It is not the first time that Herbalife, a huge company, is the subject of controversy. There have been complaints about its business model and numerous lawsuits filed in the U.S. and abroad, which were resolved in different ways.
The latest chapter is the aggressive campaign being carried out by Bill Ackman, a financier who bet $1 billion from his hedge fund, Pershing Square Capital, on the collapse of Herbalife.
Working toward that end, he told regulators that the company was operating a pyramid scheme and outlined a campaign to discredit Herbalife among the Latino community. Part of this is donating funds to organizations like the Hispanic Federation and the League of United Latin American Citizens (LULAC) so that they advocate against the company.
At the center of the dispute is whether Herbalife makes money mainly from selling weight-loss products or from recruiting distributors, which would make it a pyramid scheme forbidden by law.
It is estimated that 60% of Herbalife’s distributors in the U.S. are Latinos, which is why Ackman is interested in a Latino strategy. This situation combines a federal investigation of the company and multimillion-dollar investment bets. Having Latino organizations get involved, supporting or opposing, does not benefit the Hispanic community.
It is true that some people in the community are frustrated, since they invested money in products they were unable to sell. Those are the results of a multi-level marketing system, like the one used by Amway and other companies, whose promises of success are usually beyond the possibilities, and the realities, of many people who seek to get ahead. These promises are also part of the controversy.
Ackman and Herbalife are in the middle of a high-level war in Wall Street. Other financiers, like George Soros and Carl Icahn, have bet against Ackman by buying shares of Herbalife, which raised their value and cost Ackman almost $400 million. That is the background of the current debate over Herbalife.
On another level, the discussion centers on whether or not Herbalife helps people lose weight, and mainly whether its system is a pyramid based on recruiting distributors. A federal investigation about this is underway and will eventually determine the validity of the company’s business model. However, today, Herbalife’s future depends more on Wall Street than on Latinos.