ABC News first began its investigation to learn more about the operations of the multi-level-marketing business, which is now facing investigations from the FBI, the Federal Trade Commission, and the Illinois Attorney General. At the same time, the company has been buffeted by heavy criticism from a New York hedge fund, Pershing Square, which has wagered $1 billion on the prospect that Herbalife would be shut down by the government, resulting in the collapse of its publicly traded stock.
Herbalife has defended itself, saying the company’s business model is a legitimate and proven success with 30 years of history behind it. The company has seen enormous growth in recent years, emerging from a history checkered by controversy.
That included legal action taken by the California Attorney General’s office against the company in the 1980s, in part, because of allegations that Herbalife was making exaggerated claims about its products’ curative powers. The company resolved the matter by agreeing to the terms of an injunction which forbids it from implying that any product “diagnoses, cures, mitigates, treats or prevents disease…”
Walsh said in his interview that the company remains in full compliance with the agreement.
Walsh noted the company has hired scientists -- even a Nobel laureate -- to help it develop products that support a healthy lifestyle. Richard Carmona, the former United States Surgeon General, joined the Herbalife board of directors in October 2013, and says he carefully reviewed the company’s literature and procedures before signing on. He said he would be deeply concerned if Herbalife distributors were selling the company’s products as medical cures.
“It's serious,” he said. “You give people false hope. They may not go to their doctors. They may not take their medicines. That would be absolutely abysmal.”
A major area of growth for Herbalife is in “nutrition clubs” – neighborhood storefront locations where those interested in losing weight come to consume shakes and get coaching about their nutrition.
When an ABC News reporter showed up at one nutrition club in Staten Island, he was given a document resembling medical intake form to fill out. Then he was escorted to what looked like a medical exam room, where he underwent a test that he was told showed his cholesterol was high. The distributor recommended Herbalife supplements to “help you clean your cholesterol.”
The sales pitch concluded with favorable health news about some of the nutrition club’s other clients. Pointing to a photo of the woman he says was debilitated by a brain tumor, he smiled. “The medication she was taking for many, many years didn’t do it,” he said. “She started doing Herbalife. She changed.”