Forum Home Page [see Broadridge note below]

 The Shareholder ForumTM`

Fair Investor Access

This public program was initiated in collaboration with The Conference Board Task Force on Corporate/Investor Engagement and with Thomson Reuters support of communication technologies. The Forum is providing continuing reports of the issues that concern this program's participants, as summarized  in the January 5, 2015 Forum Report of Conclusions.

"Fair Access" Home Page

"Fair Access" Program Reference


Related Projects 2012-2019

For graphed analyses of company and related industry returns, see

Returns on Corporate Capital

See also analyses of

Shareholder Support Rankings



The articles below address issues that have been subjects of uninformed and misguided speculation in the media, and among investors. The first is a Bloomberg report correcting that morning's New York Post report that had been relied upon without independent inquiry by Bloomberg as well as many other financial news publishers, resulting in significant trading price fluctuations. Beneath that is a New York Times report of a journalist’s investigation of facts that have challenged analysts.

For previous news reports of the Herbalife valuation controversy’s diversions, see

For Forum plans to address investor decisions relating to activist proposals for short term value realization, see the October 25, 2012 Forum report section on "Valuing Long Term Enterprise Success: a golden goose analysis" and the December 21, 2012 Forum Report: Candidates for an Activist “Golden Goose” Analysis.


Sources: Bloomberg, February 4, 2013 article and New York Times DealBook, February 4, 2013 article



FTC Corrects Herbalife Statement After Probe Report

By Kevin Orland & Duane D. Stanford - Feb 4, 2013 4:05 PM ET


The Federal Trade Commission corrected a statement that erroneously said Herbalife Ltd. (HLF) was the subject of a law-enforcement probe after a report about the non-existent investigation sent the supplement maker’s shares down the most in a month.

The FTC, in responding to a Freedom of Information Law request from the New York Post, should have said that it withheld some information from documents posted online because it can’t disclose consumer complaints obtained from foreign sources if they request confidentiality, Frank Dorman, an agency spokesman, said today in an e-mail. The FTC’s correspondence with the newspaper, posted on the agency’s website, originally explained the redaction by erroneously citing an exemption for information obtained in a law-enforcement investigation.

The report sent Cayman Islands-based Herbalife’s shares down as much as 12 percent today, the biggest intraday decline since Dec. 21. The shares recovered the loss to close up 1.3 percent at $35.54 in New York.

Herbalife has been fighting allegations from hedge fund manager Bill Ackman, who said in December that the company uses inflated pricing, misleading sales information and a complicated incentive structure to hide a pyramid scheme. Ackman said he thought the FTC or the U.S. Securities and Exchange Commission would look into allegations he made about the company during a Dec. 20 presentation in New York.

Dorman declined to comment on whether the agency is investigating Herbalife. Any such investigation wouldn’t be public, he said in a phone interview.

Voluntary Dialogue

Herbalife said today in a statement that it was unaware of any regulatory interest or investigation other than a voluntary dialogue it was having with regulators.

“For a direct-selling company of our size, we have had a relatively low number of complaints to the FTC,” the company said. “However, we take every one of them seriously and stand by our record of doing right by our distributors and all consumers of our products.”

Herbalife has repeatedly denied the allegations that it operates a pyramid scheme, saying it is a retail-oriented business that sells products with unique ingredients.

The FTC, responding to the New York Post, released a file of complaints against the company. Consumers’ identifying information was withheld from the complaints, which were not necessarily verified by the FTC, the agency said in a letter to the Post included in the documents.

Job Interview

In one complaint posted on the FTC’s website, an unidentified individual spoke of being pitched on Herbalife products after expecting to be given a job interview to be a nutrition coach, according to the documents. The person spoke with a representative and was pressured to sign up. After giving credit card information and a $59.99 payment, the individual wanted to cancel the payment and was denied a refund, according to the documents.

“I was tricked into thinking I was going to be a nutrition coach, when it was really a distributor position for Herbalife products that costs $59.99 to be part of,” the individual said in the documents.

In other instances, an unidentified individual said the company used “bait and switch tactics and is refusing to issue a refund” while another said Herbalife resorted to “deceptive marketing practices.”

To contact the reporters on this story: Kevin Orland in Chicago at; Duane D. Stanford in Atlanta at

To contact the editor responsible for this story: Robin Ajello at


Hedge Funds | February 4, 2013, 8:51 pm

Seeking a Company’s Elusive Sales Data


Edgar Montalban mixes a drink for a customer at his Herbalife storefront in the Corona area of Queens.

Scout Tufankjian for The New York Times

Edgar Montalban mixes a drink for a customer at his Herbalife storefront in the Corona area of Queens.

Prominent Wall Street investors are arguing acrimoniously over whether the nutritional supplements company Herbalife is a pyramid scheme.

The company’s fate, though, will ultimately be determined by ordinary people like Victor Aragundi, a taxi driver from Corona, Queens, who regularly visits a local Herbalife storefront to buy teas and protein shakes.

“They help me reduce weight,” Mr. Aragundi said. “They replace regular food.”

In many ways, the fight over Herbalife boils down to one question: How many Mr. Aragundis actually exist?

As regulators and investors scrutinize the company’s sales, they face a major stumbling block. The public numbers do not provide a clear picture of who buys Herbalife products — and why.

So-called direct-sales companies like Herbalife operate in an accounting gray area that allows them to book goods bought by its network of sales representatives as revenue. Most traditional retailers record sales when a customer buys something.

The uncertainty has left shares of Herbalife vulnerable to wild swings in recent months. On Monday, the stock sank sharply in the morning over fears that the company faced new regulatory scrutiny, but it later shook off the early losses.

Investors are betting on the extremes: Herbalife is a pyramid scheme or it is not.

Scout Tufankjian for The New York Times

Mr. Montalban in his Herbalife store.

Some investors have bet against the company, contending that it is a pyramid scheme.

William A. Ackman, a hedge fund manager, has called the company an abusive pyramid scheme and said the stock was essentially worthless. He says repeat purchasers like Mr. Aragundi are not the main source of Herbalife’s sales but rather sales recruits. If a significant number of the recruits fail to sell the goods, they can face large losses.

“Money from the millions of low- and middle-income people at the bottom of the pyramid is being transferred to the tiny fraction of distributors at the top of the pyramid,” Mr. Ackman said in an interview. “It’s Robin Hood in reverse.”

The company has fought back, generating support from big investors like Daniel Loeb and Carl C. Icahn. Herbalife cites its long history of sales growth and its compensation plan, which it says focuses on product sales, not recruitment.

“Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of our consumers over our 32-year history,” Barbara Henderson, a spokeswoman for the company, said in a statement.

But it is hard to discern the underlying demand. The company doesn’t specify how many of those products are eventually sold to customers outside the sales network. Nor does it detail how many products are consumed by members of its network.

One saleswoman who left Herbalife in October said she saw little consumer demand. “They want to make people believe there is this long line of consumers,” said Ana Arias, of Scottsdale, Ariz., who was part of Herbalife’s network for three years before quitting. “I realized it was going to go nowhere.” Ms. Arias, who is considering legal action against Herbalife, estimates her overall losses at $210,000.

Ms. Arias’s name was mentioned in a consumer’s complaint about Herbalife that was submitted to the Federal Trade Commission last year. The complaint was one of 188 released by the commission in response to a Freedom of Information Act request by The New York Post.

Frank Dorman, a spokesman for the F.T.C., declined to say whether the agency was investigating Herbalife. In a statement on Monday, the company said that except for “voluntary dialogue with regulators,” it was “unaware of any other regulatory interest and/or investigation.”

The enforcement division of the Securities and Exchange Commission has opened an investigation into Herbalife, according to a person briefed on the matter. Last year, the agency exchanged letters with Herbalife about its financial disclosures. In 2011, Herbalife stopped including data in its annual report about members’ buying patterns, and the agency wanted to know why.

Some people in the Herbalife network say consistent consumption drives profit. Edgar Montalban, an Herbalife salesman who oversees the Queens location that Mr. Aragundi visits, says the store has monthly sales of $4,000 to $5,000. He declined to say what his personal income was from the store, as well as his earnings from sales recruits. “We promote daily consumption,” he said through an Herbalife representative.

In theory, Herbalife could silence the critics by disclosing a crucial number in its financial statements: the percentage of sales outside its network. It would be hard to call the company a pyramid scheme if it disclosed that, say, 80 percent of its final sales were to customers, rather than new sales representatives.

Some industry executives have promoted the importance of this number. “The final litmus is, ‘Who is the customer?’ ” Rick Goings, the chief executive of Tupperware Brands, said last week in an interview with CNBC.

More than 90 percent of Tupperware’s sales are to people outside its network, he said. The remaining amount, he said, is to sales representatives who like the company’s new products. Tupperware, however, does not include this number in its public financial disclosures.

Regulators also emphasize sales such figures.

Last week, the Federal Trade Commission, along with some state attorneys general, moved to shut down Fortune Hi-Tech Marketing, accusing it of being a pyramid scheme. The lawsuit noted that few of the products were ever sold to anyone outside the network.

Herbalife says it does not collect comprehensive data on sales to people outside its network. Herbalife does, however, require its sales representatives to keep records of their transactions.

To address the skepticism surrounding the company’s external sales, Herbalife has provided two pieces of new data. The company said 31 percent of its orders in the United States were “directly shipped” to customers outside its network. It also produced a study by a consulting firm, Lieberman Research Worldwide, that found that 92 percent of Herbalife sales went to people outside the company’s network.

The study was not based on Herbalife’s actual sales data. Instead, Lieberman extrapolated from an Internet survey that the company had more than six million customers. Given the 480,000 Herbalife distributors in America, the firm estimated that only 8 percent of Herbalife products were consumed within that network.

Des Walsh, Herbalife’s president, said the study validated the company’s view that people in its sales network “are selling to millions of customers outside the distribution channel.”

Defenders of Herbalife can point to the meager number of regulatory actions. In theory, an abusive pyramid scheme that produces scores of failed recruits should generate a steady stream of complaints.

That does not seem to be the case with Herbalife.

An official at the office of the attorney general of California said it had received no more than five complaints a year about Herbalife over the last eight years. And those complaints were mostly related to Herbalife’s products, not its recruitment practices, said the official, who requested anonymity because he was not authorized to speak to the news media on this matter.

Still, pyramid schemes may not produce large numbers of complaints.

In its home state of Kentucky, Fortune Hi-Tech Marketing, which was accused of being a pyramid scheme, received only about a dozen official complaints since 2008, according to the office of the state attorney general. Allison Martin, a spokeswoman for the office, explained that victims of a pyramid were often embarrassed about revealing losses. Fortune Hi-Tech may also have focused on people who were not legal immigrants, which might have made them even less likely to report the scheme, Ms. Martin said.

On a recent winter morning, Herbalife customers in Queens brushed aside the controversy. Mr. Aragundi, the taxi driver, and others streamed into the store for their daily teas and shakes.

“Four years ago I took the product,” said Mr. Aragundi. “I lost like 30 pounds.”

A version of this article appeared in print on 02/05/2013, on page B1 of the New York edition with the headline: Seeking a Company’s Elusive Sales Data.

Copyright 2013 The New York Times Company



This Forum program was open, free of charge, to anyone concerned with investor interests in the development of marketplace standards for expanded access to information for securities valuation and shareholder voting decisions. As stated in the posted Conditions of Participation, the purpose of this public Forum's program was to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant was expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program was initiated in 2012 in collaboration with The Conference Board and with Thomson Reuters support of communication technologies to address issues and objectives defined by participants in the 2010 "E-Meetings" program relevant to broad public interests in marketplace practices. The website is being maintained to provide continuing reports of the issues addressed in the program, as summarized in the January 5, 2015 Forum Report of Conclusions.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.

Shareholder Forum™ is a trademark owned by The Shareholder Forum, Inc., for the programs conducted since 1999 to support investor access to decision-making information. It should be noted that we have no responsibility for the services that Broadridge Financial Solutions, Inc., introduced for review in the Forum's 2010 "E-Meetings" program and has since been offering with the “Shareholder Forum” name, and we have asked Broadridge to use a different name that does not suggest our support or endorsement.