The League of United Latin American Citizens (LULAC) is leading a national coalition that is calling for an investigation into whether 'Herbalife' - the ubiquitous nutrition products company - is operating an illegal pyramid scheme. Locally the Southern Christian Leadership Conference of Southern California (SCLA-CA) and the Congress of Racial Equality - California (CORE-CA) are part of the group, which believes that the company “uses deceptive business practices to target minority groups ... with false promises of wealth and success. In reality, the vast majority of Herbalife participants earn no income from the company and most even end up losing money,” according to a media advisory from the group.
Calling its campaign “Stop HerbaLIES, the group traveled to Washington DC on Feb. 5 to urge the Federal Trade Commission (FTC) to open an investigation. While in the nation's capitol, members will also meet with legislators from their home states as well as give an earful to Attorney General Eric Holder at the Justice Department.
CNBC's business writers Herb Greenberg and Karina Frayter state that, “With multi-level marketing [companies] — often involving nutritional supplements, weight loss products, cleaning products and various types of housewares — products are sold through a network of distributors. They earn income from the sales they make themselves as well as from people they've recruited to become distributors–otherwise known as their "down-line."
Greenberg and Frayter point to the website of the Federal Trade Commission (which regulates multi-level marketers) which states, “Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it's not. It's a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”
President and CEO of SCLA-Southern California Rev. William Smart said that what Herbalife is doing is no different from what Wal-Mart is doing. “Right now people at the bottom are always abused by big corporations and that is what the injustice of it is,” said Smart. “Big corporations like Herbalife [with] people at the top making big money [and] people at the bottom having to pay money for materials and merchandise. A lot of times it doesn't sell. They don't have time to do it, and they get taxed. It's the same paradigm we're seeing: people who work the most amount of hours get the least amount of money,” said Smart.
“Studies have shown that multi-level marketing disproportionally affects the African American community,” said Adrian Dove of CORE-CA. “Ryan Franklin, one of our advisors, has written a book about it. Its' not a 'sexy' [news] item, that jumps at the top; it gnaws away [at the community] kind of quietly,” Doe said.
“You go to some of the hotels on a Saturday morning, around the country, with these multi-level marketing [seminars],” Dove continued “and it's mostly Black folks. It’s a dream. Nothing’s wrong with dreaming, but at a certain point if you know it’s not going anywhere - a few people at the top who are making the money, taking your time and resources … Herbalife is one of the biggest offenders.”
The group met with California Attorney General Kamala Harris this past January to ask that she enforce an existing injunction against Herbalife designed to protect California consumers. But, the details of that meeting remain confidential.
Herbalife was hit with an injunction in 1986 that required them to provide documentation that verifies their retail sales and the company’s sales to distributors and customers; the company has yet to comply.
“We are deeply concerned that the current practices by global nutrition supplier giant Herbalife were disproportionally having a negative effect on the Latina/o and immigrant communities. That is why we were grateful for the opportunity to address our concerns with the office of the attorney general,” said Joseph Villela, policy director for the Coalition for Humane Immigrant Rights of Los Angeles (CHIRLA).
“We need to become fighters for the left out, the lost, the underdogs,” said Smart, co-pastor of Christ Liberation Ministries. “Those that are trying to make it everyday.”