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Unfair Herbalife Settlement Leaves Distributors Out in Cold
TINA.org objects to $17 million settlement that gives a majority of the distributors in the class $20 or less, lawyers $5.25 million, while the company gets to continues business as usual
 
Herbalife, a nutrition and weight loss supplement company that is under investigation by the FTC and in the midst of a Wall Street battle for survival amid accusations of being a pyramid scheme, is quietly trying to put to rest a class-action lawsuit alleging similar fraudulent business practices and deceptive advertising. The proposed settlement will allow Herbalife to continue business as usual while giving a majority of distributors in the class who lost money – some thousands of dollars — a mere $20 (at most).
 
In exchange for this paltry monetary relief, the settlement affecting as many as 1.3 million Herbalife distributors will essentially ban them forever from any further similar litigation against the company. Meanwhile, the attorneys who brought the suit get to pocket $5.25 million.
 
To TINA.org, this sounds like a raw deal for distributors in the class who already got a raw deal when they were lured by Herbalife’s promises of “financial freedom” only to lose money in the company’s illegal scheme in which they were destined to fail.
 
Monday TINA.org filed a friend of the court brief in California where the proposed settlement is awaiting approval asking the federal judge to consider its opposition to the settlement.
 
“The only winners here are Herbalife and the attorneys,” said Bonnie Patten, executive director of TINA.org. “More than one million distributors will be bound by an agreement that gives the majority of them less than $20 while allowing Herbalife to blissfully carry on with its deceptive marketing scheme.”
 
Broken promises
The class-action lawsuit originally filed in April 2013 recounts in detail the inflated earnings promises and the high-pressure tactics Herbalife uses to get new recruits to purchase packages of products each month in order to qualify to earn “millions.” These tactics include testimonials from distributors that emphasize extraordinary and atypical financial earnings, and sales pitches that lure recruits with promises that they can obtain bigger homes and luxury cars and even quit their jobs.
 
But in reality, at least 88 percent of distributors earned nothing from Herbalife in 2013, according to its average gross compensation statement. In fact, a majority of recruits lose money trying to build their business lines through nutrition clubs and other efforts and drop out within one year of joining the company. Very few, if any, make any actual retail sales and are instead stuck having to self- consume the overstock of supplements they had to purchase to qualify for bonuses, according to the lawsuit.
 
Losses not fairly compensated
Yet, the settlement would give a majority of distributors in the class who purchased up to $3,745 worth of products from Herbalife between 2009-2014 just $20 or less. The settlement breaks the distributors in the class into two groups: Those who purchased $750 or more worth of products in at least one year are eligible to receive all of their estimated total losses from the sale of qualifying products or half the price they paid for them, whichever is less. The rest – possibly up to 975,000 distributors, according to the parties’ estimates — are in the flat $20 award category and have to divvy up just $3 million allocated to them out of the $17.5 million settlement, which means they could receive as little as $3.08, depending on how many make a claim.
 
In addition, a nonprofit group, the Consumer Federation of America, gets any leftovers from the money allocated to distributors instead of the remaining money being used to increase the amounts the distributors can receive. TINA.org has written to CFA Executive Director Stephen Brobeck alerting him to the flaws of the settlement and requesting his organization reject the money.
 
Business as usual
The settlement also does not require any substantial changes to Herbalife’s business structure, which dooms most recruits to failure while just a few members at the top reap financial rewards. 
 
According to the lawsuit and vocal critics of the company, including Pershing Square hedge fund manager and activist investor Bill Ackman, who labelled Herbalife a pyramid scheme and made a $1 billion bet against it, the company’s compensation plan rewards the recruitment of new participants over product sales by paying recruitment rewards to distributors regardless of whether they actually sold any products. The company’s complex pricing system also effectively leads to inventory loading by pushing distributors to buy more products than they can feasibly consume in order to have the potential to earn any real compensation. The settlement does nothing to address these issues.
 
“While discouraging recruits from incurring debt, paying shipping for returned merchandise, prohibiting lead generation, prohibiting membership based on product purchases and requiring experience and training for nutrition club members may represent reasonable requirements, they too fail to directly address the endless chain pyramid scheme problem,” said William Keep, dean of the business school at The College of New Jersey and a pyramid scheme expert who provided an affidavit in support of TINA.org’s brief regarding the settlement’s flaws. “A pyramid scheme rewards participants primarily for recruiting others who join to earn rewards primarily for recruiting others in an unending chain rather than for building a retail customer base. The proposed settlement fails to address this aspect of Herbalife’s business structure.”
 
Growing list of objectors
TINA.org is not the only group objecting to the settlement. More than a dozen Herbalife distributors — some of who lost thousands of dollars — are also filing objections. Douglas Brooks, a Massachusetts-based attorney who is representing the distributors and who has also pursued two other class-action lawsuits against Herbalife, said the company would benefit greatly from the terms of the pending settlement.
“The only reason Herbalife is doing this is to create a template for dealing with the FTC. If the FTC were not investigating, they would not be settling,’’ he said.
 
The FTC opened an investigation into Herbalife last March, following Ackman’s push for government scrutiny. Several minority and immigrant groups who are concerned that the company targets Hispanics also requested the FTC investigate the company, as did some members of Congress. Herbalife stocks dropped more than 50 percent in 2014. The Los Angeles-based company founded in 1980 earned $308 million in profit on $5 billion in sales. In February it announced that profits in its fourth quarter were down 16 percent, blaming weakened foreign currencies for the decline.
 
A hearing on the proposed settlement will be held on May 11.
 
For more about TINA.org’s efforts on Herbalife click here
 

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COMMENTS

B. Yerram Raju

2 years ago

The Herbalife products claim 3 major components in weight reduction; 1. that activates the digestive system; 2 and 3 - a combination of proteins that result in gradual weight reduction. The intake needs supplementation with 3 litres of water. The Nutrition club charges Rs.800 per week in Hyderabad with one week of free promotional offer. If one takes 3 litres of water even without these Herbalife products followed by good life style, weight loss for sure occurs. The legal battles or otherwise, the product is more marketing than herbal medicine. Some of the Ayurveda medicines and unani medicines too have the weight reduction ingredients at much lower cost. Water - safe drinking water, of course, is the surest cure for several body ailments.

Mukund Rajamannar

2 years ago

These schemes are running amok in India. It would be good if some action was initiated to stop these.

Antebellum Data Journalism: Or, How Big Data Busted Abe Lincoln
An 1848 investigative news story that relied on heavy data analysis snared big fish, including two future presidents
 
This story was prepared for the March 2014 conference, "Big Data Future," at Ohio State's Moritz College of Law, and will be published in I/S: A Journal of Law and Policy for the Information Society, 10:2 (2015). For more information, see http://bigdatafuture.org.
 
It’s easy to think of data journalism as a modern invention. With all the hype, a casual reader might assume that it was invented sometime during the 2012 presidential campaign. Better-informed observers can push the start date back a few decades, noting with self-satisfaction that Philip Meyer did his pioneering work during the Detroit riots in the late 1960s. Some go back even further, archly telling the tale of Election Night 1952, when a UNIVAC computer used its thousands of vacuum tubes to predict the presidential election within four electoral votes.
 
But all of these estimates are wrong – in fact, they’re off by centuries. The real history of data journalism pre-dates newspapers, and traces the history of news itself. The earliest regularly published periodicals of the 17th century, little more than letters home from correspondents hired by international merchants to report on the business details and the court gossip of faraway cities, were data-rich reports.
 
Early 18th century newspapers were also rich with data. If it were ever in doubt that the unavoidable facts of human existence are death and taxes, early newspapers published tables of property tax liens and of mortality and its causes. Commodity prices and the contents of arriving ships — cargo and visiting dignitaries — were a regular and prominent feature of newspapers throughout the 18th and 19th centuries.
 
Beyond business figures and population statistics, data was used in a wide variety of contexts. The very first issue of the Manchester Guardian on May 5, 1821 contains on the last of its four pages a large table showing that the real number of students in church schools far exceeded the estimates of the student population made by proponents of education reform. 
 
Data was also used, as it is today, as both the input to and the output of investigative exposés. This is the story of one such investigative story, and of its author, New York Tribune editor Horace Greeley. It’s a remarkable tale, and one with important lessons for “big data” journalism today.
 
Though he’s no longer a household name, Horace Greeley was one of the most important public figures of the 19th century. His Tribune had a circulation larger than any paper in the city except for cross-town rival James Gordon Bennett’s New York Herald. More than 286,000 copies of the Tribune’s daily, weekly and semi-weekly editions were sold in the city and across the country by 1860, which by its own reckoning made it the largest-circulation newspaper in the U.S. Ralph Waldo Emerson observed, “Greeley does the thinking for the whole West at $2 per year for his paper.”
 
Greeley himself was a popular public speaker and a hugely influential national figure. He was a fascinating, frustrating, contradictory man. He was a leading abolitionist whose support for the Civil War was limited at best, yet his abolitionist writing in the Tribune made the paper the target of an angry mob during the Draft Riots in 1863. He was a vegetarian and a utopian socialist who published Karl Marx in the Tribune, but believed fervently in manifest destiny and America’s western expansion. He was a New York icon who thought the city was a terrible influence on working people and encouraged them to “Go West” to escape it. Though he was one of the founders of the Republican Party, his relationship with Abraham Lincoln was strained, and he ran for president in 1872 on what amounted to the Democratic ticket, losing big and dying broken-hearted before the Electoral College could meet to certify Grant’s election.
 
 
Courtesy: ProPublica.org

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