Pershing Square Analysis Details Significant Similarities between Herbalife and FTC-Alleged Pyramid Scheme Vemma
NEW YORK–(BUSINESS WIRE)–Pershing Square Capital Management, L.P. (“Pershing Square”) today
released a detailed analysis that demonstrates significant structural
similarities between Herbalife Ltd. (“Herbalife”) and Vemma Nutrition
Company (“Vemma”), the multilevel marketing company that has been halted
and whose assets have been seized by a federal court at the request of
the Federal Trade Commission for being an alleged pyramid scheme. The
FTC’s move to shut down Vemma is reassuring for consumers but should
worry Herbalife.
“Herbalife defenders have gone out of their way to try to show ways the
two companies are different,” said David Klafter, Pershing Square
Capital Management’s Senior Counsel. “In reality, they are fundamentally
the same.”
Herbalife is an enormous pyramid scheme and its structure parallels
Vemma and other fraudulent companies that the FTC has already shut down,
including Fortune Hi-Tech Marketing which was shut down in January 2013.
In the case of Vemma, the FTC’s complaint concerns many fundamental
aspects of Vemma’s business that are integral to Herbalife’s business
model.
For example:
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Income claims. Both Herbalife and Vemma seriously misrepresent the
potential for income:-
The bottom 93% of Vemma Affiliates earned less than
$6,169/year. The FTC alleges: “[Vemma] claim[s] affiliates can
earn substantial income by enrolling others either as affiliates
or as customers, but Vemma focuses on recruitment rather than
retail sales of its products to generate this income. The vast
majority of participants make no money, and most of them lose
money.” -
The bottom 94% of Herbalife Sales Leaders earned less than
$2,245/year. Herbalife bills itself as “the best business
opportunity on the face of the earth” and promises its recruits
vast sums of money, but in reality 89% of distributors receive $0
in “gross compensation.” In 2014, nearly 2 million members churned
through Herbalife. 90% of non-sales leaders fail annually.
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Stacie Bosley, the FTC’s expert concerning Vemma, found: “All
forms of compensation are driven by recruitment or purchase volume
and there is no direct connection between this compensation and
retail sales or market demand.” -
Herbalife’s compensation is driven by recruitment rather than
retail sales. In Herbalife v. Ford, the Federal Court found:
“Herbalife’s entire business model appears to incentivize
primarily the payment of compensation that is ‘facially unrelated
to the sale of the product to the ultimate users because it is
paid based on the suggested retail price of the amount ordered
from [Herbalife], rather than based on actual sales to consumers.’”
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The FTC alleges “The likelihood of [Vemma] Affiliates earning
profits on retail sales is minimal.” -
Herbalife distributors could only earn a significant retail profit
if the product is sold at suggested retail price; however, the
data show that the product is sold at steep discounts.
The substantive similarities between Vemma and Herbalife extend much
further, while the minor differences between the companies, such as
Vemma’s auto-ship and refund policies, are not material to the FTC’s
central allegations that Vemma is a pyramid scheme.To view the entire comparison that clearly shows Vemma and Herbalife are
far more alike than different, click HEREAbout Pershing Square Capital Management, L.P.
Pershing Square Capital Management, L.P. (“Pershing Square”), based in
New York City, is a SEC-registered investment advisor to investment
funds. Pershing Square manages funds that are in the business of trading
— buying and selling — securities and other financial instruments. Funds
managed by Pershing Square are short the stock of Herbalife Ltd and own
put options on the Company. Pershing Square may increase, decrease,
dispose of, or change the form of its investment in Herbalife for any or
no reason, at any time. Pershing Square may change its views about or
its investment positions in Herbalife at any time, for any reason or no
reason. Pershing Square may buy, sell, cover or otherwise change the
form or substance of its Herbalife investment. Pershing Square disclaims
any obligation to notify the market of any such changes. Please see the
full Disclaimer appearing on website www.factsaboutherbalife.com
and www.herbalifepyramidscheme.com.Contacts
Pershing Square Capital Management, L.P.
Fran McGill, 212 909 2455
mcgill@persq.com -
The bottom 93% of Vemma Affiliates earned less than