Distributors line up at the Herbalife distribution center in Carson. The… (Mark Boster, Los Angeles…)
Rep. Linda T. Sanchez asked regulators to investigate allegations that Herbalife Ltd. operates a well-disguised pyramid scheme that victimizes "our country's most vulnerable populations."
The Lakewood Democrat said in a letter to the Federal Trade Commission 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 weight-loss shake mixes, vitamins, protein bars and other such items through independent salespeople, or distributors, who profit from their sales and from the 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 a $1-billion short position on the company's shares, essentially a bet that its stock price would fall.
The company, which has been in business since 1980, has strongly denied the allegations, pointing out that all compensation is based on sales and saying that its business model is legal, similar to other multilevel-marketing companies.
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 company 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," it said.
Sanchez said in her letter, sent June 5, 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," she said in her letter.
Herbalife shares rose $1.59, or 3.5%, on Thursday to $46.86.