Herbalife, Ackman Respond to 'Nightline' Undercover Report


The sessions included statements, live or on tape, from company executives saying that personal experiences as distributors could vary and that no particular testimonials should be viewed as average or expected.

The sessions also included information about how distributorship or membership could take various forms -- from purchasing Herbalife products for one’s own use, to selling them directly to others, to signing up other distributors and getting paid royalties and bonuses by Herbalife based on their product sales, known as the “downline.”

There was also no shortage of substantial income claims.

During one local training event for newly recruited distributors, an Herbalife distributor said, “Last month, I made almost, almost $8,000.” Another said, “Because of Herbalife, I’m able to buy my house, a million dollar house, all cash paid for.”

At the same training session, a high-ranking Herbalife distributor explained that “you don’t have to be some sort of super salesman” to earn a very large income as a distributor who signs up other distributors.

“Before you know it, not only will you be a supervisor, but you’ll have supervisors under you, who’ll have five supervisors under them, who’ll have five supervisors under them,” the instructor explained at the Herbalife seminar in Flushing, Queens. "That’s 155 supervisors and if they’re each doing about 2,000 to 2,500 volume points a month, you’re going to be making somewhere in the neighborhood of $42,000 a month."

That would be over $500,000 a year.

Yet, according to Herbalife’s “Statement of Average Gross Compensation” for 2013, which every distributor is required to read, only a fraction of one per cent of all U.S. distributors, 199 individuals, were paid $250,000 or more from the company’s “multi-level compensation opportunity” derived from sponsoring others.

In the press release issued Thursday morning in response to the ABC News investigation, Herbalife said it releases “clear, accurate and timely disclosures to prospective members regarding potential income...” The company said further that “studies have revealed that the vast majority of Herbalife members have realistic expectations of the business opportunity and the effort required to succeed at all levels.”

Concerns about the way Herbalife distributors recruit new members have dogged the company from its earliest days. In the 1980s, the California Attorney General’s office took the company to court alleging that its founder, Mark Hughes, and others had deceived new members with false claims about the potential for getting rich.

In a settlement with the state, the company agreed to abide by an injunction which barred Herbalife from “making false or misleading representations … relating to … an amount of money a participant may earn through bonuses and overrides.”

Walsh told ABC News the company responds immediately to reports of rogue distributors who overstate the potential of an Herbalife career. “We believe that we’re fully compliant with those provisions,” he said of the 1986 injunction.

This report has been updated.

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