with 800,000 independent salesmen--126,000 in California alone--touting the health benefits of Herbalife’s powders and pills across the United States and in Canada, Australia and England.

Its new headquarters, a modern 14-story building topped with a green neon Herbalife sign, has become a familiar sight to motorists on the San Diego Freeway near Los Angeles International Airport. And its “Lose Weight Now--Ask Me How” slogan has become ubiquitous on bumper stickers and buttons.

Perhaps Milton Berle, the guest star at last month’s Hollywood gala, summed it up best: “I am thrilled to be here on behalf of Herbalife. I’d like to be half of Herbalife.”

Along with Herbalife’s financial triumphs, however, has come a wave of governmental inquiry and legal actions that could slow the young company’s explosive momentum. Flanked by a loyal army of diet-conscious consumers and Herbalife distributors, the Los Angeles-based firm is under siege.

On March 6, the California attorney general, the state Department of Health and the district attorney of Santa Cruz County filed a civil lawsuit against Herbalife, alleging that the company makes false medical claims about some of its products and employs an illegal pyramid-type scheme to market them.

The suit also says the company fails to disclose that its N.R.G. tablets, which Herbalife says are designed to “aid mental alertness and naturally provide a nutritional lift,” contain caffeine.

The company also faces allegations in Canada. Last November, Herbalife of Canada was cited for 24 violations of that country’s Food and Drug Act by the Canadian Ministry of Health and Welfare. A preliminary hearing is set for April 22.

In addition, two U.S. congressional panels have launched inquiries into Herbalife.

A spokesman for Sen. William Roth (R-Del.), chairman of the Senate’s permanent subcommittee on investigations, said Herbalife came to Roth’s attention as a result of the California lawsuit and a recent investigative report on Cable News Network. Consequently, Herbalife has been added to a list of weight-loss products the subcommittee is looking into.

The television broadcast also prompted Rep. John Dingell (D-Mich.), chairman of the subcommittee on oversight and investigations, to write a letter to the Food and Drug Administration, giving the agency until Friday to hand over copies of its records pertaining to the company and its products.

An FDA spokesman said the agency has been investigating Herbalife for about three years, having cited the company for six violations of the Food, Drug and Cosmetic Act in 1982. No sanctions have been issued.

Company Defends Itself

So far, none of the allegations against the company has been proven in court, and no one has shown that any of Herbalife’s 16 nutrition products are unsafe. Meanwhile, the company has been vociferous in defending itself and its sales methods.

“I’m going to stand up and fight for what I believe in because my products are the best in the country,” said Hughes, who is suing the FDA, alleging that it has waged a “trial by publicity campaign” against Herbalife products. “I know how many thousands of people that they’ve helped.”

Herbalife’s controversial diet plan involves replacing two meals a day with two 160-calorie liquid shakes. The third meal is to consist of a variety of generally low-fat foods the company recommends, but no calorie amount is specified. Dieters are also instructed to take an array of herb-based vitamins and minerals “to ensure proper weight control.” Among the ingredients are Vitamin B6, lecithin, senna leaves, kelp, chickweed and dandelion.

Government attorneys contend that these vitamin and mineral tablets and capsules contain no special weight-reducing ingredients and that the company can not back up its claim that dieters typically lose 10 to 29 pounds a month through the program.

“The whole impression behind the product is that these are some kind of magic elixirs that are going to solve all sorts of problems in one way or another,” said Herschel Elkins, senior California assistant attorney general. According to Elkins, the products do “nothing whatsoever” and any weight loss is caused by dieters eating only one meal a day.

Company officials say that Herbalife’s products are not restricted to weight loss and that they can also be taken for weight gain if the person using them drinks one shake and eats two meals a day.

Herbalife also markets skin-care products and shampoo, a purported arthritis pain reliever and herb-based food supplements that are claimed to elevate one’s mood and to combat premature aging and cellulite.

Controversial Sales Approach

Equally controversial has been Herbalife’s multilevel direct sales approach by which all its products are sold to independent distributors who earn money both by selling Herbalife to retail customers and by taking a percentage of the sales made by other distributors they have recruited.

“From your satisfied customers come your best distributors,” said Rosemary Christopher, who said she earned $53,000 last year selling Herbalife to 20 retail customers and collecting from 100 distributors she has recruited. The 37-year-old West Los Angeles woman added, “After someone’s been using the products, I ask them how they’d feel about selling the products themselves and getting them for a (25%) discount.”

Hughes claimed that hundreds of Herbalife distributors are making six-figure incomes and that $1 million a year is not impossible. The February, 1985, Herbalife Journal, for example, features 10 distributors who said they earned between $100,000 and $280,000 during the previous October and November. Government officials said, however, that like Herbalife’s medical claims, those income figures are unrealistic for most. Even some distributors question the money.

“The only way to make all the money they say you can is to lie like hell to the public, put flowers on people’s cars and assault them on the street,” said distributor Fred Foster of Oceanside, who remains a fan of the products although he has made less money than he had hoped. He would not say how much he has made.

At Herbalife’s helm sits Hughes, who uses cable television shows and personal testimonials to spread the gospel of the “Herbalife opportunity.” He will not say how much he earns, but with 54% of the company belonging to him--the rest is divided among five limited partners, including Hughes’ grandfather and uncle--it is a safe bet that the young entrepreneur is a multimillionaire, as his life style indicates.

$7.3-Million Mansion

He owns a $7.3-million Bel-Air mansion that formerly belonged to singer Kenny Rogers. It has a tennis court, swimming pool and security guards. He also owns beachfront property in Hawaii, purchased in January while he was honeymooning with his Swedish bride, a former beauty queen.

To get around town, Hughes has two Rolls-Royces and a Mercedes. He wears raw silk shoes to go with his finely tailored suits, diamond Cartier watch and custom-made gold cuff links in the shape of the Herbalife three-leaf logo.

To those who have watched health products come and go, Herbalife is one more collection of vitamins and minerals--which appears to be just more cleverly promoted and packaged.

In the words of one critic, Santa Cruz biologist and herbalist Steven Lichtman, Herbalife “takes a group of people who have no training whatsoever in the use of herbs, gives these individuals a pep talk and some information of questionable value and then turns these people loose to promote in an almost evangelical way the use of the products.”

Hughes, however, contended that Herbalife has become “the biggest hit target in the country” and is poised to do battle with anyone who challenges Herbalife’s credibility.

“You know, as far as I’m concerned, if they think they’re going to scare us,” Hughes said of the recent California lawsuit, “they’ve got another think coming.”

In some instances, the questions being raised about Herbalife have gone beyond the products and sales methods.

For example, Hughes’ three-page biography says he learned about herbs “while attending a major symposium . . . by a trade delegation from China.” In fact, Hughes never attended such a symposium, as he admitted when pressed. “I didn’t know this was in there,” Hughes said when shown a copy.

Mail-Order Degree

Businessman Richard Marconi, manufacturer of Herbalife’s food supplements and the man Hughes turns to for scientific backup, has represented himself in nutrition publications since 1983 as a doctor of nutrition. But Marconi, who operates out of two Orange County plants, got a mail-order doctorate in 1984 from Donsbach University School of Nutrition, an unaccredited correspondence school in Huntington Beach.

“I’ve been calling him doctor ever since we got started,” Hughes said, adding, “I got more credibility--and so does Dick--than anybody else in the weight loss business . . . because of our results. So I don’t care about his degree. I don’t care about anybody else’s degrees.”

Hughes dropped out of public school in La Mirada when he was 16. The product of a broken home and a rocky childhood, Hughes had been in and out of trouble, having developed a taste for amphetamines and barbiturates. Eventually, Hughes ended up at Cedu, a residential facility for troubled children in Running Springs, Calif.

There, Hughes realized his gift for persuasion. He quickly excelled as a member of Cedu’s fund-raising team, canvassing the posh offices of Wilshire Boulevard executives for donations. Hughes recalled eating lunch in phone booths, his pockets bulging with dimes, his pad crammed with the names of company presidents he had copied from office lobby directories.

“I guess I was a little bit eager back then, you know, because I saw them in their fancy houses and, you know, I saw what they did in their businesses and stuff like that,” Hughes said.

“I guess that gave me a lot of my determination back then, ‘cause I realized then that regardless of how many no’s I got or how many people slammed their doors in my face, I just kept going.” Hughes left Cedu three years later, soon after his 38-year-old mother died of a drug overdose--the motivating factor, he said, for his interest in nutrition.

‘Sell Just About Anyone’

A slew of sales jobs followed, first at a clothing store, where Hughes sold a suit to a man he later hired to be Herbalife’s general counsel, Perry Turner. Later, Hughes worked as an independent distributor for two marketers of weight-loss products, neither of which is now in business.

According to Hughes’ former wife and Herbalife co-founder, Kathryn Hughes Perry, Hughes learned to “sell just about anyone on anything”--except the government agencies that have been dogging his company.

In its 1982 “Notice of Adverse Findings,” the FDA’s Los Angeles office targeted Herbalife’s Slim and Trim Formula 2, commonly heralded by the company as “the Miracle Worker--a special blend of 14 herbs that are designed to naturally cleanse the digestive system and curb the appetite.”

The FDA said the tablets contained two herbs considered unsafe in food--mandrake and poke root.

Although Herbalife attorneys defended the product as harmless, the company agreed to remove the herbs, which their attorneys said were present in “minuscule amounts” and “not essential in any manner to the nutritional effects” of the product.

‘I Gained $41,000’

The FDA also criticized medical claims made in the 1982 Herbalife Career Book. The book, which provides Herbalife distributors with information to lure prospective customers, said the herbs in Formula 2 help relieve a host of problems, including venereal disease, arteriosclerosis, tumors, bad breath and bed wetting.

Herbalife capitulated to the FDA and no longer lists such claims in its 1984 manual. Still, state attorneys believe that the earlier manuals are in use by longtime distributors and should be recalled.

Herbalife International’s phenomenal success can be attributed in large part to the irresistible temptation of making money while shedding pounds. “I gained $41,000 on my weight-loss program,” reads a Herbalife ad that features an attractive former secretary leaning against a sports car.

Distributors range from housewives to working professionals and, to listen to some, generating new business is a snap. Take Denice DeLacey, for example. Although she will not say how much money she has made, she said she has signed up 60 new distributors since last fall.

Waiting for two of her recruits on a recent afternoon in the dining room of her elegant Los Angeles home, DeLacey, 49, spoke of her new-found obsession. Hughes’ voice could be heard from the living room as DeLacey’s video cassette recorder played the tape of Herbalife’s fifth anniversary show.

Wearing a plastic “Lose Weight Now--Ask Me How!” button set in 5 karats of diamonds and 18-karat gold, the former Las Vegas showgirl and real estate broker said, “When you are emotionally tied to the products as I am, when you have results, you want to share it with others.”

DeLacey appears to have been an excellent student of the Herbalife training program, crafted by Hughes and Herbalife Vice President Lawrence Thompson.

During company training sessions, distributors are taught to dismiss questioners skeptical of Herbalife’s health benefits with the all-purpose answer, “I don’t know about that. . . . What I do know is. . . .” At that point, the distributors are told to tell a personal story of how the product helped them. If they do not have such a story, Thompson urges them to get one from a friend.

‘Distinct Difference’

In this way, Herbalife executives contend, neither the company nor the distributors is violating government regulations that forbid making medical or drug claims for Herbalife’s food supplements. Hughes insists that there is a “distinct difference” between saying that Herbalife will cure disease and recounting a simple story of how the product worked for a particular individual.

Showing that she has learned her lessons well, DeLacey hiked up her white Herbalife sweat shirt to display the scar that runs the length of her chest and abdomen from 1977 heart bypass surgery.

“I was on eight medications for my heart! I take no more drugs now! I take Herbalife! I’ve never felt happier and healthier in my whole adult life!”

DeLacey quickly added: “Herbalife cures nothing. We can’t make medical claims, you know.”

Deborah Grelle, a local FDA official, is unconvinced by the distinction Hughes and Herbalife distributors make.

“Whether it’s an anecdote or a personal story, a medical claim is a medical claim,” she said.

Herbalife has also been a topic of concern for health experts around the country.

William Jarvis, president of the Loma Linda-based National Council Against Health Fraud, said he has received about 50 inquiries about Herbalife in the last five months, “more than any other product I can ever recall.”

“We are concerned that they have not provided adequate information about the formula they use, particularly the amounts of certain herbs, because herbs are a potent source of drugs and can be dangerous,” said Jarvis, who also criticized the FDA for allowing herbal products to be marketed so freely.

Use Not Advised

Similarly, because of an increasing number of complaints received by its nutrition hot line last year, the Massachusetts Nutrition Resource Center reviewed the weight-loss aspect of the Herbalife program and advises callers not to use the products.

Among the center’s concerns, spokesman Pamela Finegan said, are that Herbalife does not spell out how many calories should be eaten and that the distributors are not qualified to give nutritional information.

In Philadelphia, Dr. Howard Posner became aware of Herbalife when several of his patients who were taking N.R.G. tablets complained of heart palpitations, sleeplessness and anxiety--symptoms similar to caffeine toxicity.

Posner wrote to Herbalife twice last spring to ask whether the caffeine in N.R.G. (“Nature’s Raw Guarana”--a Brazilian shrub) had been “inactivated,” as his patients had been told by Herbalife distributors. At the same time, he sent samples of N.R.G. to the Philadelphia College of Pharmacy and Science for an independent analysis.

In a June 8, 1984, letter, Herbalife Vice President Thompson wrote Posner: “Because our products are dietary nutritional supplements, clinical studies are not required; however, I can confirm that guarana, from our product N.R.G., has the same chemical composition as caffeine but works on the adrenal system as opposed to caffeine, which works on the central nervous system.” Posner dismissed Thompson’s response as “gibberish” and told his patients to stop taking the product.

In his analysis of an 800-milligram guarana tablet, Dr. Ara Ber Marderosian of the Philadelphia College of Pharmacy and Science found almost 30 milligrams of caffeine. He wrote, “The caffeine content of this product has in no way been removed or neutralized.”

‘Some Dingbat Doctor’

Hughes scoffed at any suggestion of having medical experts analyze Herbalife’s products or establishing an “Herbalife medical advisory panel,” an idea the public relations firm of Hill & Knowlton had suggested to Hughes to bring the products greater credibility. Hughes has since hired a new publicity firm.

“I think the only thing that would really come out of that is, you know, possibly some dingbat doctor running a study on it or something like that, and after they find out it does make them lose weight they’re going to probably end up saying, ‘Yeah, any time that you take a low-calorie diet, it’s going to make you lose weight.’

“I don’t have to go out and get any independent study from anybody,” Hughes said. “Our independent study is the fact that this company is the biggest, the best, and it’s helped more people lose weight than any other institution in the world.”