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

For example:

  • Income claims. Both Herbalife and Vemma seriously misrepresent the
    potential for income:

    • The bottom 93% of Vemma Affiliates earned less than
      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
    • The bottom 94% of Herbalife Sales Leaders earned less than
      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.
  • Focus on recruiting. Both Herbalife’s and Vemma’s compensation
    plans are designed to incentivize recruiting rather than retail sales.

    • 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.’”
  • Lack of retail profit opportunity. Neither Herbalife nor Vemma
    tracks retail sales outside the network. Furthermore, it’s unlikely
    Herbalife or Vemma distributors could earn a significant retail profit
    on any retail sales they do make.

    • 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 HERE

About 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


Pershing Square Capital Management, L.P.
Fran McGill, 212 909 2455