Herbalife Throws Distributors' Websites Under the Bus

Companies and Brands

Published: October 13, 2014 12:20 pm

Last Updated: April 27, 2020 10:53 pm

While nutrition and weight loss company Herbalife Ltd. (NYSE: HLF) says it is confident that the multi-level marketing firm won’t be shut down, it is not taking a lot of unnecessary chances. A week ago it announced that former Federal Trade Commission (FTC) member Pamela Jones Harbour had been hired to lead the company’s global compliance efforts. Harbour said at the time that she has been a Herbalife customer for 10 years.

In a related development, the company is banning U.S. distributors from hosting their own websites and is migrating their businesses to a Herbalife-controlled hub. According to the New York Post, the change becomes effective November 15 and is intended to extend Herbalife’s control over what their distributors say. The Post said there have been “some instances in which distributors were accused of making false health claims about the company’s products.”

It is no coincidence that Herbalife hired Harbour — after all, the FTC in March launched a civil investigation into whether Herbalife engages in unfair or deceptive trade practices, particularly whether the firm is a pyramid scheme as alleged by Bill Ackman of Pershing Square Capital Management. In cases like this, the FTC can petition a court to stop an alleged pyramid scheme, order the company to pay refunds to customers and force the company to forfeit profits earned by the scheme.

Herbalife has also hired the former chief of staff to Vice President Joe Biden as its head of global corporate affairs and a former adviser to Senator Harry Reid as the company’s liaison with the Hispanic community. All three positions were newly created, according to the Post.

What Herbalife appears to be doing is buttressing its public image with some high-profile hires that will pay off for the company no matter what the FTC concludes. If Herbalife is allowed to continue operating as it always has, the company wins. If it must give up something to remain in business, then it can point to its efforts to police itself and try to mitigate as much as possible the severity of any penalty.

Herbalife’s stock was down about 2.5% at noon on Monday, at $45.31 in a 52-week range of $38.63 to $83.51.

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