U.S. Sen. Edward Markey (D-Mass.) has requested information from Herbalife Ltd., a nutritional supplements company focusing primarily on weight-loss products, about its business practices. In his January 23, 2014, letter to the company’s U.S. subsidiary, Markey notes that Herbalife bills itself as a multi- level marketing company selling products through a network of distributors, but has the hallmarks of a “pyramid scheme.”
Referring to a lawsuit by a former Herbalife distributor making that allegaqtion, Markey reports that some of his constituents have lost their life savings or been otherwise unable to profit from their affiliation with the company. Markey seeks information about the company’s system of operations, opera- tions structure, percentage of sales outside its distribution network, and whether the company targets minority or low-income populations to become distributors.
On the same day, Markey also sent letters to the U.S. Securities and Exchange Commission and the U.S. Federal Trade Commission (FTC) calling for inves- tigations into Herbalife’s business practices and “questionable” claims. In his letter to FTC Chair Edith Ramirez, Markey commended the agency’s “recent announcement that it is establishing a new initiative to address ‘deceptive claims made by national marketers of fad weight loss products.’” He encouraged FTC to include in its initiative “an examination of the companies’ questionable claims about the business opportunities available to people if they distribute certain weight loss products.”The New York Times took note of the senator’s investigation, suggesting that it coincided with the efforts of hedge-fund manager William Ackman, who has called Herbalife a fraud and wagered that its stock is worthless. When his rivals started buying the company’s stock, Ackman reportedly lost hundreds of millions on paper. He has apparently been lobbying Congress for months in his ongoing campaign against Herbalife. See Sen. Edward Markey Press Release and The New York Times, January 23, 2014.