The Securities Exchange Commission is reportedly investigating Herbalife for being a pyramid scheme, spurred by the allegations of William Ackman of Pershing Square Capital
Ever since William Ackman blew the lid on Herbalife’s business model, Wall Street has been furiously whether or not the company is running a pyramid scheme. The comprehensive evidence gathered by Ackman, if true, is irrefutable and damning. According to Ronald D Orol of Marketwatch, unnamed sources have revealed that it has led Securities Exchange Commission (SEC), the American financial watchdog, to launch an investigation against Herbalife.
Sadly, multi-level marketing (MLM) schemes, though pervasive in India, continue to operate unhindered. Many innocent Indians have been lured haplessly and have lost a lot of money. Moneylife has been lobbying hard for stringent regulations and banning of MLM schemes. We had also covered the Herbalife episode in three parts. You can access Part I, Part II and Part III.
Robert FitzPatrick, an expert in examining and revealing deception and fraud in bogus home-based businesses, feels that if the SEC indicts Herbalife, it could be a game-changer as far as regulation is concerned. According to Pyramid Scheme Alert newsletter, a non-partisan, non-profit, all-volunteer consumer education group run by Robert Fitzpatrick, “Whatever this heated controversy brings forth, finally there is a real focus on and investigation of what previously was kept in the dark. Those who had dared to raise questions were personally vilified or sued by MLM lawyers or even harassed by government regulators. The MLM industry is one of the largest influence-buyers and lobbyists in Washington.” His book “False Profits” is the first one to critically examine the MLM industry.
Nearly two years ago, Moneylife had written to the Prime Minister’s Office (PMO), seeking intervention in the SpeakAsia MLM scheme to protect consumers. No response has been received yet and a Right to Information (RTI) query has been filed to seek whether the PMO has indeed taken any follow up measures.
Click here to see what we had written to the PMO office nearly two years back.
Clearly, there’s a conflict and confusion even on Wall Street. Interestingly, this whole Herbalife episode in America has now become a battle of wits between hedge funds. Bill 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. On the other hand, Ackman thinks it is worth zero. Herbalife is trading at $39.95 at time of writing this piece. Herbalife is due to present their rebuttal to Ackman’s presentation on 10 January in an investor conference.
Will American regulators do anything? The final outcome of this saga and whether consumers will be protected is anyone’s guess. One only can hope that SEC will take some action.
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This means access to other articles (outside the subscription period) are not included.
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On a related note, I hope it will force readers to compare the case of Herbalife to some of the MLM schemes that are propagating in India. You have done well to uncover Qnet, another fraudulent pyramid scheme but it's disheartening to see how many have fallen for it.
As a lawyer friend told me a few days ago, the history of scams is full of cases where the glib and the dishonest feed on the unwise and intellectually weak. It's the unfortunate truth, and at the end, the darwinian economic view is that the victims probably never deserved to keep their money after all!
That aside, i must commend your Foundation and the very important work it is involved in.