A year after Bill Ackman’s detailed public presentation about Herbalife being a pyramid scheme, the FTC which oversees consumer interests, has finally acted
US Federal Trade Commission (FTC) has launched an investigation into the operations of Herbalife, the multi-level marketing (MLM) company that sells weight-management, nutrition and personal-care products. As per regulatory policy in the US, the FTC cannot publicly comment on the investigation. However, Herbalife itself has confirmed the investigations. In a release, the MLM company said that it had received a Civil Investigative Demand from FTC.
The FTC’s action comes after a year-long push for government scrutiny by Pershing Square hedge-fund manager Bill Ackman who has labelled the company a pyramid scheme and bet $1 billion against it. According to New York Times, the Commission’s move, after more than a year of lobbying by Ackman, politicians and civil rights groups, could be a boon for Ackman’s $1 billion bet against the company after a series of setbacks, in particular a strong run-up in Herbalife’s share price.
“The success of Ackman’s wager depends on a collapse of Herbalife’s stock price, and he gains ground when other investors sell their shares because they fear the consequences of a regulatory crackdown on the company,” the report says.
Shares of Herbalife were briefly halted and then dropped Wednesday on the news of the investigation. Herbalife closed Wednesday 7.4% down at $60.57.
Interestingly, this whole Herbalife episode in America had become a battle of wits between hedge funds. Ackman has shorted the stock while, on the other end, Dan Loeb, whose hedge fund Third Point owns 8.9 million shares of Herbalife and feels it is worth more than $55, and has gone long. Ackman thinks it is worth zero.
After a whole year of research, Ackman and his team at Pershing Square Capital Management had come to the conclusion that Herbalife is worthless as a company and one big “pyramid scheme” and “caused and continues to cause enormous harm to the most vulnerable communities in the US and around the world”. He gave a lengthy presentation (a whopping 342 slides were shown) listing out reasons why Herbalife is worthless a company and warned investors and consumers alike to stay away from the company. He has even put up a website warning consumers about Herbalife. He was hoping that FTC would act which hadn’t happened – until now.
Herbalife is an MLM scheme, which ‘sells’ nutritional and weight-management products, in as many as 84 countries since 1980. It makes money not by selling product directly to you and me but by recruiting sales people, which recruits more sales people, which in turn recruits more sales people. The moment you buy its product, you become the sales person. In order to qualify for rewards or bonus, consumers (who become distributors automatically) must recruit (or ‘sell’ Herbalife’s products) so that they meet a stipulated target every month. Not many consumers or distributors get back their money’s worth. It is estimated that failed sales people, those at the bottom of the pyramid scheme, lost as much as $3.8 billion since 1980!
Ever since Ackman blew the lid on Herbalife’s business model, Wall Street has been furiously discussing whether or not the company is running a pyramid scheme. The comprehensive evidence gathered by Ackman, is damning. In February, Herbalife, which has repeatedly denied that it is a pyramid scheme, met with Congressional officials to explain its business.
One of the biggest and most promising markets for Herbalife is India. Moneylife has been lobbying hard for stringent regulations and banning of MLM schemes in India. We had also covered the Herbalife episode in three parts. You can access Part I, Part II and Part III .
Last year February Herbalife, which has come under the radar of the US Securities Exchange Commission, roped in Girisha Hosanagara Nagarajegowda (HN Girisha), the London paralympics silver-medallist and Padma Shri awardee, as its brand ambassador in India. Girisha was roped in to endorse and promote the controversial “Formula1 Nutritional Shake” and “Afresh Energy Drink Mix” of the MLM company.
According to Ackman, Herbalife’s Formula1 (for which Girisha has been signed as brand ambassador) is the costliest nutritional powder among six other brands. Formula1 power comes at $2.87 per 200 calorie serving, while all other powders from Abbott Labs, Unilever and GNC are available between 88 cents to $1.74 per 200 calorie serving. This is just an example. All other products from Herbalife are overpriced compared with similar products.
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With smartphones set to function as a remote control for many aspects of our lives, consumer groups believe that big mobile companies should be held to account for unfair, substandard services.
Consumers International (CI), a global coalition of 250 member organisations has declared that “Fix our phone rights!” will be the theme for World Consumer Rights Day, which is observed on 15th March. CI, which has members in 120 countries believes, “with smartphones set to function as a remote control for more and more aspects of our lives, consumer groups believe now is the time to ensure big mobile companies are held to account for unfair, substandard services”. Instead, it says, “mobile rip-offs are commonplace – from holidaymakers being stung by four figure roaming bills abroad, to customers tricked into paying to receive text messages.”
CI has drawn up a consumer agenda for fair mobile services, which outlines what the consumer rights movement wants to see changed. See www.consumersinternational.org/wcrd2014. This includes demands that telecom companies:
• provide consumers with access to an affordable, reliable service
• provide consumers with fair contracts explained in clear, complete and accessible language
• provide consumers with fair and transparent billing
• provide consumers with security and power over their own information, and
• listen and respond to consumer complaints.
CI intends to deliver this message to the International Telecommunications Union (ITU) - the UN body responsible for setting standards in the industry - ahead of the ITU World Telecommunications Development Conference in early April.
In the run up to 15 March, which is World Consumer Rights Day, consumer groups will be making one big call on mobile phone service providers to demand better services for the 7 billion mobile users across the globe.
Although CI has several member consumer organisations in India, it is unclear at this stage whether any of them are participating in this global effort to pressure telecom companies to treat customers fairly.
The Consumer Education & Research Centre (CERC) , Ahmedabad has organised a four- day programme to celebrate World Consumer Rights Day, starting 15th March when it will have a discussion with two telecom experts on ‘Phone Users Rights and Redressal Mechanism’ and will also have a discussion on ‘Consumer Redressal Mechanism’.
Nina Martin talks with a leading expert on the historic tension between civil rights and religious freedom
As conservatives grapple with the reality of gay marriage and the Supreme Court weighs whether companies should be forced to offer birth control to employees, it's very clear: The conflict between religious freedom and gender/sexual equality has become "the most important civil rights issue of this time."
So says Professor Katherine Franke, director of the Center for Gender and Sexuality Law at Columbia Law School and one of the driving forces behind the school's Public Rights/Private Conscience Project, a new initiative that seeks to shift the way people look at religious and secular values — and to bridge a divide that has come to seem insurmountable. Here, Franke talks with ProPublica's Sex and Gender reporter, Nina Martin.
NM: Let's start with why these two things — religious belief and civil rights — have come to seem so at odds.
KF: Part of the problem is the way we're currently framing the issue. On the one hand, we have the free exercise of religion, which is largely based in an appeal to revelation, to the truths of religious texts and religious doctrine. And on the other hand we have rights of equality and liberty, which are based in rational arguments — what are people entitled to as a matter of their humanity because we should all be treated equally under law. It’s an incommensurable confrontation between revelation and rationality. What ends up happening is that religion ends up like a trump card — you throw it down, it’s a conversation stopper, and we don’t know how to get out of this impasse. Law is really ill equipped for adjudicating between the claims of revelation and the claims of rationality.
NM: How did we get to this point?
KF: In part it's historical. Really since the late 19th century, when opponents of expanding notions of equality have lost in the public arena, their plan B has been to seek refuge in religion. We first saw it in racial equality cases, and more recently in the areas of reproductive rights and gay rights. When Congress or a state legislature or a federal court mandates the integration of public schools or upholds sex equality in the workplace or allows same-sex couples to marry, opponents of those efforts fall back on religion to say, "You can have those laws, they just don't apply to me."
NM: This year marks the 60th anniversary of Brown v. Board of Education and the 50th anniversary of the Civil Rights Act of 1964. What role did religious exceptions play in the fight over desegregation and civil rights?
KF: Right after the Supreme Court's decision in Brown, Strom Thurmond and other segregationist politicians issued the Southern Manifesto. Central to that strategy was the setting up of religious schools. Segregationists could opt out of the public school system and re-segregate their white children into religious schools. Some 168 private schools opened in Mississippi, Alabama, Florida, Louisiana, North Carolina, and South Carolina between 1964 and 1967. And for a time, the federal government was willing to grant tax-exempt status to those schools.
Then, in July 1970, the Nixon administration withdrew its support, stating that it would no longer allow tax exemptions for private schools unless they adopted racially nondiscriminatory admissions policies.
But many Southerners continued to insist that they be allowed to maintain private, religious, all-white schools on the grounds that God "separated mankind into various nations and races," and that such separation "should be preserved in the fear of the Lord." In 1983, in a case involving Bob Jones University, the Supreme Court once again decided that, no, this is not a legitimate assertion of religion, but a way to justify the ongoing maintenance of racial segregation, and that tax exemptions for religiously segregated schools are unconstitutional.
NM: A decade or so after Brown comes the women's movement. What kinds of religious exemptions were most common in those early battles?
KF: Just as women were becoming a larger percentage of the labor market, there were many employers that felt, well, that women shouldn't be working at all or that if they do, men should earn more since they were bringing home the family wage. These were traditional notions, sometimes based in religion, that the father was the head of the family. Then, with the advent of equal opportunity laws, employers found other reasons not to hire or promote women, often based on pregnancy. If you became pregnant when you were not married, you were immoral and a bad role model. So many women found themselves fired or unemployable.
Then at some point we decided, these policies and practices were a form of sex discrimination. Those arguments were vanquished from the workplace and from the public domain.
Now it's come full circle. When a school wants to fire an unmarried female teacher who gets pregnant or a business would rather not serve customers who are gay or lesbian , we're seeing is the refashioning of many old arguments in the name of religion. And the question we are struggling with is: Why is it legitimate to discriminate when wrapped in the cloak of religion, but it wouldn't have been acceptable if it were a view grounded in old-fashioned secular thinking about the proper roles for men and women or dislike some people have toward homosexuals?
NM: So much of the legal and public debate around abortion and contraception now focuses on religious values and objections. Was it always this way, going back to Roe v. Wade?
KF: The Supreme Court's jurisprudence around reproductive rights has evolved. In Justice Blackmun's majority opinion in Roe in 1973, he begins by noting that the issue is extremely complicated, that there are questions of morality and medical health and liberty and sex equality at stake, about which people disagree strongly. But he says, we are going to put aside the religious and moral debate. We are going to decide this issue as a matter between a woman and her doctor. This is a medical decision. It's for the woman to decide. The question is one to be resolved as a matter of rational decision-making, not of emotion or revelation.
Fast-forward 40 years to Justice Kennedy, who is the swing vote in many of the most contested cases now before the Supreme Court. Justice Kennedy is a Catholic, and if you read his decisions, much of the way he approaches questions of sexual justice, whether in the context of sexual orientation or reproductive rights, is moralistic in nature. The dignity of the individual is central to the way that he approaches questions of sexual rights.
NM: Give me an example.
KF: In his majority opinion in Lawrence v. Texas, [the 2003 case that decriminalized sodomy,] Justice Kennedy holds that what's at stake is the dignity of the human to choose the intimate relationships that give meaning to that person's life. He writes: "At the heart of liberty is the right to define one's own concept of existence, of meaning, of the universe, and of the mystery of human life." The elaboration of our sexual selves is key, he notes, to this notion of liberty.
Contrast that with Bowers v. Hardwick [the 1986 case, decided before Kennedy joined the court, that upheld Georgia's sodomy laws]. In that ruling, dignity never came up. The Court instead found that there was no constitutional right to sodomy and that the states' criminalization of sex between two people of the same sex merely ratified long-standing societal condemnation of homosexuality. Indeed, Chief Justice Warren Burger was even more blunt, grounding his reasoning in a kind of historical disgust toward gay people, and noting that the English Reformation described sodomy as a "crime against nature," and an "offense of Ôdeeper malignity' than rape." The act was considered so heinous, he noted, that "the very mention of it was a Ôdisgrace to human nature.'"
Dignity, of course, is an idea deeply rooted in a particular religious tradition. The dignity — the sacredness — of the human derives from man's or woman's reflection of God himself.
NM: How does the issue of dignity feature in the most recent marriage cases?
KF: The [gay rights] lawyers who have been bringing these cases have chosen to focus on dignity rather centrally. The argument is that there's something humiliating about not being able to marry — that same-sex relationships are somehow not worthy of the blessings of marriage and the dignity that marriage confers.
It's a deeply moralistic argument, one that appeals to the likes of Justice Kennedy. In fact, this is the argument that appealed to him last year in the Windsor case [overturning the Defense of Marriage Act], where he wrote that the federal government's refusal to recognize marriages between same sex-couples demeans those couples and humiliates their children. And it's a very different argument from saying,Here we have two groups of people — heterosexuals and homosexuals — who are being treated dissimilarly, even though they are equally entitled to the benefits of the institution marriage or legal recognition through the granting of a marriage license.
NM: Is there are a problem, when talking about gay rights or reproductive rights, with focusing so much on dignity?
KF: Yeah, who could be opposed to dignity? But by prioritizing the dignity argument, there are unintended consequences. In the same-sex marriage context, what happens is that the shame that same-sex couples have suffered by virtue of their exclusion from the institution of marriage is shifted to people who cannot or choose not to marry. By arguing that "we" deserve the same dignity that married straight couples enjoy, it leaves unquestioned the shame-worthiness of couples who don't marry. There's a reinforcing of the shame and dishonor that those kinds of relationships already suffer from.
NM: Let's talk about the Hobby Lobby and Conestoga Wood contraception cases that are before the Supreme Court. Where do they fit into these trends you're describing?
KF: There are two norms that you see articulated in the Supreme Court's jurisprudence in the area of religious rights versus other rights. One is that race is special. Racial equality will almost always trump an assertion of free exercise of religion. This is a political consensus that was reached at some point in the 1970s.
But we haven't seen sex equality claims or reproductive justice claims gain the same level of social weight as have racial justice claims. When these rights come into conflict with religious claims, the religious claims have been taken more seriously and, in effect, trump other rights.
So one of the questions raised by the Hobby Lobby case is whether sex equality and reproductive justice are second-class rights. Should sexual-based justice or gender-based justice enjoy the same constitutional status as racial-based justice, or do they, well, enjoy a kind of second-class status when compared with racial equality or free exercise of religion?
NM: In 2011, the Supreme Court issued another very important ruling about religion in theHosanna-Tabor case. What's the significance of that decision and how does it relate to Hobby Lobby?
FK: I think the Hosanna-Tabor case, in a way, helps us see how radical the Hobby Lobby case really is. Hosanna-Tabor, in many respects, is a fairly traditional employment case under Title VII of the Civil Rights Act. Title VII, like many civil rights statutes, has a so-called ministerial exemption in terms of its reach for religious organizations. The question was whether a teacher who had been fired and was suing for discrimination under Title VII was a religious employee or a secular employee. The Court carved out a space where a religious employer could discriminate against any employee, even if their religion didn't require them to do so.
What's so radical about Hobby Lobby is the company's argument that a for-profit corporation can pick and choose which public norms it complies with on account of is owners' religious beliefs. Where would this argument stop? That's a very different thing than questioning whether anti-discrimination laws apply to a religious school, which is what the Hosanna-Tabor case raises.
NM: Where do you think this argument might lead? If the Supreme Court goes along?
KF: An employer could refuse to include HIV-related treatment in its health plan because HIV is God's vengeance for a sinful lifestyle, or refuse to cover alcohol or drug treatment because the use of alcohol or drugs is sinful, or refuse to cover blood transfusions because of the employer's commitment to the tenets of Christian Science, or refuse to employ women because it is God's plan that they stay home and care for their children, or fire an employee who marries a person of a different race because doing so offends the employer's religious beliefs.
You can see that this opens the door for a whole range of employment practices that violate public norms that would seem offensive if they weren't cloaked in religious principles.
NM: The example of Christian Scientists not funding blood transfusions would strike many people, I think, as wrong. Whereas a company that decides not to fund a certain type of birth control pill — many people accept that as being fair.
KF: I think the very fact that you ask that question is a testament to how successful the Religious Right has been in advancing the legitimacy of these religious exemptions. Twenty years ago, people would have thought that this was a completely implausible claim.
In many respects, the people or companies who claim these religious exemptions are asking that they be entitled to travel through life — both their private life and their public life — surrounded by a bubble that defines their faith. What does it mean to be a citizen if you can say, "My bubble basically inoculates me from having to answer to your law"? But in the United States, we say everyone is governed by the same law. To say "my religious law trumps your secular law" is a radical idea.