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California Rep. Linda Sanchez asks FTC to investigate Herbalife

June 13, 2013|By Stuart Pfeifer | This post has been updated. See the note below for details.
  • Distributors pick up Herbalife products at a distribution center in Carson earlier this year.
Distributors pick up Herbalife products at a distribution center in Carson… (Mark Boster / Los Angeles…)

A California congresswoman asked the Federal Trade Commission to investigate allegations that Herbalife Ltd. operates a well-disguised pyramid scheme that victimizes “our country’s most vulnerable populations.”

Rep. Linda T. Sanchez (D-Cerritos) said in a letter to FTC Chairwoman Edith Ramirez that she was “troubled that this company may be harming consumers,” noting allegations that Herbalife’s independent distributors are compensated more for recruiting new distributors than for sales.  

Herbalife is a Los Angeles nutritional products company that sells a line of health products, including weight-loss shake mixes, vitamins, teas, juices and protein bars, through independent salespeople, or distributors, who profit from their sales and sales made by others they recruit into the business.

In December, New York hedge fund manager William Ackman accused Herbalife of operating a pyramid scheme and announced he had taken $1 billion short against its shares, betting that regulators would shut the company down, driving its shares to zero.

The company, which has been in business since 1980, has strongly denied the allegations, noting that all compensation is based on sales and that its business model is perfectly legal, similar to many other multilevel-marketing companies.

[Updated at 2:11 p.m., June 13: In a statement, Herbalife said it was disappointed that Sanchez had not contacted the company before sending her letter to the FTC. "Had Congresswoman Sanchez done so, we would have explained how, as an active member of the U.S. Direct Selling Assn., Herbalife adheres to a stringent self-regulatory code of ethics and is not an illegal pyramid scheme," the statement said. "We would also have described for her how Herbalife has helped to change people's lives over the last 33 years by providing the best nutritional products and an excellent income opportunity to individuals regardless of ethnicity."]

Sanchez said in her letter that she has become concerned by media coverage of the controversy and by similar requests for regulatory action by the National Consumers League and the Hispanic Federation.

“As I have learned more about this issue from my constituents and from outside groups, I believe it is the Federal Trade Commission’s responsibility to examine these allegations,” Sanchez said in her letter, which was sent June 5.

Herbalife shares were up about 3% in mid-session trading Thursday.

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