May 5, 2014 -- The nutrition and diet shake company Herbalife has undertaken a “significant re-training initiative” in response to incidents captured by ABC News undercover cameras in which some of the company’s independent distributors were seen making medical claims about the products and boasting about the potential for riches.
“In direct response to the interview where Brian Ross brought to light instances of members making unauthorized product claims, the company began a significant re-training initiative,” Herbalife spokeswoman Barb Henderson said in an email Monday.
With every product order, the company is now shipping a guide book that contains detailed examples of what distributors can and cannot say about Herbalife products, Henderson said.
During the ABC News investigation into Herbalife, two reporters went undercover as Herbalife recruits and recorded interactions with independent Herbalife distributors in the New York area. They attended entry-level training seminars run by local distributors and national corporate-run Herbalife conferences.
All of the sessions featured personal testimonials from distributors touting the nutritional and weight loss benefits of Herbalife’s products and the business opportunities presented by distributorship. But in some instances, the undercover investigation found examples of distributors boasting to potential customers that the company’s products helped treat maladies ranging from diabetes to heart disease.
A Staten Island, N.Y., Herbalife distributor even told a potential customer -- who was actually an ABC News reporter wearing a hidden camera -- that a woman with a brain tumor became symptom free after starting on Herbalife products.
“She used to shake like this because she lost control of her motor skills to the tumor and she said part of her cerebellum was deteriorated,” he said. “If you see her now, she’s like one of us here… Whatever it is that the product did, it helped her a lot.”
Herbalife executives told ABC News that the company had taken pains to prohibit such tactics.
“I am appalled to hear you say this,” said Herbalife President Des Walsh, when confronted with ABC News findings in an interview. “What is happening there is a complete and absolute violation of our rules.”
At the time ABC News recorded the medical claims, Herbalife was distributing training materials that instructed its members to avoid such claims. “Nutrition club members may share their experiences from using the products, but the products are not intended to diagnose, treat, prevent or cure any disease or medical condition, and under no circumstances should there be any statements, advertising or implications to the contrary,” one such warning says.
Now, Henderson said, Herbalife has established a hotline through which members and consumers can report potential violations.
“We are also exploring additional options including technology that will allow the company to randomly record testimonials at company-supported meetings and also independent member meetings promoted by the company to identify claims violations, which will assist in speedy application of sanctions up to and including termination,” she said.
Walsh said during his interview with ABC News that based on the feedback the company gets from “secret shoppers” who conduct compliance inspections for Herbalife, the instances of improper medical claims are rare. But ABC News reporters encountered them multiple times. At one session in Queens, N.Y., a parade of members rose to talk about their personal experiences with the products. One distributor said before she started with Herbalife she was suffering from early congestive heart failure.
“Nothing worked, I tried everything before Herbalife,” she said. “I had to stop three or four times on a flight of stairs. I got on these products, and in about three days that dry cough that a heart patient has started to go away. And you can see, I have incredible energy, and I love these products.”
Another said, “Thanks to the product, I don’t have any problems at all – I don’t get sick at all during the year with a flu or cold or nothing.”
A distributor elicited cheers when she announced that Herbalife had helped her become pregnant.
"Before Herbalife, for my bad nutrition, my body developed a tumor, and for nine years I did not have my period," she shared. "Then I met Herbalife, I start using the product, my menstruation problems go away, so I’m forty years old, I have my first pregnancy."
In another Queens training session, there were similar claims. One woman, speaking to a large group of trainees, said she had been “taking the Herbalife products for a year.”
“With these products I have been able to alleviate my problems with headaches, anemia, and my face numbness,” she said.
Herbalife is a multi-level marketing company. The company’s products are not sold in supermarkets or retail stores but by people who sign up as independent distributors and sell the products from their homes or through “nutrition clubs.”
Last month, the Federal Trade Commission confirmed it is investigating the California-based diet-shake company’s practices. The company has also been the target of year-long short-sale campaign by the hedge fund Pershing Square, which gambled $1 billion on the prospect that the publicly-traded company would fail. Pershing Square made that “short” investment arguing that regulators would determine that the company was operating as an illegal pyramid scheme -- a claim the company has long refuted.
ABC News recorded Herbalife distributors talking about the potential for large amounts of income that could come from signing up new distributors, even though the company’s own figures show the vast majority of Herbalife distributors do not make anything beyond what they make from selling the company’s products themselves. Just 199 of all distributors – a tiny fraction of one percent -- make over $250,000 a year.
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.
Henderson said Herbalife is “first and foremost a nutrition company where three quarters of our members join to be able to consume our products at a discount and one quarter of our members are so passionate about our products that they also choose to resell.”
She said the company has done studies that “have clearly shown that the vast majority of Herbalife members have realistic expectations and a positive experience.”