Let's examine our definition again of a Pyramid/Ponzi scheme to see if Herbalife fits into this category. A Pyramid/Ponzi scheme makes money not through the sale of products, but rather by the need to constantly get investors into the scheme. The investors are the only real source of money for these schemes. Once the investors stop entering the scheme, the entire scheme collapses because there are no more funds.
Here is a story from an anti-Herbalife website which seems convinced that Herbalife is indeed a Pyramid scheme.
"Herbalife Ltd. (NYSE:HLF) is an unlawful pyramid scheme that relies upon, fosters, promotes, honors, and financially rewards deceptive recruiting businesses operated by its top distributors. Because there is little genuine retail demand for Herbalife’s overpriced commodity products, in order to generate revenues, the company depends on the endless recruitment of new distributors who purchase large volumes of Herbalife products in the hope that they will climb the Herbalife Sales & Marketing plan and qualify for recruiting rewards.
The only way to recruit unsuspecting victims into a perpetual recruitment scheme like Herbalife is through deception about the (illusory) “business opportunity.” The senior-most Herbalife distributors have figured this out, and they have developed and continue to develop systems that deceive vast numbers of people who become new Herbalife distributors. The precise means of deception vary, but the essential deception is the same.
In a court filing on December 18, 2013, in FTC v. Trudeau, the FTC’s economic expert on pyramid schemes, Dr. Peter Vander Nat, submitted a declaration analyzing a pyramid scheme. In his Declaration, Dr. Vander Nat cites the many cases in which he has served as the FTC’s expert on pyramid schemes, and he notes: “No Court has ever rejected my conclusion that a particular enterprise constituted a pyramid scheme.” Dr. Vander Nat states:
“A pyramid scheme is a perpetual recruitment chain in which the design of the scheme’s compensation plan dooms the vast majority of participants to financial failure. The Koscot test – adopted by the federal courts – applies this meaning to ongoing recruitment in the context of multilevel marketing (MLM), focusing on an MLM firm that sells a product or service and pays recruitment rewards that are unrelated to the sale of the product/service to people outside the MLM’s network.”
Herbalife is a pyramid scheme under Dr. Vander Nat’s definition: (1) the design of its compensation plan “dooms the vast majority of participants to financial failure” and (2) it pays rewards based upon purchases of product by new recruits that are “unrelated to the sale of product/service to people outside the MLM’s network” (as a federal district court judge found in Herbalife v. Ford)."
Here is a story from an anti-Herbalife website which seems convinced that Herbalife is indeed a Pyramid scheme.
"Herbalife Ltd. (NYSE:HLF) is an unlawful pyramid scheme that relies upon, fosters, promotes, honors, and financially rewards deceptive recruiting businesses operated by its top distributors. Because there is little genuine retail demand for Herbalife’s overpriced commodity products, in order to generate revenues, the company depends on the endless recruitment of new distributors who purchase large volumes of Herbalife products in the hope that they will climb the Herbalife Sales & Marketing plan and qualify for recruiting rewards.
The only way to recruit unsuspecting victims into a perpetual recruitment scheme like Herbalife is through deception about the (illusory) “business opportunity.” The senior-most Herbalife distributors have figured this out, and they have developed and continue to develop systems that deceive vast numbers of people who become new Herbalife distributors. The precise means of deception vary, but the essential deception is the same.
In a court filing on December 18, 2013, in FTC v. Trudeau, the FTC’s economic expert on pyramid schemes, Dr. Peter Vander Nat, submitted a declaration analyzing a pyramid scheme. In his Declaration, Dr. Vander Nat cites the many cases in which he has served as the FTC’s expert on pyramid schemes, and he notes: “No Court has ever rejected my conclusion that a particular enterprise constituted a pyramid scheme.” Dr. Vander Nat states:
“A pyramid scheme is a perpetual recruitment chain in which the design of the scheme’s compensation plan dooms the vast majority of participants to financial failure. The Koscot test – adopted by the federal courts – applies this meaning to ongoing recruitment in the context of multilevel marketing (MLM), focusing on an MLM firm that sells a product or service and pays recruitment rewards that are unrelated to the sale of the product/service to people outside the MLM’s network.”
Herbalife is a pyramid scheme under Dr. Vander Nat’s definition: (1) the design of its compensation plan “dooms the vast majority of participants to financial failure” and (2) it pays rewards based upon purchases of product by new recruits that are “unrelated to the sale of product/service to people outside the MLM’s network” (as a federal district court judge found in Herbalife v. Ford)."
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