FTC urged to investigate multilevel marketing firms such as Herbalife
|Herbalife Ltd. of Los Angeles has been fighting allegations it operates a pyramid scheme. (Mark Boster / Los Angeles Times)|
In a letter delivered to the FTC’s Washington offices Thursday, the group, led by Massachusetts attorney Douglas M. Brooks, urged the agency to crack down on an industry it says preys on low-income and unemployed workers with false hopes of easy wealth.
“The MLM industry has proved incapable of regulating itself, is rife with fraudulent and deceptive earnings claims and has caused — and will continue to cause — untold financial harm and misery to the poorest and most vulnerable of the consumers whom the commission was formed to protect,” the group’s letter said.
In addition to an investigation of the industry, the group asked the FTC to implement rules that would require multilevel marketing companies to disclose the past earnings and attrition rates of its salespeople.
Multilevel marketing is a business model in which companies allow the public to buy and sell their products, paying them commission for their sales as well as the sales made by others they recruit into the business.
The industry was put under pressure after hedge fund manager Bill Ackman made highly publicized claims Herbalife is a pyramid scheme. He called for an investigation of the company and announced his fund had bet more than $1 billion that its stock would fall, a position he recently trimmed after Herbalife’s stock doubled in value.
The company has denied Ackman’s allegations, noting it has been in business since 1980 and its business model is legal. Herbalife uses a network of hundreds of thousands of private distributors worldwide to sell a line of protein drink mixes, bars, vitamins and health and beauty products.
The call for an FTC crackdown follows several other complaints, including some from Latino rights groups, that Herbalife victimizes its distributors by selling false hopes of easy wealth when most of them fail.