Why does the government let a company like Herbalife stay in business?

https://www.latimes.com/business/story/2020-08-28/herbalife-lawbreaking-companies

by xoxoy • 6 years ago

83 83 6 years ago

hervature• 6 years ago

Nevertheless, Herbalife recruiting materials were festooned with “images of expensive cars and opulent mansions.”

Why does it stay in business? Because there is nothing wrong with a company that exploits the greed of individuals. Yes, some people are compelled due to desperate situations. But the solution here is raising the education level high enough to not succumb to their inner greed. The solution isn't reactively outlawing knives that cut more people than others.

aj7• 6 years ago

Maybe you have all smart relatives.

But there is a certain cruelty in doing business by deceiving people, and where the remedy is ex post facto “raising your education level” to become less deceivable.

awinder• 6 years ago

If a business couldn’t exist in a world full of smart people, that’s a pretty good clue that you should just go after it now. You’ll be waiting forever on the former.

smnrchrds2• 6 years ago

If you read the news about people falling victims to frauds and scams, you will notice most of those interviewed are young adults and old people. This is not a coincidence. You can educate people all you want, but those too young to have absorbed it or too old to be able to retain it (due to mental decline) will remain vulnerable.

Mental decline happens to everyone. Not necessarily to a severe level that would make one incapable of living independently, but enough to make them less sharp. You may be young enough to spot a scam from miles away, but your senses will most likely dull over time. In a couple of decades, you may be just as likely to be featured in a news piece about victims of a scam as the ones you are calling uneducated and greedy now.

netsharc• 6 years ago

Capitalism is strange that way, it's weird how our default state in business is to not being able to trust each other, because we assume the other party is probably trying to screw us over. I was wondering if it's always been like that since Roman times, since there's even a Latin term for "Buyer beware": https://en.wikipedia.org/wiki/Caveat_emptor .

liability2• 6 years ago

Why does it stay in business? Because there is nothing wrong with a company that exploits the greed of individuals.

There's certainly plenty wrong with it; perhaps you meant to say it's not illegal.

smabie5• 6 years ago

I mean, morality is an opinion, so it doesn't really make sense to try and correct someone about it.

matz1• 6 years ago

Morality is subjective, maybe its wrong to you but may not wrong for me.

ggm4• 6 years ago

A recent conversation on reddit exposed me to somebody who feels its ok to say card fees are for chumps and fund his no fee high return points wins. I think predating on ill informed poorer people who incur credit card debt and fees is wrong personally. Some people think it's OK.

Herbalife is in this spectrum of product: the government is mostly financially a-moral not moral or imorral and so prostitution income is not untaxable even if prostitution is. Herbalife has to get closer to the ponzi end of the spectrum to fall afoul of the law. Right now, it's only appealing to greed.

If herbalife and flyer miles points cards predate willful stupidity then the government needs a strong drive to legislate because in the end it too is conflicted.

Its a long bow libertarian position I dont agree with BTW, I think the role of government is to protect the innocent dupes. But there are thin-end-of-the-wedge arguments a-plenty here.

If I were king, I'd ban herbalife. If I needed a kings tax income I might not.

gruez2• 6 years ago

who feels its ok to say card fees are for chumps and fund his no fee high return points wins. I think predating on ill informed poorer people who incur credit card debt and fees is wrong personally.

Are you talking about interest for carrying a balance, or the various fees you get hit with if you screw up (eg. late fees, returned payment fees)?

ggm4• 6 years ago

I wasn't that specific. I am pretty sure the general principle here is that any fee you can avoid by rigorous use of the card sensibly, within your limit, he feels its acceptable to "share" as a benefit the fee free element, where the profit for the card company is in the late paying, over extended customer.

Carrying a balance and paying card interest rate when secured and unsecured loan rates are several if not ten or more percentage points lower (card interest was 20-23% in 2019 when bank loans were under 10% in my economy) provides the profits which allow richer card holders to avoid costs. This still feels like predatory behaviour to me.

His "i got the points be like me" is herbalife marketing of the gilt edged lifestyle which attracts the chumps who pay the cost of his fee free rewards. Its not implicit, it is explicitly why they offer him and his income bracket the deal.

lootsauce• 6 years ago

Can you say reg-u-la-tory cap—ture

lefstathiou2• 6 years ago

Our own government perpetuates the greatest of all frauds, the lottery, over the poor and uneducated to the tune of tens of billions a year. I’ve tried all my life to get my mother to stop buying tickets and she simply won’t despite being a complete dependent of her children (and she’s never won decades later!). It’s a sickness.

Herbalife (and Casinos) for that matter feed off that sickness as well. It’s hard to rationalize banning one and not ban the others and from my ignorant perspective, American society is not in a place where it can collectively come to a consensus to end industries that feed off of the intellectual, emotional and psychological deficiencies of people. The machine is just too big.

arp242• 6 years ago

At least the lottery or casinos are honest in the sense that you know you're playing a gamble. I'm not a fan either, but it that's what people want to do ... shrug

The biggest problem I have with Herbalife and similar companies is that they're dishonest and deceitful. It's not even a gamble, it's just a fraud.

smabie5• 6 years ago

It's pretty common for not poor people to buy lottery tickets. When the NY lottery was really big about 3 years ago, everyone at my old firm put in a $100 (so like 7k total) to buy tickets. Ended up winning $200, so we bought some champagne.

I noticed other firms doing the same thing, with the convenience store guy telling me that the building in total spent over 100k on lottery tickets within a week or so.

Moreover, the lottery isn't a fraud. The mechanisms and payouts are all known, much like roulette or blackjack. We have a word for it, and it's called gambling (not fraud).

protomyth2• 6 years ago

I've worked at a couple of places that better than average paid folks pooled some money to buy Powerball tickets. Its low grade gambling and a little bit of team building. I do remember the big one in the late 90's we won our money back which actually was much more difficult than just losing.

I was asked to buy $120 worth of tickets in 94ish and not one damn winning number showed up on any of the tickets. It was requested I never buy for the group again.

addled• 6 years ago

I feel the fraud part is when states claim having a lottery will provide more money for schools and then in the following years they cut general education spending.

I even remember hearing ads on radio encouraging folks to "pay-it-forward" by buying more lottery tickets and framing gambling as charitable giving.

"For the children" indeed.

BoorishBears3• 6 years ago

What percentage of your combined salaries was 7k?

How many people were playing the lottery weekly?

How many people were playing the lottery with the mentality it was the only way to achieve financial freedom?

Do you really not see the difference between poor people gambling daily and well-off people joining in on it as a spectacle?

In case you need it spelled out... it's no surprise the poorest populations consistently end up putting the most into the lottery because of weaker educations, lower financial literacy, bleaker financial outlooks

https://cnsmaryland.org/gambling/lottery/lottery.html

https://madison.com/wsj/news/local/govt-and-politics/wiscons...

https://southsideweekly.com/illinois-lottery-exacerbates-ine...

The story is the same all over the country. It's easy to sit back from a comfortable place on here and say "well the odds are right there, can't they see how low they are??" but it certainly doesn't show strong social awarenesses...

The worst part is the most vulnerable people aren't getting out nearly what they put in between a lack of social safety nets and the fact these groups tend to be the most underrepresented in their governments.

https://www.bloomberg.com/news/articles/2017-02-21/where-cas...

“In almost every case states either earmark the funds for education but then decrease the general fund appropriations for education by a similar amount, or, in more cases, they simply put the money in the general fund,” says Denise Runge, a dean at the University of Alaska Anchorage and editor of Resorting to Casinos: The Mississippi Gambling Industry.

In fact in some cases, these lottery are literally taking from the poor and giving to the middle and upper classes.

There's the merit-based scholarship example in the article, but even cases where funds end up being used on things like "historical preservation"... historical preservation is great, but feeding the hungry and giving the homeless places to sleep feel like much better investments in our populations. There are tons of "feel good" initiatives in a similar vein

chinhodado• 6 years ago

While I don't really care about the lottery and I'm fully aware about the odds, whenever there's a buy event in the office I always join. I consider that an insurance against my coworker winning.

lefstathiou2• 6 years ago

The lottery is not gambling because the probability of winning the lottery is 1/290 million making the expected payout almost zero in most circumstances; which is significantly less than black jack and orders of magnitude harder to win.

Under what other circumstances would be possibility tolerate that low level of efficacy?

jrs235• 6 years ago

Until it is a fraud: https://en.m.wikipedia.org/wiki/Hot_Lotto_fraud_scandal

disown• 6 years ago

Great point. What's the rationale for allowing governments to run lotteries? How can governments serve the interest of the people while running a gambling racket against the people? Isn't it shocking that governments are running lotteries rather than casinos? It would be like governments selling soda to the public rather than private companies.

boogies2• 6 years ago

What's the rationale for allowing governments to run lotteries?

Using the profits for education, etc.

millstone4• 6 years ago

1. Raise taxes 2. Have a statewide lottery 3. Cut school funding

You get to pick #2 or #3.

ffggvv• 6 years ago

why do we never give agency to people? is your mother an automaton that simply reacts to inputs or does she have any ability to not buy lottery tickets?

hamstercat• 6 years ago

I agree with you on the lottery, the world would be better off without it. The problem in this case is that it's also entertainment, and people will pursue it whether it's legal or not because they want to gamble. In this case if we have to have it, I'd rather have the government run it than a for-profit company.

Herbalife (and other MLM) are just straight fraud. Pyramid schemes are illegal in most countries, but companies like Herbalife manage to squeak by. My guess would be it's because of money, but really I have no idea how they get away with it.

nmfisher• 6 years ago

Herbalife actually makes (labels?) products that are decent enough, so I don’t think you can outright call it fraud.

The seller structure is definitely a pyramid scheme, but I’m not convinced that alone is reason enough for it to be illegal. It’s mindbogglingly stupid, of course. But consenting adults should be free to be as stupid as they want, provided they’re not harming anyone else or doing irreparable damage to themselves.

millstone4• 6 years ago

With all kindness meant towards your mother, does she buy a fixed number of ticket(s) every week, or does she buy as many as she can?

I think the lottery and MLM both tap into the same dreams, but a key difference is that the lotto ends at the cheap thrill, while MLM is a spiral that sucks you down forever.

The lottery is tolerated because it raises revenue without raising taxes. Here in California, ending the lotto means cutting public school funding. I would welcome higher taxes to end the lotto, but politics is politics.

Animats• 6 years ago

Because there is loud grumbling about a "nanny state" when government prevents people from making probably-stupid business decisions. Multi-level marketing, initial coin offerings, allowing people without much money to invest in startups, and casino gambling all lead to most people losing their money.

Gatsky• 6 years ago

I think the “nanny state” concept is poorly calibrated. If you allow entities to profit from causing harm, or conveniently shift the cost of negative externalities onto other people, day to day life will eventually become so adversarial that it is unliveable. This seems to be happening already, as we are inundated with scam texts, emails and phone calls; children are under siege from social media, the fast food industry, Juul; whole regions are routed by the opioid crisis; tobacco related diseases are still one of the top causes of death; the fossil fuel industry keeps edging us closer to varying degrees of annihilation.

csours2• 6 years ago

I have no idea how you're supposed to find this organically; Here's the PDF that tells the tale:

https://opportunity.herbalife.com/Content/en-US/pdf/business...

In 2011, in the US ~351,000 people were on the roles as individual sellers. The pdf even acknowledges "Single-level Distributors benefit from buying Herbalife products at a preferred price for their consumption and that of their families, and for many this is the only benefit they seek."

Those 351,000 people are the product for the "Supervisors"

Here's another one for 2013: https://opportunity.herbalife.com/Content/en-US/pdf/business...

400,000 people who earned nothing at all from herbalife as individual sellers (they could potentially profit from selling product, but that's quite rare, it looks like 50,000 people bought more than the minimum [see footnote in pdf]).

Next, 43,000 people who could potentially earn money from their downline (see the 400,000 chumps above); but only 2,300 actually did earn anything at all.

Next, the actual winners in the pyramid: 73,000 people at the top. But wait, 18 percent earned $0 and another 56% earned $250 on average. So how many people in the pyramid earn above minimum wage? Something like 2,600 people.

IncRnd• 6 years ago

Multi-level schemes are configured in order to benefit the people at the top. That is why they were created.

dmurray• 6 years ago

This is reassuring, if anything. Those numbers make it sound like it's mostly just a business with an unusual sales and marketing mechanism. The vast majority of the customers aren't taking part in the "pyramid scheme" part of the enterprise. They're just buying herbal supplements because they make them feel better or maybe their neighbour pressured then into it. All slightly skeezy but no worse than most retail businesses selling discretionary items.

It would be much worse for society if most of the "individual sellers" were buying large quantities of the useless product, intending to sell it on but never being able to.

What proportion of people in the distribution/consumption pyramid for Coke earn above minimum wage from distributing or consuming Coke? Surely a lot fewer.

gruez2• 6 years ago

The vast majority of the customers aren't taking part in the "pyramid scheme" part of the enterprise. They're just buying herbal supplements because they make them feel better or maybe their neighbour pressured then into it. All slightly skeezy but no worse than most retail businesses selling discretionary items.

That's one interpretation. The other interpretation is that herbalife has reached a saturation point where there aren't any suckers to sign up anymore, and all the "customers aren't taking part in the 'pyramid scheme'" are just the bag holders.

jjeaff• 6 years ago

I'm guessing all those people buying it at the bottom are doing so to meet monthly minimums. Judging by my experience trying the product, I can't imagine people really want it that bad.

gamblor9563• 6 years ago

Herbalife's products work, but they're just vitamins, and a protein shake with vitamins. It's nothing special compared to the hundreds of competing products that exist...today.

But when it was founded 4 decades ago...there weren't any products like it on the market. It basically created the market, and it's had 4 decades to expand internationally into countries where there is similarly little to no competition. It's basically the McDonalds of protein shakes.

Herbalife stays in business because most of the "distributors" (in the US) are just end customers who buy in bulk at the "distributor" discount, which is why so many of them don't try to sell it on to others. And that was pretty much what the FTC concluded when they investigated Herbalife. (But note: Herbalife was determined to have operated as a pyramid scheme in several Latin American countries, and was forced to reorganize its operations in those countries.)

athms2• 6 years ago

But when it was founded 4 decades ago...there weren't any products like it on the market.

Nonsense.

There have been vitamins and protein drinks sold in stores for over 50 years. Every drug store and most grocery stores carried vitamins since the 1940s. The One-A-Day multivitamin brand appeared in 1943. My parents were born in the 1940s and they took vitamins as children. I was born in the 1960s and I took Flintstones Kids vitamins, which ere introduced in 1968.

Protein powders started showing up in drug and health food stores in the 1950s with the advent of body building becoming popular. GNC was started in the 1930s and was in every major mall across America in the 1970s, and they sold protein drinks, both liquid and powder. Remember Charles Atlas? Probably not. There have been multiple health food fads throughout American history.

Herbalife stays in business because people are gullible. The multi-level marketing business model appeals to our greed and fear of missing a good deal. None of the products offered by Tupperware, Avon, Mary Kay, Fuller Brush, Amway, and Primerica are unique in anyway and the only people getting rich are towards the top of the pyramid.

goldcd• 6 years ago

Well I think it's pretty simple - MLM companies contribute more in political funding, than than the perceived detrimental aspects of their business hurt the electoral prospects of our elected representatives.

As a token example - https://en.wikipedia.org/wiki/Betsy_DeVos

baggy_trough• 6 years ago

The premise is exactly backwards. Why should the government be able to put a company like Herbalife out of business? Adults should be able to decide for themselves whether to buy products. If they make mistakes by our judgement, which is always very imperfect, that is their business.

p1necone• 6 years ago

Because Herbalife is not a legitimate business, it's a pyramid scheme with just enough details tweaked to not quite count as one under existing legislation.

Do you think people should be able to buy in to Ponzi schemes, or give money to people running three card monte games on the roadside too?

lotsofpulp• 6 years ago

Ponzi schemes require deception and fraud. Unless Herbalife is defrauding people, which MLM’s typically do not, there is no comparison.

They are an inefficient allocation of resources for the person investing their time and money, but the same could be said of many, many other endeavors.

I’d rather resource be spent to teach people how to properly calculate ROI and IRR.

hombre_fatal• 6 years ago

"Adults should be able to avoid scams/fraud" is a policy that only enriches scammers and fraudsters.

There is zero upside to society for people to be parted from their money (further, for scammers to receive that money) because they don't know about every single scam or because they were unable to do adequate research. Btw, Herbalife points to the fact that it's not shut down as evidence that it's legit. And its onboarding process is 100% high-pressure sales wringer to make you feel like you're about to make big money.

This crap is even more in-the-open here in Mexico, the same country with homeopathy "pharmacies" on every block staffed by people in white lab coats ready to sell you a vial of water that will cure your cancer.

millstone4• 6 years ago

You have misunderstood. The victims here are not consumers, they are the employees - the sales agents.

The main activity of Herbalife is recruiting. A Herbalife job posting may talk about selling supplements. But if you work for Herbalife, your real job is to find more people to work for Herbalife. The supplement sales are only a cover.

The reason these companies should be put out of business is that they are pyramid scams, frauds to their very core.

smabie5• 6 years ago

Bill Ackman of Pershing Square tried really hard to publicize their shittiness for his massive short bet on Herbalife. There's even a documentary about it. Never seemed to work. Not sure how much he lost in the trade, but a tidy sum, to say the least.

Of course it didn't help that Carl Icahn was on the other side of the trade. Herbalife's stock has done really well for a company that sells no real product and has no real value.

csin• 6 years ago

https://en.wikipedia.org/wiki/Betting_on_Zero

MaysonL• 6 years ago

See this link (previously at https://news.ycombinator.com/item?id=9714417 on HN) for a different take on Herbalife (by a short seller who went long on Herbalife and made quite a bit of money).

http://brontecapital.blogspot.com/2015/06/herbalife-very-lon...

zaroth2• 6 years ago

That was a great read, thanks!

MattGaiser• 6 years ago

A lot of it simply comes down to how much you want government to police behavior. There is only so much irrationality that can be reined in.

There are also legitimate home based businesses. Government regulations tend to not be very good at telling the difference between legitimate operations and those which are sketchy, but not outright fraud.

WarOnPrivacy2• 6 years ago

A lot of it simply comes down to how much you want government to police behavior.

Individual behavior: As little as is demonstrably necessary.

Corporate behavior: Every bit that shapes capitalism into being benign & overtly beneficial - including police intervention for those on the receiving end of law-changing campaign donations.

reiichiroh• 6 years ago

I don’t know why Herbalife, Amway, Primerica and all the MLM pyramid schemes are technically legal and allowed to exist.

phobosanomaly3• 6 years ago

To play devil's advocate, with people tied up in legal pyramid schemes there's some degree of oversight and public scrutiny. The companies can't egregiously screw too many people too bad. Anybody who does a little homework can see that it's a scam because there's a small number of the schemes around, and Coffezilla has talked about them all ad-nauseum. Vs. if those people were tied up in illegal/underground pyramid schemes, those schemes might be 1,000x more predatory and exploitative.

Like payday loans. They're horrible and predatory, but they'll only take your car, not break your kneecaps if you can't pay.

Addressing market failure in the United States is more damage control and harm reduction than anything. Our Chesterton's fences are in the form of duct tape on top of duct tape.

pyuser583• 6 years ago

We’re not in the nutritional supplements business. We’re in the empire business.

millstone4• 6 years ago

For a harrowing, tragic, and hilarious MLM story, read Elle Beau's blog, it's a treasure: https://ellebeaublog.com/poonique/

People tip-toe around calling MLM what it is, specifically a scam using psychological tactics of a cult. For example, Dave Ramsey (host of a highly popular financial radio show and podcast) condemns credit cards in fiery rants, but uses carefully measured terms when talking about MLM. "Most people lose money, but a few can be very successful..."

Something about MLM gets people scared to tell the truth. I think that everyone knows a friend or family member in MLM, and don't want to risk that relationship. Of course that's what MLM preys on.

phobosanomaly3• 6 years ago

I mean, Dave's not wrong. If you had a few beers with folks in an MLM who kind of know the deal, what percentage would admit to hoping to be one of the 'got in early and made some money' folks without being too terribly concerned about those at the bottom of the pyramid getting fleeced.

celdon25• 6 years ago

Paywall: https://archive.is/ya5D9

bruceb• 6 years ago

Season 1 of The Dream podcast is an easy and informative look at mlm. https://www.stitcher.com/podcast/stitcher/the-dream

Why does the government let a company like Herbalife stay in business?

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