Latino Group Demands Herbalife Probe

Multi-Level Marketing Giant Disputes Claim it Targets Hispanics

February 13, 2014, 3:24 PM
PHOTO: Top Herbalife distributors were recognized at Herbalife's Extravaganza Latina 2013 in Los Angeles, CA, on October 18, 2013.
Top Herbalife distributors were recognized at Herbalife's Extravaganza Latina 2013 in Los Angeles, CA, on October 18, 2013.
ABC News

Feb. 13, 2014— -- One of the nation's largest Hispanic civil rights groups is lobbying members of congress for help in persuading federal regulators to investigate the California-based diet shake company, Herbalife, which has recruited hundreds of thousands of Latino-Americans as distributors to sell its products.

"It's the worst player – bar none – operating in Latino communities across the country," said Brent Wilkes, national executive director of the League of United Latin American Citizens (LULAC).

In launching this latest broadside against Herbalife in an interview with ABC News, Wilkes has continued to raise his profile as one of the most vocal critics of the company. In just the past three weeks, he has carried his message to Capitol Hill, to the Chairman of the Federal Trade Commission, and to the California Attorney General. He has argued that the company has tailored its message to Latinos, promising they "can strike it rich and lead a life of luxury" by selling Herbalife products, but rarely delivering.

"They really tout this American dream … I mean, I've seen their presentations where they say, 'All you have to do is pick. Where do you want to be? How much money do you want to make? Just pick and that can happen for you, as long as you work hard,'" Wilkes said. "Then, what ends up happening is folks, they bite at that, they invest the money to get it, and then they end up losing that money and never getting the success that was touted for them."

Herbalife President Des Walsh told ABC News that Wilkes's views about the company are "mistaken" and have been based on misinformation.

"We're distressed to hear it, because frankly, we know the good that we do every day," Walsh said. "We know the fact that every single day, our Latino distributors are hard at work in the Latino community, bringing good nutrition and bringing financial empowerment. And so we believe that, frankly, Mr. Wilkes is mistaken in his views. And we look forward to the opportunity to really have him take the time to come to know Herbalife."

Herbalife is a 34-year-old multi-level marketing company that sells diet shakes, nutritional supplements and cosmetics through an army of more than 3 million distributors. Some consumers sign up as members of the company in order to receive a discount on the products, while others are interested in becoming distributors who hope to profit by selling the product to others.

Walsh told ABC News that, contrary to impressions of the company formed during its early years, it is not a get rich quick scheme. He said fewer than 4 percent of people who come to Herbalife are seeking a full-time business opportunity.

Numbers disclosed by the company show roughly one-quarter of 1 percent make $50,000 or more through the people they recruit.

"Many people who come to Herbalife, they come to it just as they do whether it's Avon or Amway or Mary Kay, because it's a low cost of entry," Walsh said. "And once they've once they've earned some additional income, whether it be for seasonal purposes or Christmas or whether it's for a special occasion, then these people will come and go. That's the wonderful thing about the direct selling business. It's a low cost of entry. It's easy in. It's easy out."

One assertion that is not in dispute is that Herbalife sells more than 60 percent of its products to Latinos in the U.S. Wilkes said he believes Latino customers are drawn to Herbalife by the promise to make a handsome living by working from home.

He says he initially began scrutinizing the company's practices when he was approached by a company lobbyist looking for support from Hispanic organizations. He said he was disturbed by what he found when he looked further into the company's practices.

"You know, people talk about fast-food industry companies or some of the big box retailers out there not paying their employees enough," Wilkes said. "But all of them pay far more than Herbalife pays its distributors because most of their distributors it turns out are not even making a living wage."

Walsh disputed those conclusions, saying "in one year alone, in terms of payments that we made to Latino distributors in the U.S., we made payments in excess of $180 million into the Latino community."

"So we believe that we are a major contributor, not just to the health of Latino communities, but in addition to the financial wellbeing of [those] communities," he said.

Wilkes's group visited the offices of several lawmakers last week. Both Herbalife and the hedge fund Pershing Square have poured money into lobbying Congress, with a focus on Latino members. A spokeswoman for the Congressional Hispanic Caucus said the caucus has not taken a position on the issue.

Wilkes's push for an investigation into the company has come at the end of a year during which Herbalife has battled against a Wall Street hedge fund that gambled $1 billion on the prospect that the publicly-traded company would fail. The firm, 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.

No regulatory agencies have said publicly if they would be undertaking an investigation into the claims against the company. But with efforts from Wilkes and others, pressure on the government agencies has continued. On Jan. 23, Sen. Edward J. Markey, D-Mass., wrote to the Federal Trade Commission to ask that the agency "look into the business practices at Herbalife."

Neither Herbalife or any of the agencies approached by Wilkes would say whether the company had also held discussions with the regulators.

But in October, Lori Kalani, a Washington, D.C.-based attorney, wrote an email to the California Attorney General's office on behalf of Herbalife, saying the company believed that calls for various regulators to investigate the firm were part of a strategy to impact the stock price. Kalani's e-mail was provided to ABC News in response to a public records request.

"Given the activity this year, we thought it prudent to offer a meeting to answer questions the Consumer Protection staff may have," she wrote. "The company certainly would like the opportunity to address some of the concerns that the hedge fund and their advocates are asking the Attorney General to assess."

Wilkes told ABC News he is not working on behalf of the hedge fund, and that neither he nor LULAC has received any money from Pershing Square or any of its affiliates.

In response to Wilkes's efforts, an Herbalife spokeswomen released a statement to ABC News saying the company finds it "disappointing that LULAC prefers to continue making ill-informed public declarations that do not reflect a company that offers industry leading consumer protections, such as clear, accurate and timely disclosures to prospective members regarding potential income-generating opportunities."

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