A European Court Rules: “Herbalife Is an Illegal Pyramid Scheme”
Jan 5, 2012
There are two icons of MLM that represent all the others of that “industry”. They are among the oldest and largest MLMs, and they have spread to most other countries worldwide. One is Amway. The other is Herbalife.
Herbalife has just been ruled an illegal pyramid scheme by a court in Belgium. A case had been brought against Herbalife in Belgium by a non-profit consumer protection organization.
Previously, Herbalife marketers have been prosecuted in Canada, and Herbalife has been sued by individual distributors in the USA and in class action suits by American consumers who claim Herbalife is an illegal pyramid scheme.
After years of delay in the Belgian courts, a ruling was finally gained: It concludes that Herbalife is exactly what the consumer group claimed it is, an illegal pyramid scheme based on “endless chain” recruiting. Such a plan dooms the vast majority to losses, by its design and deception.
The Belgian court zeroed in on several key points that affect many other MLMs.
1.) It showed that Herbalife is not a direct selling company.
Herbalife did not offer the court any evidence that it has a base of consumers who buy the products on a retail basis from Herbalife “distributors.” In fact, the actual customers, based on evidence, are the Herbalife salespeople themselves. They buy thousands of dollars of products in order to receive promised commissions gained from recruiting other “salespeople.” It is theoretically possible to sell Herbalife goods to retail customers for a profit, the court acknowledged, but few salespeople ever do, based on evidence, and the Herbalife pay plan offers much more reward for recruiting than for retailing.
2.) The court also rejected Herbalife’s claim (which is also made by many other MLM companies) that its salespeople can be classified as “retail customers.”
The court revealed that Herbalife plays a shell game, depending on whether it is reporting to the SEC and shareholders, arguing to the court, or recruiting consumers, in which sometimes the salespeople are described as “direct sellers” or “distributors” and at other times as “customers.” Clearly, both cannot be true at the same time. Salespeople pay fees, sign legally binding contracts that define them as “contractors,” and are offered rewards based on recruiting.
Herbalife’s “direct selling” disguise and the deceptive shell game of “find the customer” were both rejected by the court, which concluded in plain language that Herbalife rewards consumer investors for recruiting other consumer investors and the rewards are based upon an unsustainable and “dishonest” system of endless recruiting.
Despite this ruling in Belgium (which took 7 years to litigate) and despite previous class action suits brought by American consumers in which Herbalife paid millions to settle, the Federal Trade Commission (FTC) in America, where Herbalife is based, has taken no law enforcement action against the scheme in recent years.
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