Herbalife Pyramid Scheme? Investor Bets $1 Billion That Company Crumbles
Activist investor Bill Ackman has called vitamin and nutrition supplement company Herbalife a pyramid scheme and has publically bet $1 billion that the company's stock will fall to nothing.
Herbalife has nearly $4 billion in annual sales in addition to a growing network of over 3.2 million salespeople spread over 87 countries. They have denied accusations that it is a so-called pyramid scheme, and the company cites it success as being the result of hard work of those who believe in the products.
Herbalife is a multi-level marketing company that hires sales people to not only sell products, but also to recruit new sales people and distributors as well.
Get Our Latest News for FREE
The Federal Trade Commission explains that a multi-level marketing company would be considered a pyramid scheme if the sales people make most of their money by enlisting new sales people and distributors rather than selling products.
The FTC added that a company could be considered a pyramid scheme if "a substantial percentage of participants lose money" rather than an expected growth of sales.
An FTC spokesperson revealed that the agency would only make a public statement should the FTC decide to move forward with recommended actions.
Still, Ackman is adamant that Herbalife is sham of a company, and that it holds no value to consumers who may purchase their products.
"We don't believe there is any demand for the product by true retail consumers at the suggested retail price," Ackman told CNN during an interview.
"Herbalife sells products … but what they really sell and what their distributors make money from is by selling a business opportunity, and the business opportunity is to sell the business opportunity to your friends, who in turn sell it to their friends," Ackman said.
Ackman insists that he is prepared to take any action necessary to have the business that employ multi-level marketing techniques shutdown in his quest to root out unsavory business models.
"We're prepared to spend whatever it costs and do whatever is required to make sure that the world understands the facts about this company. If the government comes out and determines that this is a legal business then I will lobby congress for them to change the law," Ackman said.
