by Marion Nestle
Mar 11 2014

Betting on Herbalife and hedging the bet

Skeptic of the value of dietary supplements that I am, I cannot help feeling sorry for Herbalife.

The company sells protein shakes and snacks, vitamins and dietary supplements, and energy and fitness drinks which, it says, “combined with healthy eating and exercise, can help you lead a healthy, active life.”

Yes indeed, healthy eating and exercise will do that for you every time.

But Herbalife has become the victim of a bizarre hedge fund bet and its consequences.

In what is one of the most blatant conflicts of interest besetting a food product, a hedge fund manager, William Ackman, made a billion dollar “short” bet that Herbalife’s stock would fall.

When the stock did not do so immediately, Mr. Ackman set out to destroy the company’s reputation to force its stock down.

He even got members of Congress, including Senator Edward Markey (Dem-Massachusetts) to call for an investigation of the company’s marketing practices, an action that caused a 14-point drop in the stock.

This decidedly unsavory story was the subject of a New York Times investigative report yesterday: “Staking $1 Billion That Herbalife Will Fail, Then Lobbying to Bring It Down.”

The company has grown into a global powerhouse, with a worldwide team of more than three million so-called members and distributors who operate as independent contractors through a system that rewards many of them not only based on actual sales, but also on their ability to recruit more distributors.

The sales tactic, popular with many nutritional supplement companies, has frequently been the target of criticism. In 1986, California authorities issued an order prohibiting Herbalife from making false claims about the weight-loss powers of its nutritional drinks.

Herbalife reported sales of $4 billion in 2012 and is sold in more than 90 countries by distributors who earn profits on product sales and additional commissions from a “multi-level marketing” compensation structure.

Ackman argues that this is a pyramid scheme that particularly disadvantages Hispanic distributors and customers.  Other hedge funds disagree and have placed “long” bets on Herbalife.

This is food politics at a breathtaking level of income.  The Times story is well worth a look.

  • mausium

    How is this an issue of healthy eating? This is barely an issue of nutraceuticals but a scamworthy distribution method for sales that leave most people far worse off in finances. The sooner the Amways and Herbalifes disappear from this planet, the better.

  • Hokeo Diana

    Completely agree with your comment mausim, I have witnessed first hand, the practices of herbalife in countries in Latin America, and how they brainwash their employees, leaving many of them in huge debts and with profound mental consequences, without them even knowng it.

  • Andres

    I’m going to have to weigh in here as well. As opposed to the author, I don’t feel sorry at all for Herbalife. I do feel sorry for the people working for this company though. Let me tell you why. Until very recently my mum was still working for this company in Colombia. They brainwashed her. She had to listen to these audios all day and also come to “leadership” meetings everyday where they basically told her what to think. Now, that’s horrible enough but that’s not the worst. She worked for this people (at least 10 hours per day, Saturdays and Sundays included) for seven years and she made no money! Indeed, she undertook huge debts “to buy product to sell” and now we (her family) are paying those debts that Herbalife knowingly helped her create. The brainwash was so effective that in order for us to take her out of that black-hole business we had to make her choose between her children and the company. She chose us… though it was not at all an easy decision for her!

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  • WyrdestGeek

    I agree with the other commentators. I take especial particular issue with this: “The company sells protein shakes and snacks, vitamins and dietary supplements, and energy and fitness drinks” and with the characterization of Herbalife as a “victim”.

    Go to Herbalife’s actual web site right now. In the lower left hand corner, there’s that “Business Opportunity”. And at the top of the page, front and center in the menus, there’s “Herbalife Opportunity”.

    What’s that you say? You didn’t want to *sell* Herbalife, you just wanted to buy it? Ok. So click Try Our Product.
    We get a page that says this:
    “Herbalife products are sold exclusively through our Independent
    Distributors and are NOT available in stores. Please complete the form
    below and you will be contacted by an Independent Distributor who will
    help find the right products for you. If you want to learn more about
    the Herbalife business opportunity, please click here.”

    … and they’re asking for name, address, age, etc. Geez, all this for a sample of shake mix? What’s the matter, is Slim Fast not good enough anymore?

    Herbalife… is a great, big monstrosity where hope and dreams (and cash) go in one end and destroyed lives come out the other.

    The saddest part is that the “enterprise” (scam) is so huge, that they employee lots of real people at their actual factories along with all the countless millions of victims conned into believing that they can make a decent living selling people shake mix. (and other stuff.)

    Of course, Herbalife sells many other things as well. Some of the things they sell may even be useful. But it doesn’t change the fundamental nature of what Herbalife is–which is a soul sucking, life destroying pyramid scheme with lots of little side-scam info-product scams hanging onto it like suckerfishes.

    I just wonder how you missed that, Marion Nestle.

    Furry cows moo and decompress.

  • mlissab

    Be cautious of any supplement that says it, along with a healthy diet and exercise, will help you lose weight. I am living proof that a healthy diet and exercise is really all you need.
    As for the miracle pills that say you don’t have to change your diet or add exercise, they are also a scam. I’ve seen too many people take them, lose weight and then put it all (and then some) right back on when they stop.
    Unless a system is trying to teach you to eat better and become more active their only true motive is to line their pockets with money, this is not unique to Herbalife.

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