Posted November 4, 2015

Senator Investigates Herbalife Business Practices, Calls for Reforms

A report accusing multi-level-marketing supplement company Herbalife of using "fraudulent practices" and operating an "illegal pyramid scheme" was issued in October of 2015 by New York's Office of State Senator Jeff Klein and Public Advocate Letitia James. The findings are based on an analysis of 56 consumer complaints as well as undercover investigations of Herbalife selling practices in New York City conducted by the senator and public advocate, as well as an advocacy group Make the Road New York.

The investigation found:

  • Although a "new member kit" costs between $60 and $100, most new franchisees spend more (the average initial investment is $1,800 — others spend as much as $10,000)
  • Herbalife recruiters claim that "supervisors" can make as much as $20,000 per month
  • However, only 8 of 56 people who filed a complaint received a check directly from Herbalife for their royalty claims; the average amount received was $100
  • The complaints filed included nearly $1 million in financial losses ranging from $90 to $100,000; the average amount lost was around $20,000
According to the report, there are approximately 3.2 million Herbalife product distributors worldwide, and 554,353 in the U.S. An estimated 60-83% of distributors in the U.S. are Latino.

A bill to be introduced to the New York Senate by Senator Klein will aim to impose stricter regulations on multi-level marketing companies that distribute health products, requiring, among other things, that prospective franchisors:

  • File an annual financial disclosure statement written in plain and understandable English and Spanish for the Attorney General to review, before submitting to prospective franchisees
  • Provide prospective franchisees their offering prospectus in the primary language
  • Get any pamphlets, circular, form letter, advertisement or other sales literature of advertising communication intended for prospective health product franchises approved by the New York State Attorney General

(See ConsumerLab.com Reviews of Herbalife products).

To read the full report, use the link below.