California attorney general to meet with Herbalife critics, group says
California Atty. Gen. Kamala D. Harris’ staff has agreed to meet Friday in Los Angeles with a coalition of critics who believe that Herbalife Ltd. preys on poverty-stricken immigrants with false hopes of easy money, a member of the group said.
“The momentum is heading in the wrong direction for Herbalife,” said Brent Wilkes, national executive director of the League of United Latin American Citizens, who is among those scheduled to meet with Harris’ staff. “There’s a lot of people who have been shown the evidence and now believe the company is defrauding hundreds of thousands, if not millions, of people.”
An Herbalife spokeswoman declined to comment. A spokesman for Harris did not immediately respond to a request for comment.
[Updated at 4:30 p.m. PST: Harris spokesman Nick Pacilio confirmed that attorney general staff members are scheduled to meet with the group Friday. “We always try to accommodate requests from the public,” he said. He declined to say whether the attorney general was investigating Herbalife.]
Word of the meeting comes the same day that Sen. Edward J. Markey (D-Mass.) said he has asked the Federal Trade Commission and Securities and Exchange Commission to investigate claims that Herbalife is running a pyramid scheme.
In letters this week to the regulatory agencies, Markey said he had learned of a family from Norton, Mass., that lost $130,000 and its entire retirement savings after trying to launch a business selling Herbalife products.
“There is nothing nutritional about possible pyramid schemes that promise financial benefit but result in economic ruin for vulnerable families,” Markey said in a news release. “Herbalife may be a purveyor of health and wellness products, but some of its distributors are suffering serious economic ill-health as a result of their involvement in the company.”
Markey’s expression of concern comes 13 months after hedge fund manager Bill Ackman accused Herbalife of operating a pyramid scheme, saying the company improperly rewards its independent distributors for recruiting others into the business. Ackman’s accusations battered Herbalife’s stock, but its shares soared more than 100% last year as the company deflected the allegations.
Herbalife, which operates out of headquarters in downtown Los Angeles, has defended its practices, saying all compensation of distributors is based on sales, not recruiting. The company said its model is legal and similar to many other U.S. companies.
“We received the letter from Sen. Markey this morning and look forward to an opportunity to introduce the company to him and address his concerns at his earliest convenience,” Herbalife spokeswoman Barb Henderson said in an email to The Times.
Herbalife has previously disclosed that it was cooperating with an inquiry by the SEC. Members of special interest groups have also said they spoke to the FTC about their concerns.
Word of Markey’s inquiry helped drive Herbalife’s stock down $7.61, or 10.3%, to $65.92 on Thursday. The company’s shares are down 16% this month.
Herbalife sells meal replacement shake powders, nutrition bars and other products through a network of independent salespeople in more than 80 countries around the world. Its top-selling item is Formula 1, a high-protein shake mix. The products are not available in retail stores and can only be purchased from people who have signed up as Herbalife distributors.
Ackman has said he believes that the company is a pyramid scheme because the vast majority of its distributors make little or no money, while a fortunate few get rich off commissions on sales made by those they recruited into the business.
Wilkes, who said he believes that Herbalife targets Latino immigrants with false promises of vast riches, said he hopes that the California attorney general investigates whether Herbalife is in compliance with a 1986 court order that required the company to carefully track distributors’ sales and prohibited it from exaggerating the health benefits of its products.
The attorney general obtained that order after suing Herbalife in 1985, accusing the company of making false claims about the health benefits of its products and operating a pyramid scheme.
“We’ve been requesting a meeting with the California attorney general for some time,” Wilkes said. “We’re really hoping that they weigh in here. The attorney general in California has a key role to play because of that existing order.”
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