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Herbalife Ltd. Message Board

  • mattderookie mattderookie Dec 22, 2012 1:38 AM Flag

    Herbalife is a pyramid scheme. Allow me to explain.

    Herbalife is a pyramid scheme. It is 100 percent fact. Read below and I will explain.

    As to Herbalife, I must give Bill Ackman credit. Even though he was wrong and lost a ton on Borders, and has been wrong so far on JC Penney, and even though he made the insane suggestion to Target that they sell their land and then lease it back, and even though he went broke early in his career and lost a ton of other people's money in his first Hedge Fund, and even though is Hedge Fund is essentially a marketing company, as many posters on Yahoo are just as talented as he is.....

    Even with all of the above, Bill Ackman is 100 percent correct here. He knocked it out of the park, and this is what investing, and research, is all about. I watched the over three hour presentation, and there simply is no way to refute what he said. Expect Herbalife to come with a smoke and mirrors defense on January 7th. And won't work. This company could easily implode.

    At the end of the day, there is only one question that needs to be answered. If this question is answered the way Bill Ackman knows it has to be answered, then this company is a pyramid scheme and the game is OVER, at least as it pertains to being a company that will be allowed to operate in the United States. That means that if the regulators do their job they will shut it down, and that means the shares go to zero. The one glimmer of hope, that probably won't help shareholders, is if Herbalife is allowed to operate in other countries. In that case they would continue on, but shareholders would still get close to zero, since the best case scenario would be some type of insider led buyout for a few dollars, at the very most.

    Back to the main question that will determine Herbalife's fate. Bill Ackman knows the answer to this question, and he knows that it is a slam dunk. It is isn't even close. The question is, what percentage of sales are to those who are outside the network/non distributors? If the percentage of retail sales outside the network is under 50 percent, then this, by definition, is a pyramid scheme, and it must be shut down.

    Ackman knows that the true number of sales outside the network is well under 10 percent, and in reality, 10 percent is an outrageously high number, as there are really no significant sales outside of the network of distributors. The distributors essentially sell product to themselves/new distributors, and a few of them actually use the product, if only so they don't fill up their garage with mountains of #$%$.

    Ackman knows that there is zero chance that Herbalife can prove that anywhere near 50 percent of their sales are to those outside the network, so he can say the words Pyramid Scheme all day long and know that he won't be sued. Notice that he is not saying Ponzi Scheme. He knows exactly what he is doing, and there is a reason he is saying Pyramid Scheme.

    Ackman wins. Herbalife shaeholders lose. Congrats, Mr. Ackman. It is over for Herbalife.

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    • That looks good explanation to me. But, I will buy at $5.

    • You are wrong. The FTC has said that internal sales alone does not make something a ponzi scheme. As long as their is real product that is not incidental to solely recruiting new recruits which is being sold, its not a pyramid scheme. So the FTC is likely going to do nothing to herbalife other than may make them change their promotional literature and return policy which will have minimal effect if any on financials. Go to the company website and read the PDF which examines the mlm model.

    • Don't distributors sell to customers though?

    • This is where you are wrong. The FTC has said that it doesn't matter the amount of internal consumption of the product as long as its the product sales that determine the commisions and not just recruitment. Go to company website and view the PDF on the i.R. page examing their mlm model. So Achman is just blowing hot air. He might think they are a pyrmaid scheme and he might be right by his own definition, but the FTC may think otherwise.

      See for example FTC v. BurnLounge: “A structure that allows commission on downline purchases by other
      distributors does not, by itself, render a multi-level marketing scheme an illegal pyramid.” Also pertinent is an FTC
      letter of January 24, 2004 from James A. Kohm to Neil Offen, stating: “In fact, the amount of internal consumption
      in any multi-level compensation business does not determine whether or not the FTC will consider the plan a
      pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions
      paid to all participants are generated from purchases of goods and services that are not simply incidental to the
      purchase of the right to participate in a money-making venture. A multi-level compensation system funded primarily
      by such non-incidental revenues does not depend on continual recruitment of new participants, and therefore, does
      not guarantee financial failure for the majority of participants. In contrast, a multi-level compensation system funded
      primarily by payments made for the right to participate in the venture is an illegal pyramid scheme.”

    • Look at Kid Dynamite's response slide by slide.All longs may get a Christmas present next week.By the way are you short the stock and if so how many shares? Is a 100 stretching it?

    • the whole fiancial system is a ponzi, right benny.

    • So how does he explain cashflow from operations? The auditors review this information and confirm debt and cash balances with the banks.

      Sentiment: Strong Buy

    • I used to be a distributor for Amway and later on for Herbalife so I fully understand the pyramid operation of these MLM businesses. The US gov already know about these operations and have been carefully watching these MLMs for years. Although Herbalife may appear to be a pyramid scheme, it would be difficult to prove without specific data as evidence. The US gov is certainly not going to close down such a large company which generates so much revenue. As a result of this bad publicity, Herbalife may just get a slap on the wrist and be required to clean up part of it's business practices. Their large network of distributors is a valuable asset. If it is considered a cult, then all the more valuable. Can you imagine if Apple were to start a MLM network to sell their products.

      In the end, Herbalife will still be a MLM company and the shares will most likely move back up.

    • Belgium court said that Herbal Life is a pyramid scheme. I think SEC/FTC will be forced to investigate Herbal Life.

    • U R a perfect #$%$ which fits oxford dictionary.
      Many con before you tried to explian the facking thingi. Barry Minkow - a mirror image of conman ackman tried to portrait MED a pyramid scheme. barry landed in jail.

      You #$%$ shorts should be put behind bar for lifetime so that the world become con-free.

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