Nutrition Club Presentation the Big Lie 7.22.14
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Transcript of Nutrition Club Presentation the Big Lie 7.22.14
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The Big Lie
July 22, 2014
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The Big Lie
July 22, 2014
Pershing Square Capital Management, L.P.
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Disclaimer
This disclaimer is issued in connection with this document and the oral presentation by Pershing Square Capital Management, L.P. (Pershing Square) on Herbalife Nutrition Clubs (collectively, the Presentation). Pershing Square is an investment adviser to funds that are in the business of actively buying and selling securities and other financial instruments.
Pershing Square currently maintains a substantial short position in the common stock of Herbalife Ltd. (Herbalife) and derivatives related to its common stock. Pershing Square will profit if the trading price declines for common shares of Herbalife and will lose money if the trading price increases for common shares of Herbalife.
Pershing Square may change its views about or its investment positions in Herbalife at any time, for any reason or no reason. Pershing Square may buy, sell, cover or
otherwise change the form or substance of any of its investments related to Herbalife at any time. Pershing Square disclaims any obligation to notify the market or any other
party of any such changes.
The information and opinions contained in the Presentation are based on publicly available information about Herbalife and other companies and persons. Pershing Square
recognizes that there may be non-public information in the possession of Herbalife or others that could lead Herbalife or others to disagree with Pershing Squares analyses and conclusions.
The Presentation includes forward-looking statements, estimates, projections and opinions prepared with respect to, among other things, certain legal and regulatory issues
Herbalife faces and the potential impact of those issues on its future business, financial condition and results of operations, as well as, more generally, Herbalifes anticipated operating performance, access to capital markets, market conditions, assets and liabilities. Such statements, estimates, projections and opinions may prove to be
substantially inaccurate and are inherently subject to significant risks and uncertainties beyond Pershing Squares control.
Although Pershing Square believes the statements it makes in the Presentation are substantially accurate in all material respects and do not omit to state material facts
necessary to make those statements not misleading, Pershing Square makes no representation or warranty, express or implied, as to the accuracy or completeness of those
statements or any other written or oral communication it makes with respect to Herbalife and any other companies or persons mentioned, and Pershing Square expressly
disclaims any liability relating to those statements or communications (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own
independent investigation and analysis of those statements and communications and of Herbalife and any other companies or persons to which those statements or
communications may be relevant.
The statements Pershing Square makes in the Presentation are not investment advice or a recommendation or solicitation to buy or sell any securities. Except where
otherwise indicated, those statements speak as of the date made, and Pershing Square undertakes no obligation to correct, update or revise those statements or to otherwise
provide any additional materials. Pershing Square also undertakes no commitment to take or refrain from taking any action with respect to Herbalife or any other company or
person.
All users and listeners agree and consent to exclusive jurisdiction and venue of any dispute or proceeding relating to or arising from the Presentation or any related subject
matter in the Courts of the State of New York in New York County or in the Federal courts located in the Southern District of New York.
As used herein, except to the extent the context otherwise requires, Pershing Square includes its affiliates and funds it manages or advises and their respective partners,
directors, officers and employees.
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All Pyramids Eventually Collapse
Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth's population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.
http://www.ftc.gov/public-statements/1998/05/pyramid-schemes
Why Do Pyramid Schemes Always Fail? Since there are only a limited number of people in a given community, all
pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid.
http://www.ag.ny.gov/consumer-frauds/pyramid-schemes
From the Securities and Exchange Commission:
From the New York Attorney General:
From the Federal Trade Commission:
The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. . . . But eventually the pyramid will collapse. http://www.sec.gov/answers/pyramid.htm
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All Pyramids Eventually Collapse
We went into India ten years ago. And we went in and it was a big it's called pop and drop. You go in. A lot of distributors come in. They recruit and you get a lot of volume. Those distributors leave the country and you get a big drop. John DeSimone, Herbalife CFO, 3/10/10
China is 1.3 billion people, you can recruit for a long time there before we had what was called the classic pop-and-drop in that marketplace. Michael Johnson, Herbalife CEO, 8/6/08
Source: Herbalife Q208 earnings call (8-6-08).
In Herbalifes Own Words The Classic Pop-and-Drop
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CEO Michael Johnson:
The Classic Pop-and-Drop
Japan Israel Spain
France Germany Russia
Herbalife Stopped Disclosing These Figures in 2002 6
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$140
$92
$75 $69
$45 $42
$0
$20
$40
$60
$80
$100
$120
$140
$160
1986 1987 1988 1989 1990 1991
(70%)
Herbalife U.S. Retail Sales ($mm)
Retail Sales Declined Significantly
After the 1986 Injunction in California
Source: Herbalife public filings.
Herbalifes U.S. Retail Sales declined 70% cumulatively for the five year period following the 1986 injunction
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$42
$86
$247
$295
$334
$280 $299
$365
$416
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
1991 1992 1993 1994 1995 1996 1997 1998 1999
Retail Sales Significantly Increased
After 1992 Infinity Bonus
890%
Herbalife U.S. Retail Sales ($mm)
Source: Herbalife public filings.
Herbalifes U.S. Retail Sales increased 890% cumulatively for the seven years following the introduction of the Production Bonus (also known as infinity bonus)
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Retail Sales Grew Rapidly After Michael Johnson
Became CEO
Herbalife Total Retail Sales ($bn)
$1.8 $1.8 $1.7 $1.8 $1.9 $2.1
$2.6 $3.1
$3.5 $3.8 $3.7
$4.3
$5.4
$6.4
$7.5
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Mark
Hughes
dies 5/21/00
Michael
Johnson
becomes
CEO 4/3/03
Source: Herbalife public filings. Note: Herbalife total retail sales used because the company no longer disclosed U.S. retail sales after 2000.
Herbalifes Retail Sales decreased after the death of founder Mark Hughes in 2000, but have grown rapidly since the company hired
Michael Johnson as CEO in 2003
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Portfolio Manager John Hempton:
Herbalife is the Stock Markets Scumbags
Source: http://video.cnbc.com/gallery/?video=3000139284 11
Hemptons Firm Bronte Capital is Long HLF & Believes in Michael Johnsons Leadership
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Expanded Disneys business from 34 markets to 80 markets
Created Disney subsidiaries in Europe, Asia, Africa, Latin America and the Middle East
Michael Johnsons Resume Fits Herbalifes Strategy
Univision Network is the most watched broadcast network and reaches 98% of U.S. Hispanic households
The Latino community has become Herbalifes largest affinity group
Source: Herbalife International Appoints Michael O. Johnson as Chief Executive Officer , 4/3/03 and Univision Communications Appoints Michael O. Johnson to Board of Directors, 6/5/05
Two years after becoming CEO of Herbalife, Johnson joined the board of
directors of Univision, which provided him deep exposure to the Latino
community
Prior to becoming CEO of Herbalife, Johnson was the President of
Disney International, which provided him with the experience of
expanding into new markets
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Herbalifes Answer to The Classic Pop-and-Drop
Under CEO Michael Johnson, Herbalifes strategies to address the Classic Pop-and-Drop include:
1. Expand globally, including in the worlds poorest countries 2. Exploit the Internet and Lead Generation 3. Target Latinos and low-income populations in the U.S. 4. Propagate Nutrition Clubs 5. Support Training Programs within Nutrition Clubs
Targeting the Bottom of the Pyramid in Herbalifes Own Words . . .
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SHUTDOWN
See Deceptive Practices Supporting the Herbalife Pyramid Scheme: Lead Generation (issued 2.4.14) http://www.herbalifepyramidscheme.com/deceptive-practices-supporting-herbalife-pyramid-scheme-lead-generation
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From an Herbalife Internal Strategy Document
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From an Herbalife Internal Strategy Document
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From an Herbalife Internal Strategy Document
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Herbalife Targets Those in Extreme Poverty
More than 4 billion people live at the
Bottom of the Pyramid (BOP) on less than $2 per day
Poor represents resilient
entrepreneurs and valueconscious
From Herbalifes Internal Strategy Document:
Emphasis in original 17
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Herbalife Targets Those in Extreme Poverty
How to Target the Poorest of the Poor
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Herbalifes Answer to The Classic Pop-and-Drop
1. Expand globally, including into the worlds poorest countries
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Number of Countries in which Herbalife Operates
1 1 2 3 4 4 4 45
9 11 1115 16
24
32 3436
4246 49
52 5558 59 60
62 6570 72
7479
88 91
0
10
20
30
40
50
60
70
80
90
100
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90
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91
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Michael
Johnson
becomes
CEO 4/3/03
Herbalife Needs More Countries to Exploit
Source: Herbalife public filings.
Herbalife currently operates in 91 countries, up from 49 countries in
2000, 11 countries in 1990, and only 1 country in 1980
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Country Year Entered GDP per Capita
Georgia 2011 $3,602
Belarus 2011 $7,575
Lebanon 2011 $9,928
Mongolia 2011 $4,056
Ghana 2011 $1,850
Trinidad & Tobago 2012 $18,373
Uruguay 2012 $16,351
Slovenia 2012 $22,059
Serbia 2012 $5,935
Macedonia 2012 $4,851
Armenia 2012 $3,505
Kazakhstan 2012 $13,172
Bosnia and Herzegovina 2012 $4,656
Moldova 2012 $2,230
Cambodia 2013 $1,008
Kyrgyzstan 2013 $1,263
Azerbaijan 2013 $7,812
Median $4,851
Herbalife Is Expanding into the
Lowest-Income Countries
Herbalife recently registered a domain in Burundi Myherbalife.bi a country with a GDP per capita of $267
Herbalife
does not
discount
products
in new
markets.
$5 for a
shake?
Source: Herbalife public filings and WorldBank.
In the last three years, Herbalife has entered 17 new countries.
The median GDP per capita of these countries is less than $5,000
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Herbalife Seeks to Exploit the Extremely Poor
in New & Existing Markets
What we're seeing more and more is that that leadership group is starting to train more on these new innovative methods to drive deeper penetration in the markets.
Michael O. Johnson, Herbalife CEO, May 5, 2009
CEO Michael Johnson: Drive Deeper
Source: HLF Q1-2009 Conference Call 22
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Herbalife Seeks to Exploit the Extremely Poor
in New & Existing Markets
This is the number one strategy of the company. If you take nothing
else away from this presentation, it's that our growth opportunity is
from going deeper into the marketplace through a new distribution
method that our distributors have employed. They have had success
in one market. They are learning how to replicate that success in
multiple markets, and that's the future.
John De Simone, Herbalife CFO, Dec. 9, 2009
CFO John De Simone: Going Deeper
Source: Wedbush California Dreamin Conference 23
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Herbalife Seeks to Exploit the Extremely Poor
in New & Existing Markets
The main driver of Mexico's success has been a highly unified
distributor leadership group and the adoption of the innovative
Nutrition Club DMO, which has enabled our distributors to increase
penetration in the lower social economic segments of the Mexican
market.
Greg Probert, Herbalife COO, Feb. 27, 2007
Former Pres. Greg Probert: Increase Penetration in the lower social economic segments of the Mexican market
Source: Q4 2006 Earnings Conference Call 25
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Herbalifes Answer to The Classic Pop-and-Drop
See Deceptive Practices Supporting the Herbalife Pyramid Scheme: Lead Generation (issued 2.4.14) http://www.herbalifepyramidscheme.com/deceptive-practices-supporting-herbalife-pyramid-scheme-lead-generation
2. Exploit the Internet and Lead Generation
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SHUTDOWN
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Herbalifes Answer to The Classic Pop-and-Drop
3. Target Latinos and Low-income Populations in the U.S.
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Herbalife: Going Deeper
Pursuing its Going Deeper strategy, Herbalife has targeted Latinos, African-Americans, Korean-Americans, Generation H and other affinity groups
Today Herbalife denies it targets ethnic, racial and other affinity groups, but the evidence demonstrates that Herbalife explicitly targets vulnerable groups
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I find the targeting of Distributors by ethnicity offensive on many levels
Michael Johnson, CEO October 2013
In Herbalifes Own Words . . .
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From a 2008 Herbalife Internal Strategy Document
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Herbalife Exported Nutrition Clubs From Mexico to the U.S.
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When the new management team came in, they asked what's the
phenomenon going on in Mexico? Why is Mexico is very consistently growing
the business? We went down into Mexico and found that these nutrition
clubs were really the vibrant aspect of that business versus the traditional
retailing-oriented component. In early 2004, we validated the nutrition club
concept. And you can see that point of inflection where once that was
validated and we started to communicate that, put that message on stage,
if you will, and create a lot of visibility around the success distributors were
having, it really escalated the Mexican business. Similarly, that concept
started to migrate into the US in late 2004.
Rich Goudis, CFO, Dec. 19, 2008
Source: Wedbush Conference
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Source: DSA
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From a 2008 Herbalife Internal Strategy Document
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From a 2008 Herbalife Internal Strategy Document
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From a 2008 Herbalife Internal Strategy Document
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From a 2008 Herbalife Internal Strategy Document
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Herbalife Targets the Unbanked Poor
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From a 2008 Herbalife Internal Strategy Document
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From a 2008 Herbalife Internal Strategy Document
Projections
for Spanish
& Non-
Spanish
Markets
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Herbalife Has Targeted Affinity Groups During
Johnsons Tenure As CEO
Source: Herbalife 2010 Investor Presentation. 42
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Herbalife Has Targeted Affinity Groups During
Johnsons Tenure As CEO
Source: Herbalife Today 43
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Herbalife Has Targeted Affinity Groups During
Johnsons Tenure As CEO
I get a call from a distributor, for example, who lives let's say in Southern
California and wants to move to Miami. So we have a program called
Geoscape that we can basically look up not only the -- let's say that they only
interested in working in the Latino market, okay. So it tells us what's the
Latino population, it actually breaks it down by the Cuban, Mexican, Puerto
Rican, and then also layers it by the distributors. So within that zip code
area, how many distributors do we have and what level are they. And this is
how they also have taken on that city-by-city concept, because they don't
want -- only want to just started working in their own backyard, they want to
start working in the different states.
Ibi Fleming, Herbalife SVP North America, Apr 24, 2012
Source: Barclays Retail & Restaurants Conference
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From John Tartol, Member of the Chairmans Club & Herbalife Board of Directors:
Latino Business is a Hot Commodity
Source: https://vimeo.com/84320070 password tartol 46
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Why Herbalife? Why Now? (2008)
Source: https://www.youtube.com/watch?v=qcZQF8sm4nQ 48
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Herbalife Targets Affinity Groups &
Low-Income Populations
Ideal Targets for Business Opportunity Schemes:
People in Need: Low-Income and Financially Insecure Populations
Who are Aspirational, Yearning to Build a Better Life
Who are Hardworking & Teachable (a favorite HLF term)
From Close-knit communities based on affinity
People unlikely to complain culturally or because of legal risk (e.g., undocumented residents)
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Research into Nutrition Clubs & Training Programs
The next sections of this presentation are based upon on-the-ground research over the past two years in:
Including Nutrition Club visits, Interviews, Audio/Video Taping, Enrolling in Training Programs and Undercover Investigators
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The U.S.
Puerto Rico
Canada
Mexico
Argentina
Brazil
Venezuela
Colombia
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Herbalifes Answer to The Classic Pop-and-Drop
4. Propagating Nutrition Clubs one way for Herbalife to reach Latino and low-income populations
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Nutrition Clubs Are Critical to Herbalifes Revenue Growth
The fundamental change in our business began 10 years ago with
the development of Nutrition Clubs in Mexico. This increased our
addressable audience by making our products more affordable to
more consumers.
Michael Johnson, CEO, Oct. 30, 2012
To reach new target populations, Herbalife adopted Nutrition Clubs and Training Programs
Source: HLF Q3 2012 Earnings Call 52
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Nutrition Clubs are Critical to Herbalifes Revenue Growth
Units in Mexico 37,000
449 397 403
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1,249
Source: Herbalife Q4 13 earnings conference call and public filings for quick service restaurants Note: For Herbalife, units represents nutrition clubs. For quick service restaurants, units represents total number of owned and franchised units.
Herbalife currently has 37,000 nutrition clubs in Mexico, which is 30x
the combined total of Burger King, McDonalds, and Starbucks restaurant units
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In 2010, Herbalife stated that Nutrition Clubs accounted for
nearly 70% of its business in Mexico. We believe Nutrition
Clubs are now an even more significant portion of Mexicos business
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Source: Bloomberg
Mexico Derives Substantially all Revenue
from Nutrition Clubs
Today, in some markets, in Mexico, for example, which is the most advanced in terms of nutrition clubs and where they originated seven or eight years ago, we estimate that as much as perhaps 70% of our business is done through the clubs.
Des Walsh, President, Q2 10 Earnings Call
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Shake Herbal Tea Aloe Water Total
Drinks per Day in Nutrition Clubs (1) 700,000 700,000 700,000 2,100,000
Days per Year 365 365 365 365
Drinks per Year in Nutrition Clubs 255,500,000 255,500,000 255,500,000 766,500,000
Estimated Herbalife Net Sales per Drink (2) $0.74 $0.39 $0.49 $0.54
Estimated Herbalife Net Sales in Nutrition Clubs $189,070,000 $99,645,000 $125,195,000 $413,910,000
Reported '13 Net Sales in Mexico $562,400,000
Estimated Nutrition Club Sales as % of Reported '13 Net Sales in Mexico 74%
Estimated Contribution of Nutrition Clubs to Herbalifes Net Sales in Mexico
Source: Company filings, conference call transcripts and Pershing estimates (1) Based on Q3 13 earnings conference call for 700,000 shakes. Since members are entitled to one shake, one herbal tea, and one aloe water with their daily membership, we assume members consume one of each drink per day. (2) Pershing estimate based on Formula 1, aloe water and herbal tea purchased price at a 50% discount to retail price and including 7% surcharge and 4% shipping. Serving amount per drink based on Herbalife recommended recipes
Herbalife claims to serve 700,000 shakes per day in nutrition clubs in
Mexico. Based on this assertion, we estimate that nutrition clubs may
represent nearly 75% of Herbalifes reported net sales in Mexico
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Mexico Derives Substantially all Revenue
from Nutrition Clubs (Cont.)
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We have always talked about how long it took for the nutrition
clubs to ramp up. Its exponential. So youre probably talking 18-24 months out into the future til you see maybe the explicit exponential growth.
Michael Johnson, CEO, May 2, 2007
So once they get to the point where, maybe over 1,000 to 2,000
Clubs, you really start to see exponential growth, so I think thats one thing really driving the Hispanic side of the business.
Greg Probert, then-President and COO, Nov. 7, 2006
Nutrition Clubs Fuel Exponential Growth
Michael Johnson: Its exponential.
Source: Herbalife Q1 2007 Earnings Call; Herbalife Q3 2006 Earnings Call 56
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Nutrition Clubs: A Tough Sell
But Opening a Nutrition Club Presents Nearly Impossible Obstacles to Success for the Target Recruits
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So it depends on the marketplace, but the clubs can vary from
$5,000, $6,000 to open to something greater than that.
John DeSimone, Herbalife CFO, Nov. 16, 2011
Nutrition Clubs: A Tough Sell
Nutrition Clubs Require Significant Start-up Capital
Source: Nov. 16, 2011, Morgan Stanley Global Consumer & Retail Conference. 58
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Herbalifes Nutrition Club Rules:
No displays of Herbalife name or logo or the words Nutrition Club or
shakes or any implication of being an Herbalife business (Rules 4-F; 5-B;
5-C; 5-E)
No advertising or promotion (Rule 4-D)
Must cover windows; no product visible from outside (Rule 3-G, 5-D)
No Open / Closed sign; signage may not imply or suggest that retail
products are for sale (Rule 5-C)
Not allowed to attract customers or walk-ins (Rules 4-D; 5-C)
May not post, list or charge individual prices for products (Rule 3-B)
Customers not allowed to carry out food unless a registered Club
attendee and only in an unmarked single-serving container (Rule 3-C)
Nutrition Clubs: Onerous Restrictions
Preclude Retail Sales and Advertising
Source: Herbalife Nutrition Club Rules, Herbalife Sales & Marketing Plan, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Marketing-Plan-and-Business-Rules-2012.pdf. Compare these restrictions on Nutrition Clubs with HLFs constant promotion of its name and logo in other contexts.
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So the clubs first and foremost can't be retail establishments.
They can't be Herbalife signed stores. Okay? . . . The consumer
cannot know it is a club until they have come inside.
They can't know it has anything to do with Herbalife. So the
windows are blocked . . . you can have no reference where
somebody walking by will know it is Herbalife.
John DeSimone, Herbalife CFO, Nov. 16, 2011
Nutrition Clubs: Onerous Restrictions
Preclude Retail Sales and Advertising
At Nutrition Clubs: The public cant know it has anything to do with Herbalife.
Source: Nov. 16, 2011 Morgan Stanley Global Consumer & Retail Conference, available at http://factsaboutherbalife.com/wp-content/uploads/2012/06/111116-HLF-Morgan-Stanley-Global-Consumer-Conference.pdf.
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Nutrition Clubs: Onerous Restrictions
Preclude Retail Sales and Advertising
We want the confidence of our distributors to be the passionate
expression of this product in the marketplace. And the way we do
that confidence and the way we build that confidence is to put our
name on these jerseys to have the world respond to us and see the
Beckhams of the world, and see the Messis of the world with
Herbalife on them and create an opportunity around our 8 Herbalife
24 product line to build off authenticity around those athletes
Michael Johnson, Herbalife CEO, Mar. 23, 2012
CEO Michael Johnson praises putting Herbalifes name on jerseys, but Nutrition Club operators are prohibited from using the Herbalife brand
Source: Herbalife Analyst Day 61
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Nutrition Clubs: Onerous Restrictions
Preclude Retail Sales and Advertising
Herbalife boasts that it sponsors over 45 teams and sporting groups and 86 individual athletes, but Herbalife forbids Nutrition Clubs from using its name or logo
Source: http://sports.herbalife.com 62
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Nutrition Clubs Lose Money on a Retail Basis
Daily traffic trends (based on two days of observation)
Breakdown of distributor vs. member traffic
Approximate rent per sq. ft.
Approximate size (sq. ft.)
Days open per week
Approximate utility costs
Start-up costs per club
Inventory costs per serving
Source: Photos Taken by Pershing Square
We studied the economics of 10 Nutrition Clubs in Queens, N.Y.
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Look
Commun. Arcoiris Good
Juven. Salud Amigos Weight A New Herba- Feel 2135 Health Healthy
Y Vida Es Vida Felices Loss Hope Life Great 2nd Ave It Up Keepers Average
Membership fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00
Daily paying members (1) 21 52 27 23 14 14 12 20 6 51 24
Days open per year 344 292 292 292 292 292 292 292 344 292 302
Membership Revenue $36,765 $75,555 $38,873 $33,398 $19,710 $19,710 $18,068 $28,470 $9,675 $74,460 $35,468
Less: Rent (2) (23,142) (15,685) (16,655) (21,428) (19,170) (22,984) (31,668) (36,447) (14,694) (27,464) (22,934)
Less: Utilities (3) (2,100) (1,750) (2,800) (1,983) (2,362) (2,100) (2,450) (2,800) (1,837) (2,644) (2,283)
Less: Insurance (3) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000)
Less: Inventory (4) (16,989) (34,913) (17,963) (15,433) (9,108) (9,108) (8,349) (13,156) (4,471) (34,407) (16,389)
Less: Depreciation (5) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000)
Operating Income ($11,466) $17,207 ($4,545) ($11,446) ($16,929) ($20,482) ($30,399) ($29,933) ($17,326) $3,944 ($12,137)
Nutrition Clubs Lose Money
(1) Daily traffic based on average of the two days of traffic observed by Pershing Square. Assumes 75% of daily traffic are paying members. (2) Based on analysis of recorded rents for comparable local retail properties performed by New York City real estate consultant (3) New York City real estate consultant and Pershing Square estimates (4) Based on estimated traffic for total servings and average cost per serving assuming a purchase price at a 50% discount to retail price. Amount per serving based on Herbalife recommended recipes. Assumes each member consumes one Formula 1 shake, one herbal tea, and one aloe water per visit, as they are entitled to under their membership fee. (5) Assumes a three year amortization period for the $6,000 nutrition club start up costs as reported by Herbalife
We estimate that the average Nutrition Club loses more than $12,000
per year before accounting for the additional opportunity cost of the
operators time
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Market Saturation
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In the Face of These Obstacles to Success, How Does Herbalife Lure in Recruits?
First, tell them its not about selling shakes, its about DUPLICATION
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Where your moneys made is not serving smoothies. Where your moneys made is having hundreds, or tens, or thousands of distributors around the globe who are working.
Doran Andry,
Herbalife Chairmans Club Member
The Real Purpose of Nutrition
Clubs Is Recruitment
Source: Doran Andry conducting a Full Wellness Training, available at https://vimeo.com/88161989 at 3:58 (password: andry). See also: Profile of Andry on www.herbalifepyramidscheme.com.
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Because when you buy the product once a month and you have to come out the pocket $30, $40, $50 or $100, it's hard for people to afford. If you could break it to a daily price point, you could have the same price per serving, but now you break it to $2, $3, $4 per day, it becomes very accessible to people. So it's not more affordable, but it's more accessible.
John DeSimone, Herbalife CFO, Sept 6, 2012
The Real Purpose of Nutrition
Clubs Is Recruitment
So it's not more affordable, but it's more accessible."
Source: Barclays Back-to-School Consumer Conference 70
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The Real Purpose of Nutrition
Clubs Is Recruitment
Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com.
71
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The Real Purpose of Nutrition
Clubs Is Recruitment
Money is made in the duplication of Distributors
starting their own Clubs.
Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com.
72
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The Real Purpose of Nutrition
Clubs Is Recruitment
Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com.
73
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How Does Herbalife Explain Nutrition Clubs to Wall Street?
Its All About Consumption
74
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It Is All Consumption Based
I think its important for somebody interested in this model to go
see a club. And youll understand that within the clubs, it is all
consumption based.
John DeSimone, CFO, Nov. 14, 2012
Source: Herbalife Independent Distributor Presentation Source: Herbalife Investor Day Presentation, March 23, 2012
Source: Nov. 14, 2012 Morgan Stanley Global Consumer & Retail Conference; Independent Distributor Presentation. 75
-
Herbalife Tells Wall Street
Nutrition Clubs Attract Repeat Customers
In response to a survey of U.S. Nutrition Club members, nearly 60% said they attended a nutrition club everyday, almost 80% attended more than 3 days a week, and more than 40% have been attending the club for longer than one year.
CEO Michael Johnson,
2Q 2011 Earnings Conference Call
Herbalife Chief Executive Officer Michael O. Johnson told investors during an earnings conference call that people in Nutrition Clubs are loyal:
76
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Herbalifes Answer to The Classic Pop-and-Drop
5. Support Training Programs in Nutrition Clubs an entry point for low-income recruits who cant or wont invest to open a club
77
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Herbalife Promotes Training
In the face of:
High start-up and operating costs
Projected losses from operations
Saturated markets
The daunting prospect of trying to duplicate a Club
How can Herbalife recruit low-income, inexperienced, first-time business operators to try the business if they are unwilling or unable to open a Club?
TRAINING! 78
-
Recruits Are Told They Cannot Succeed
Without Training
Data
Of 100 Clubs 64 closed in their first year
90% of Clubs that closed had less than 15 complete consumptions
9 out of 10 Clubs that were closed were attended by distributors who are not trained
Translation:
Source: https://www.facebook.com/solrac.c.zenemij/photos. 79
-
And frankly, this home commercial model, the method of systemized training that we're now seeing introduced by many distributor leaders in Mexico supported obviously by the Company with Nutrition Club tours and so on.
Des Walsh, President, Feb. 22, 2012
In Mexico, the more structured training methods that many distributors are integrating into their businesses is driving solid volume growth, duplication of Clubs . . ..
Des Walsh, November 1, 2011
Herbalifes Elusive Systems of Training
Source: Q3 & Q4 2011 HLF Earnings Conference Calls (emphasis added)
Herbalife repeatedly refers to structured or systemized training methods, but they dont explain what they are
80
-
They've come together and gone into light commercial or industrial space, and they've put five or six distributorships together, and they have a social environment. They have a nutrition environment. They have a training environment. They have a recruiting environment all under one roof.
Michael Johnson, CEO, Sept. 3, 2008
Herbalifes Elusive Systems of Training
Source: HLF at Goldman Sachs Global Retailing Conference, Septermber 3, 2008
Herbalife repeatedly refers to systemized or structured training methods but doesnt explain what they are
81
-
Herbalife has Fostered Many Training Programs, including Club 100, Universidad del Exito (Success University) and other Trainings and Certifications, including Herbalifes own Best of the Best / Lo Mejor de Lo Mejor
82
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Club 100: A Pyramid Within a Pyramid
Source: www.slideshare.net/ivanpatricioarias/hom-club-100. 83
-
Club 100: A Pyramid Within a Pyramid
84
All of our Wall Street analysts have been into clubs throughout the U.S. and in some cases, Mexico, Brazil or even Russia, and they can attest to the fact that there are more customers enjoying Herbalife products on a more frequent basis than ever before.
Michael Johnson Herbalife CEO, July 31, 2012
Source: Q2 12 Earnings Call
-
John Hempton is the most public bull and blogger for Herbalife
Wall Street Buys that People in Nutrition Clubs
are Customers
They . . . were clearly customers they came in they paid their money they drank their shake. They look like customers because they were customers.
John Hempton, Bronte Capital, after a visiting a Nutrition Club in Queens
to which Herbalife had directed him
See http://nypost.com/2014/04/16/ackman-adversary-john-hempton-falls-off-herba-cliff/ 85
-
An institutionalized system for recruiting, training, and motivating Nutrition Club operators that has driven
Herbalifes growth in many Spanish-speaking markets and elsewhere
Originated in Queretaro, Mexico
Trademarked in Mexico by Jorge Ruiz in 2009
Has spread across the U.S. and Latin American markets, and elsewhere
Has its own rules, rewards, symbols and tools
-
Club 100 is intentionally secretive
Almost no written explanation or rules
Rules are inconsistently applied between systems and sponsors
Completion of steps is at the discretion of the sponsor
-
The message, however, is very consistent: Club 100 says it
offers a way for distributors to reach the Presidents Team
Price is little when the promise is clear, as my teacher used to say, right? The promise what you are promising people is very important. You have to sell them the idea that one day they are going to make Presidents Team.
Undercover Investigator at a Club 100 Training
-
Whats Wrong with Club 100: False Income Claims
Source: www.facebook.com/yimenita.mora/photos. 89
-
Presidents Team Members Across the U.S. Are Linked to Club 100
Ernesto Zavalza Portland, OR
Juan Mendoza Scottsdale, AZ
CHAIRMANS CLUB
Monica Del Caprio Scottsdale, AZ
Maria Elena Caballero Park City, IL
Luciano Oliveira Chicago and PR
Milton Camas Passaic, NJ
Edgar Montalvan Queens, NY
Santiago Cobos New York
Nelson Pablo Paucar Brooklyn, NY
Estuardo Loza New York, NY
Marcelo Real Boston, MA
Emily Molina Waterbury, CT
George Gutierrez Puerto Rico
Sujaila Toro & Carlos Franqui
CT / PR
Veronica Zumano Metro DC / MD
Alvaro Echavarria Miami, FL
Andres Gutierrez & Martha Muriel
Miami, FL
Olga Cortes & Pedro Rojas Atlanta, GA
Maritza Sanabria Houston, TX
Joe Pastrana Houston, TX
Erick & Flor Rios Houston, TX
Dalia & Angel Ibarra San Antonio, TX
Norma Nava Oxnard, CA
David Yanez Anaheim, CA
Elizabeth Yanez Anaheim, CA
90
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Club 100: Getting Certified
Source: Facebook 91
-
Club 100
Certification
Source: http://www.planclub100.com, before the website was taken down in December 2013.
-
Club 100
Certification
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Translation: Certification Course
Distributors work in an upline distributors club
Distributors pursue certification under a Yellow or Green Card
Green Card holders go at their own pace
Yellow Card holders are on the fast track and are required to work a set schedule
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Translation: Certification Course
Youll learn how to make the shakes,
how to call and invite people to the club,
as well as how to manage the club
finances and rules.
Club 100 Recruiter, Bogota, Colombia
The position is like an unpaid internship
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Translation: Certification Course
The trainee said he would prefer to drink his
shake, tea and Aloe Water at the end of his
shift. His upline said, How can we serve the
tea if we haven't had the tea?
Notes from Undercover Investigator
A distributor's first task, however, is to pay for and consume the products.
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Classes
Translation: Certification Class
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Classes
Classes typically are held three times a week (but sometimes more frequently)
The content of the classes is highly repetitive from one session to the next
Those who arrive even one minute late dont receive credit for the class and must attend
another class, but they must still pay
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Classes
Distributors pay a fee to attend classes which often
includes the cost of consuming products during the
classes.
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Classes
A trainee at the club was asked by another trainee how
many more classes she needed to take to complete
her certification. She replied that she didnt know because as soon as she completes one series of
trainings she begins a new one.
Notes from Undercover Investigator
As with many of Club 100s requirements, class attendance requirements can be confusing and
inconsistently described.
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Testimonials
Translation: Product Training
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Week 1 Translation: Tour of Clubs
Consumptions
Club visited
Host Signature
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Week 1*
Distributors during the certification
process have to visit your club on the
tour, and they would have to pay for
their consumption for training. Thats
the hosts benefit of teaching you from
their experience.
Club 100 Distributor, Colombia
Touring requires paying for Herbalife products
*Each stage can last longer than a week
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Week 1
Rules for the Certification Tour posted online by Club 100 in Venezuela:
During the first week of the certification tour, visit seven different clubs, staying for a minimum of two hours at each
Only visit clubs that have obtained the 25 and More qualification
Inform the host when you plan to attend
Avoid visiting clubs in groups of more than five
Avoid use of unauthorized cameras
Avoid talking to the clubs consumers unless asked by the host
Trainees are encouraged to look like customers
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Week 2
Translation: Shake Preparation (how many)
Shakes
School Club
Host Signature
-
Club 100 Certification
Week 2
Making an Herbalife shake is a fairly simple process
two scoops of Formula One blended with a glass of water. The training, however, is extensive.
The first thing trainees learn is the importance of
customer service; then they learn how to make
shakes. A trainee was told that she must make at
least 100 shakes.
Notes from Undercover Investigator
-
Club 100 Certification
Week 2
Not only must trainees make shakes, they must also find people to pay for and consume them.
Of course, you and your relatives have to pay
the host for the meals or shakes that you
guys take in the school club.
Club 100 Distributor, Colombia
-
Club 100 Certification
Week 2
Not only must trainees make shakes, they must also find people to pay for and consume them.
The undercover asked a trainee who had been working
at the club for two years if it takes a long time to learn to
make shakes. She said, Nah.
Later, the undercover asked the trainee if she had
completed the certification process, and she said she
still needs to pass some of the tests.
Notes from Undercover Investigator
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Week 3
Translation: Give Information (to how many people)
No. of People
Club School
Host Signature
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Week 4
Translation: Invite (how many delivered)
Invitations
Club Visited
Host Signature
-
Club 100 Certification
Week 4
A trainee in the club asked another trainee if she
had completed the tests the shake making, the inviting, the giving information requirements.
"Haven't you already done all that?" he asked.
The trainee said she had, but the invitees needed
to consume product for her to pass those tests.
Notes from Undercover Investigator
-
Club 100 Certification
Week 4
Example of a flyer
inviting a person to
visit a Nutrition Club
Note that the invitation
is for a free sample
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Retained Members
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Retained Members
Interview notes from a Club 100 club in Caracas, Venezuela
A distributor mentioned that during her
certification, she spent almost three months
trying to complete the retention requirement,
which requires a trainee to bring 10 people
from their circle of family and friends to
consume regularly in the club.
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Retained Members
Distributors are told they should feel grateful when
turning over 10 family members and friends to their
upline's club in order to graduate.
That club opened the doors for you. Imagine
how great it is! ... So you have to start
working, inviting people to go in, and when
you get 10 people into the club, it means that
you are no longer afraid of anything.
Club 100 Co-founder Esther Espinosa, at a training event in Mexico
Note: If the Trainee delivers 10 Retained Clients from his or her Circle of Influence to the
sponsors Nutrition Club, theres no one left to patronize the Trainees Club, if it ever opens. He will need to recruit trainers to bring their Circle of Influence.
-
So Whos Really Consuming in Herbalife Nutrition Clubs?
Friends and family of those working at clubs to be certified
Potential recruits on the Presentation Tour
Distributors training in their sponsors clubs
Distributors on Certification Tours
115
-
Source: http://www.planclub100.com, before the website was taken down in December 2013.
Club 100 Certification
Graduation
Translation: Club 100 Graduation Ceremony
-
Source: www.facebook.com/hiram.j.silva?fref=ts.
Club 100:
Certified Worksheet
117
-
Amount
Trainee consumes in sponsors club twice a day for three months 180
Trainee goes on tours and consumes in 8 clubs as part of the tour 8
Trainee consumes at each class/event attended (Assumes 3 weekly events for 16 weeks) 48
Trainee makes 100 shakes for practice, finds relatives to consume them 100
Trainee takes inviting test and gets 1 person to come into the club every half hour for 4 hours 8
Trainee recruits 10 relatives to consume in his uplines club once a day for a month 300
Estimated Total Shakes Consumed by Trainee or Trainee's Friends & Family 644
Daily Membership Fee for Nutrition Clubs $5.00
Total Estimated Cost of Shakes Consumed by Trainee or Trainee's Friends & Family $3,220
Hidden Costs of Club 100 Certification
Source: Estimates based on Pershing Square undercover investigations
Amount and Cost of Shakes Prepared by Trainee during Club 100 Certification
The total cost to become a certified Club 100 member approximates the $3,000
cost to become a supervisor - excluding the cost of classes
We estimate that a Club 100 trainee and their family and friends incur
more than $3,000 in fees to purchase shakes
118
-
Club 100: Graduates in Caps and Gowns
119
-
Source: www.slideshare.net/ivanpatricioarias/hom-club-100.
Club 100: Another Pyramid to Climb
Now, the new Club operator attempts to advance by ordering large
volumes of Herbalife products to grow consumptions
120
-
Source: www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be
Club 100: Another Pyramid to Climb
And when you get to a weekly average of 25, then we begin
talking about other interesting
things. As they said to us during
our tour when we asked several
questions: Ill tell you when you get to 25 or more.
Edgar Balbas, Chairmans Club member since 2013
There are rewards for reaching various targets, but top distributors are
coy about them
121
-
Source: www.facebook.com/gustavo.anaya.33/photos.
Club 100: Another Pyramid to Climb
Club operators get a certificate for each new level, starting with
25 consumers
122
-
Source: www.facebook.com/alvaro.echavarria.92?fref=ts#!/photo.php?fbid=10150117556852709.
Club 100: Another Pyramid to Climb
Distributors must faithfully record all consumers entering their clubs
123
-
And I'm going to clarify again that these are not consumers, but
how many consumptions your club
had. Because if someone went
and consumed two or even three
times that day in your nutrition
club, that would be registered
here as three consumptions and
his or her name would be written
three times.
Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.
Club 100: Another Pyramid to Climb
The number of consumers, however, is not as important as the amount
of product they consume
124
-
Club 100: Another Pyramid to Climb
Now, you see, the objective we want to achieve is that a club
with 25 [daily consumers]
moves, not 1,200 points [the
amount of volume required to
serve 25 people for 30 days],
but 2,500 points. That means
that there are still 1,300 to go.
Those 1,300 points, my friends,
are achieved with products, eh,
by selling closed products for
specific nutrition.
Finally, Club 100 requires that distributors place set volume point orders
every month to back up that they have the claimed 25, 50, 75 or 100
consumptions going on daily at their club
125
-
Club 100: Another Pyramid to Climb
Once you have reached 25 meals, you can become a daily school club. Then, others will go to yours, to learn and pay for their
consumption.
Interview with a Club 100 operator in Colombia
The benefits of reaching these inventory loading targets are more
consumers
126
-
Club 100: Another Pyramid to Climb
We were told that clubs are permitted to train new recruits only when they reach 50 or More consumers. We spoke with a distributor who had recruited a trainee but was unable to have
that trainee work in her club because she not reached 50 and More. As a result, the trainee was working in her uplines club.
Notes from Undercover Investigator
The rewards continue to build with the status of the club
127
-
After reaching 100 daily consumos, the Club operator then focuses on getting downline recruits to open new Clubs
Source: www.slideshare.net/ivanpatricioarias/hom-club-100.
Club 100: Yet Another Pyramid to Climb
128
-
Club 100: Yet Another Pyramid to Climb
Source: http://planclub100.com/portada/wp-content/uploads/2010/06/5-x-5-clubs.pdf.
129
-
Club 100 uses a record keeping system called the Engargolado or the Binding, which tracks all aspects of the distributors business. The Engargolado requires distributors to misrepresent
the profitability of a Nutrition Club
Club 100: Yet Another Pyramid to Climb
In all honesty, the first
time I heard that name
[the Binding], I didnt like it.
And I said, Im going to call
it controller. But then I said,
You know what? Im going
to call it binding.
130
-
As part of the Engargolado Club 100 tells Club operators to
separate the cash generated by their businesses into RED and
GREEN envelopes.
Source: Edgar Balbas video, available at http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.
Club 100: Required Increases in Inventory
-
Club 100: Required Increases in Inventory
What is the red envelope? The red envelope, my friend,
cannot be touched because
that is the cost and that
money is not yours. That
money goes to Herbalife, it
belongs to your business
and it has to be used,
obviously, for product
reposition.
Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.
132
-
Club 100: Required Increases in Inventory
You place that amount in your green envelope, and that is your salary. You take that 16 dollars just as if you go to work
someplace else. What do you do with the green envelope that is
your salary? You pay for electricity, you start saving to pay for
electricity, you pay for water, your phone, your club, everything.
Online Training
The Green Envelope is described as equivalent of a club operators take-home pay, but theres a catch
133
-
The first of the binding is a clear plastic sheet and it is super
important that it is like that, clear,
because in the end, eh, here is the
monthly summary of earnings.
The fact that it is see-through
turns it into a very effective
recruiting tool once your club
becomes successful.
Edgar Balbas, Herbalife Chairmans Club member
Club 100: False Earnings Claims
Source: http://www.youtube.com/watch?v=D9ve9LZcdpc.
That catch doesnt stop Club 100 from telling distributors to include the profits they earn in their clubs on forms shared with potential recruits
134
-
Club 100: False Earnings Claims
These earnings statements provide proof to potential recruits that Club 100 operators are steadily advancing toward the promised
Presidents Team level. There are frequent opportunities to present this proof at classes where club operators provide earnings claims as well as
health claims
135
-
Club 100: The Requalification Treadmill
Qualification is a never-ending process. Distributors must constantly
re-qualify in order to stay in the game. Those who dont re-qualify have their clubs taken off the tour list, arent permitted to bring potential recruits to classes and arent welcome to bring their potential recruits on Presentation Tours of qualified clubs. In other words, they lose
access to Club 100s (deceptive) marketing techniques.
137
-
Club 100 requires Club operators to take 10% out of the GREEN
envelope every week and place it in the RED envelope to purchase
additional products. Unless the Club operator reports increased
inventory, he will not re-qualify to remain on the tour list.
10%
Source: Edgar Balbas video, available at http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.
Club 100: The Re-Qualification Treadmill
138
-
Club 100: The Requalification Treadmill
Specifically here from the green envelope, from your profit, you are
going to take 10% and you are going
to put it here in 'increase.' What for?
Because what we want to achieve
with this is that your inventory,
independently of what you start
withif it was 500 or 1,000 points with that, my friends, you can get to
what we saw in those nutrition clubs
with weekly inventories of 3, 4, 5
thousand volume points with this,
with this principle of the 10%.
Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.
139
-
Thus, the RED envelopecontaining money to buy Herbalife productscontinues to grow even if it means more of the Club operators salary in the GREEN envelope continues to shrink
More money for Herbalife and the sponsor . . . and larger
stockpiles of Herbalife products for the Club operator to give away
as free samples
Club 100: Required Increases in Inventory
140
-
Club 100: The Requalification Treadmill
Promotions are used to keep the volume moving
through clubs:
Distributor birthday parties Mothers Day giveaways Product raffles Free facials Other creative promotions, such as
141
-
Three hours of free babysitting with purchase
of a shake
142
-
Recall that distributors cover the cost of promotions and
must assure that the money needed to replace products are
placed in the RED envelope.
As long as distributors keep ordering more product, ignoring
other expenses and funding the RED envelope, distributors
will see their earnings continue to grow.
Club 100: Yet Another Pyramid to Climb
143
-
Club 100: The Requalification Treadmill
Club operators
advertise the status
of their clubs with
elaborate displays of
product containers,
suggesting success is determined not by a
crowded club but by the
volume purchased and
consumed through
that club.
144
-
Club 100: The Requalification Treadmill
145
More large volume
purchases from Herbalife
-
UNDERCOVER
147
VIDEO UNDERCOVER
http://vimeo.com/101256156 password: And3s
-
Whats Wrong with Club 100?
Relies on deceptive income claims
Deceives trainees into believing they are investing in an education with a valuable pay-off at substantial cost in time and money for the trainee
Demands DUPLICATION for success
Creates fake Club traffic consisting of trainees and their family members and friends
Promotes inventory loading
Violates Federal labor laws applicable to unpaid employees
148
-
Source: www.slideshare.net/ivanpatricioarias/hom-club-100; :
www.facebook.com/solrac.c.zenemij/photos.
Trainees are told they are on the road to the Presidents Team or higher
Through Club 100s pentagonal growth, they can earn $657,000
With Herbalife, they can pay the rent, buy shoes for
their children, leave money to their grandchildren
But, according to Club 100: 9 out of 10 Clubs that were closed were attended by distributors who are not trained So recruits need Training.
Whats Wrong with Club 100: False Income Claims
149
-
Whats Wrong with Club 100: False Income Claims
Club 100 duplication system
Club 100 Pentagonal Progress: 5 steps on each side of the ladder; 5 x 5 x 5 Diagram of Generations
150
-
No Disclosure or Warnings regarding training: Cost of Training in Time and Money Capital Required to Open a Club Retail Sales at Clubs Net Profits or Losses at Clubs Churn Rate of New Recruits How many Trainees become Sales Leaders Does anyone make money? Does anyone find a career?
Whats Wrong with Club 100: False Income Claims
151
-
A Pyramid
Within
A Pyramid presented as a
University
Source: Facebook page of Universidad Del Exito Cuenca [Success University]
Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University
152
-
Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University
Source: Herbalife Success University
From
Financial
Success
System
(Doran
Andry)
Note:
Herbalife
name,
logo,
text font
&
trademark
notice
153
-
Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University
New York Education Law 224(1): No individual, association, partnership or corporation not holding university, college or other degree conferring powers by special charter from the legislature of this state or from the regents, shall confer any degree or use, advertise or transact business under the name university or college . . . unless the right to do so shall have been granted by the regents in writing under their seal. Cal. Educ. Code 94050(b): No person shall designate a business, social, political, religious, or other organization operating in this state, including, but not limited to, any firm, association, partnership, or corporation, as a college or university. Tex. Educ. Code 61.313(c): A person may not use the term college, [or] university . . . in the official name or title of an educational or training establishment. Other laws: licensing of teachers and administrators; school advertising; certification of agents who solicit or enroll students; student refunds; general prohibition of unfair or deceptive acts or practices and false advertising, such as FTC Act 5, New York General Business Law 349- 350, and similar laws in other States.
See State of New York v. The Trump Entrepreneur Initiative LLC f/k/a Trump University LLC, Index No. 451463/2013 (N.Y. Sup. Ct., Aug. 24, 2013). 154
-
Translation:
The school where
you will learn
1. Open your own
club.
2. Grow your club
(25, 50, 75, 100,
etc Consumos)
3. DUPLICATE
Source: http://www.slideshare.net/ivanpatricioarias/hom-club-100.
Whats Wrong with Club 100: DUPLICATION
155
-
Violates Labor Laws
Source: Advisory (July 2013) available to distributors at MyHerbalife.com, paraphrasing U.S. Department of Labor, Wage
and Hour Division, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (issued Apr. 2010), available
at www.dol.gov/whd/regs/compliance/whdfs71.htm.
Herbalife Advisory (July 2013):
Herbalife warns Nutrition Clubs that their trainees may be seen as
unpaid workers in violation of Federal labor law
156
-
Violates Labor Laws - Herbalife Advisory (7/13):
157
-
Herbalife is Complicit in the Propagation of Nutrition Clubs and Training Programs
158
-
Herbalife Monitors and Propagates New DMOs
[N]ew ideas and DMOs [Distributor Methods of Operation] are being generated in many of our markets and are globalized where applicable through the combined efforts of Members, country management or regional and corporate management. . . . Managements strategy is to review the applicability of expanding successful country initiatives throughout a region, and where appropriate, financially support the globalization of these initiatives.
HLF 10Q for First Quarter 2014
Herbalifes Standard Language in its 10Ks and 10Qs about Globalizing DMOs, since at least 2008:
159
-
Herbalife Monitors and Propagates New DMOs
Look at whats working Walsh wanted to get inside the heads of his successful
distributors and figure out what it was they were doing so well . . .
Source: http://www.blog.thenutritionshop.co.uk/2012/01/how-des-walsh-helped-reinvigorate-sales.html
. . . If we find out based on that, it is an idea that can spread across cultures and across markets, we look to do that.
From an Article about Herbalife Pres. Des Walsh (Jan. 4, 2012):
Training Programs Have Been Globalized by Herbalife and its Senior-most Distributors
161
-
Herbalife Mandates Formal Training
[A]ny participant desiring to use a nutrition club DMO will be required to complete a formal Company training program. This is in addition to the already implemented 90 day waiting period prior to opening a club.
CEO Michael Johnson, 3Q13 Conf. Call, 10/29/13
Herbalife Uses its New 90-Day Waiting Period to Promote Formal Training
Herbalifes Formal Training Consists of an Online Quiz with low standards for passing. Others offer their own Training programs
162
-
Herbalifes Training
163
VIDEO FORMAL TRAINING
-
Herbalifes Support for Club 100
Leonard Aquino: can you
send me that club 100 poster on
the left?
Deborah Sousa: they gave it
at extravaganza if not they have the file on myherbalife
Leonardo Aquino: WHERE?
CAN YOU SEND ME THE FILE
PLS?
Source: https://www.facebook.com/debysousa/photos.
Herbalife distributed Club 100 posters at its Extravaganza in 2012 and
made them available on the website MyHerbalife.com
165
-
Herbalifes Support for Club 100
Source: Michael A. Swartz, SunTrust Robinson Humphrey Analyst Report, at 1, Sept. 14, 2012
In 2012, an analyst report touted Club Cien (Club 100), a best practices program that could add a few percentage points to [Herbalifes] U.S. growth in the near term
166
-
Herbalife Touts the Success of Clubs
Using the Club 100 System
[Play edited version of Herbalife Nutrition Club video highlighting Club 100 logos]
Source: Herbalife Nutrition Club Video
In the January 2013 Investor Day, in response to Pershing Square,
Herbalife broadcast a video of Nutrition Clubs, in which Club 100
appears prominently in Club after Club
168
VIDEO - WELCOME
TO MY CLUB
-
Herbalife Promotes Club 100
Perpetrators in its Own Defense
Members like me are under attack by a billionaire hedge fund manager who has embarked on an unprecedented effort to take down my way of life, and we want him to know that Herbalife members wont stand for it
Silvia Muir, Palantine, IL, July 18, 2014
Silvia Muirs way of life is pursuing Club 100
-
Herbalife Promotes Club 100
Perpetrators in its Own Defense
Best of the Best/Club 100: Silvia Muir Marty & Gina Montasterski Erick Sandoval (son of Chairmans Club Members Gabriel & Emma Sandoval) Angel Ibarra Universidad del Exito: Olga Vigoya Veronica & Carlos Rivera Ximena Bentancourt Oscar Morales & Aida Sanchez
On July 10, 2014, Herbalife sent distributors to Washington, DC and
presented in a press conference in defense of its business are in
training programs
170
-
Beginning in 2013, Herbalife began to attempt to hide its relationship with Club 100
-
Herbalifes Support for Club 100
Source: Herbalife U.S. Nutrition Club Notification Form, available at http://factsaboutherbalife.com/wp-content/uploads/2013/02/Nutrition_Club_Notification_Form_2011.pdf.
Herbalife included Club 100 on its Nutrition Club
registration form in 2011 and 2012
172
-
Herbalife: Hiding its Connection to Club 100
Source: Herbalife U.S. and Puerto Rico Nutrition Club Notification Form, available at https://www.myherbalife.com/Content/en-US/pdf/toolsAndTraining/business/businessMethods/DMOs/nutritionClub/NutritionClub_RegistrationForm_USEN.pdf.
In 2013, Herbalife removed Club 100 from its U.S. and Puerto Rico
Nutrition Club registration form
173
-
Herbalife: Hiding its Connection to Club 100
Jorge Ruiz Club 100 website disappeared in December 2013
174
-
Source: https://www.facebook.com/linis.leal/photos#!/linis.leal/photos_albums.
Club 100 Lives On
New trainees in November 2013
175
-
Source: http://herbalifespectacular.com.my/Edgar%20Speaker%20Flyer_R2.pdf.
Club 100 Lives On
176
-
HLFs Own Training Worksheet Tracks Club 100
In 2013, Herbalife created its own training program called Best of the Best / Lo Mejor de Lo Mejor which closely tracks Club 100
177
-
HLFs Own Training Worksheet Tracks Club 100
Club 100 Lo Mejor de Lo Mejor
178
-
Herbalifes Own Lo Mejor de Lo Mejor
Herbalifes four Fases (phases) tracks Club 100s four-part training: - Visiting - Preparing Shakes - Giving Information - Inviting Others
Herbalifes 3-8-1 list parallels Club 100s 3-8-1 list. HLF requires: 3 - Product Trainings 8 - Training Clubs 1 - STS
179
-
Herbalifes Continued Support for Club 100 and Other Training Programs
Herbalife touts its new 90-day waiting period, as if it prevents recruits from committing to the business opportunity too quickly. In fact, Herbalife uses the 90-day period to encourage recruits to become committed to a training program which promises success in the business
180
-
Herbalife Club 100 Worksheet Notice (emphasis added):
The Worksheet for Nutrition Club Training will help to ensure that new Nutrition
Club operators receive adequate training for their own successful Nutrition
Club. Use this worksheet in your system to keep track of your attendance at
each stage of the theoretical and practical training. This training will take 30
days to complete or can progress at a pace that is most comfortable for you.
Before signing a tenancy agreement for the purpose of opening a
nonresidential Nutrition Club you must complete the first 90 days since
Herbalife accepted your Application and Membership Agreement.
Translation of Legend in Spanish at the bottom of Lo Mejor de Lo Mejor Training Worksheet
Herbalifes own Best of the Best (Lo Mejor de Lo Mejor) instructs new recruits to keep track of their training over 30 days
181
Herbalifes Continued Support for Club 100 and Other Training Programs
-
Club 100, Universidad del Exito (Success University) and other Training and Certification programs pervade the uppermost reaches of the Herbalife network
182
-
183
And one of the reasons we want to get this out of the way our
Chairman's Club who are the real, real go-getters, the real leaders, the people who take the stage, who lead the parade in this company, who are the heavily inspiring, motivating people we have highly aspirational folks. We will be on the phone with them in two hours to go through this in more depth with more discussions this years as we have got to do. They will give us a ton of input and say, here is what you need to do and here is the support we need to integrate the market. Yeah, and together and this will also be because these are global leaders.
Michael Johnson, Herbalife CEO, Jan 5, 2007
Source: 2007 Guidance Call
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Eduardo Salazar (deceased)
Herbalife's most celebrated Latino
distributor, Eduardo Salazar was
murdered in Mexico by a double-crossing
hit man whom Salazar had hired to kill a
rival bar owner.
Salazar was an early user of the
"Universidad del Exito" concept, which
is now used across the U.S. and Latin
America, and requires distributors to
undergo "training" in order to participate
in the Herbalife business opportunity. 1
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Eduardo Salazar (deceased)
Salazar's distributorship is run
through a corporation, Corporativo
S. de r.l. de c.v., and according to
a former employee is still one of the
most profitable distributorships
within Herbalife.
2
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
The University of Success
Universidad del Exito is used to describe
various training programs that promise
"trainees" they can reach the President's
Team by undergoing an educational
program that includes "graduation."
To graduate, distributors frequently are
required to buy set amounts of Herbalife
products, either through Nutrition Clubs
or from Herbalife directly and to recruit
others into the "University."
1
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
The University of Success
The use of the term University for an
unlicensed and unchartered business
purporting to provide training services likely
violates a range of state education laws,
as well as consumer protection laws.
For example, California Education Code
94050(b): No person shall designate
a business, social, political, religious, or other
organization operating in this state, including,
but not limited to, any firm, association,
partnership, or corporation, as a college
or university.
2
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
The University of Success
We found more than 2,500 people
on LinkedIn who listed "Universidad
del Exito" on the education section
of their resumes.
3
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Enrique Varela & Graciela Mier
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Enrique Varela & Graciela Mier
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Enrique Varela & Graciela Mier
The couple is credited with creating
the entire Nutrition Club concept in
Mexico. They are in Eduardo
Salazar's first line and their downline
organizations attend Universidad del
Exito trainings.
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Raquel Cortes
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Raquel Cortes
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Raquel Cortes
Raquel Cortes was the No. 1 Herbalife
distributor in the world in 2008, 2010,
2011, 2012 and possibly 2013.
She is also frequently associated
with Universidad del Exito trainings.
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier
Humberto Jaimes
Fernando and Judith Rancel
Giancarlo Lanzilli
Guillermo Luna
Eduardo Cuellar and Silvia Anzola
Edgar Balbas Art Wesley and Lourdes Montero
Esther Espinosa and Jorge Ruiz
Pedro Cardoso
David Bevan and Jane Clark
Doran Andry
Carola Lichtman
Paulina Riveros
Success University
Juan Miguel Mendoza
Created
Spin-Off
Recruited 2nd ex-wife 1st ex-wife
Spin-Off
Same System
Spin-Off
Spin-Off
Recruited
Uses
Recruited
Gabriel & Emma Sandoval
-
Meet the Professors of Success University The Chairman's Club (and higher)
Eduardo Salazar (deceased)
Leon Waisbein
Gabriel & Emma Sandoval
Raquel Cortes
Enrique Valero & Gracielo Mier