1
Bill ackman:
this will be the
most important presentation
That I've made in my career.
So, how's that for
raising expectations?
Man: Uh,
what are we gonna learn?
Ackman: You're gonna learn
why herbalife is
going to collapse,
And that's
a pretty strong statement,
But this is the largest fraud
in terms of scale,
of countries involved,
Harm to people...
Man: And right now, we are
joined by the ceo of
herbalife, michael johnson.
He has called in.
Michael johnson:
First of all, guys,
This isn't about
herbalife's business model.
This is about bill ackman's
business model.
This is blatant
market manipulation.
We're not a pyramid scheme.
That's a bogus accusation.
This is a legitimate company.
We've been in business
32 years.
Millions of customers
around the world.
Mr. Ackman's proposition
That the United States
will be better
when herbalife is gone...
The United States
will be better
when bill ackman's gone.
Good. How're you doing?
Um, clock, countdown clock.
Do you want time of day,
or do you want to count time?
What do you mean?
-We have a speaker timer.
-During the presentation
itself...
Just count going up.
-Count going up from zero?
-Yeah.
You got it. Thank you, sir.
Ackman:
the company is
clearly panicking.
They know what we have.
Male reporter:
They say, bill, that
herbalife continues to face
An unprecedented attack
To support
your billion-dollar bet
To manipulate and drive
herbalife stock price to zero.
Female reporter:
Seems like all of wall street
is against you.
Man 2: Ackman is a liar.
You scare
the hell out of people,
get the stock down,
And tells the world
how great he is.
Female reporter:
You still believe
this company is worth zero?
Ackman: Yes.
The company is the goose
that laid the golden egg.
And trust me,
I have never seen a goose
put out so many golden eggs
- In my entire life.
Narrator: For two years,
hedge fund ceo bill ackman
Has been managing
a massive short position
in herbalife.
Betting that company
would soon fail,
And that, as the price of
herbalife stock
plummeted towards zero,
His investors
in pershing square
would make a fortune.
I just need to be authentic.
-Make you look like a zombie?
-Exactly.
Ackman:
we are managing capital
for others,
And most of the time
We buy stakes in companies
and work to make them
more valuable.
But a couple times
in our history,
We come across a company
we think is causing harm
Operating illegally, uh,
And we can make money
betting against that company.
How much money have you spent
betting against herbalife?
Uh, we have a short position
of over a billion dollars.
On the makeup, I'm kind of
a less-is-more guy.
-Yeah.
-Okay.
Ackman:
I've had one other very big
public short in my career,
Which was this short I took
in a company called mbia.
We were saying that
a aaa-graded company
was basically insolvent.
People thought
this was absurd.
The company accused us
Of spreading false
and misleading information
about their business.
Mbia took seven years
for us to be proven right.
And ultimately,
the company collapsed
during the credit crisis,
Because of exposure
to subprime mortgages.
A reporter named
christine richard
At bloomberg news
got interested in the story,
And then ended up
writing a book
About my battle with mbia
called confidence game.
And then she joined
an independent research firm
To focus on short ideas,
Companies to bet against.
And she called me one day
and said, "bill, I think
I've got the next mbia."
Hello. I'm michael johnson.
Chairman
and chief executive officer
of herbalife.
And it's my pleasure
to be your guide
for our tour of herbalife.
In 1980, our company founder
mark hughes
started with a dream.
That dream was
a mission for nutrition.
For people to improve
their health
And also to improve
their financial well-being
Through our direct sales
business opportunity,
Which, we believe,
is the best in our industry.
Herbalife is a multilevel
marketing company,
Which means you can earn
on your own sales,
And if you're a supervisor
or above,
On the sales of
those you introduce
And sponsor
directly or indirectly.
Our products are available
exclusively through you,
Our independent
herbalife distributor.
That's why we have a rule
About not selling through
retail stores, outlets
or on auction sites.
Christine richard:
If you look at it,
on the surface,
It's a wildly
successful company
Selling high-priced
nutritional supplements.
But going back to the '80s,
There were questions about
how the products were pitched.
You know, extreme promises
that were made
about the products,
And of course,
always the extreme promises
about the income opportunity.
I was really committed
to making herbalife work,
And I was like,
"I'll do whatever it takes.
"whatever it takes,
I'll do it."
I'd always come out
fishing just way below
And I always spotted
this particular house
With the staircase going down.
As I grew in herbalife,
I ended up buying it.
Man:
I step out of the ferrari,
the bentley, whatever,
People go, "what does
that guy do for a living?"
And I go, "I'm an herbalife
independent distributor."
And people are
absolutely amazed
that that's what I do.
It's an incredible
quality of life.
So far, in the last 90 days,
the company has paid us
over $15,000 part-time.
And I make, right now,
I can't believe it myself,
Over $8,000 a day
To over $3,000,000 a year.
It's unbelievable!
If I can do it,
I've made a small fortune,
Actually a large fortune,
with the company,
Anyone can. It's simple.
Richard: I think
it's a fraudulent pitch,
But it persists
over a decade, so...
It seems like
it should be something
That wall street investors
would want to take a look at.
Ackman: I was
appropriately skeptical,
Which is the approach
we try to take
With any investment,
long or short,
And then a belgian court
found herbalife
To be a pyramid scheme
in 2011.
I thought that was kind of
a materially
interesting development,
And that's what motivated
the research.
And this is a case
where the more layers
of the onion you peeled away,
The more interesting, uh,
it became.
You follow what I say,
write this down,
You're gonna make
a minimum of
$50,000 this year.
That's
the least amount of money
that you're gonna make.
The second year,
you'll make $125,000,
And that's
the least amount of money
that you're gonna make.
Narrator: In 1986, founder
mark hughes and herbalife
Received
a permanent injunction
from the state of california,
Barring them from making
false income
and health claims.
Nevertheless, the company
continued to thrive.
But 14 years later,
hughes was found dead
in his malibu home
Of an overdose of
antidepressants and alcohol.
And a group
of private investors
Soon took control
of herbalife.
Before listing the company on
the new york stock exchange,
They sought
and found a new leader.
Michael o. Johnson.
Johnson had risen
through the ranks
at the disney corporation
To become president
of disney international.
Announcer: The eyes
of the world are on herbalife.
We will be faster, better,
stronger than ever before.
Narrator:
A competitive triathlete,
Johnson's passion for fitness
perfectly mirrored
his new company's image.
At herbalife,
he had a midas touch.
Revenues grew
at astonishing rates.
From $1.3 billion
to $4.8 billion
in his first 10 years.
Oh, we're just
getting started.
We're just scratching
the surface of what can be.
We haven't penetrated
the markets and communities
Anywhere close
to what we're gonna see.
Narrator: Johnson did well
by herbalife and himself.
In 2011, he was
the highest paid ceo
in america.
His compensation package
totaled $89.4 million.
Mexican sales, up 31%.
Asia pacific, up 29%.
India, 121%!
South, central america, 44%.
This company seems
to be unstoppable.
You know, my mother and father
were incredibly
strong influences in my life.
And integrity was the name
of the game in our house.
Um, you know,
if you did something wrong,
own up to it.
Just never tell that lie,
you know,
Because you're gonna
lose the trust.
And I think
what we've done here is
We've built an integrity
and a trust
in our organization,
In our people, in our product.
And if I'm the one
out in front,
leading that, okay.
You know,
I'll take that responsibility.
Scott wapner: John desimone is
sitting here with me.
John, it's good to see you.
John desimone:
Thank you, scott.
Wapner: At this very moment,
bill ackman and
more than 500 people
Are inside a theater
in midtown manhattan.
Bill's getting ready to give
his latest presentation,
And they're watching
this interview live.
In his words, he's gonna
expose incredible fraud
at herbalife today.
What do you expect?
Uh, we know this mo.
This is not the first time.
As a matter of fact,
this has been 18 months
of always... The guy here...
It's always "the bark
is worse than the bite."
Uh, he's made some
outrageous statements.
He's made 435 accusations
over the last 18 months,
Each one is
the latest and greatest
until it's proven not to be.
First of all, what are you
accusing herbalife of?
Of being a pyramid scheme.
We believe herbalife
is a pyramid scheme.
Explain,
what do you mean by that?
Well,
herbalife sells products,
weight loss products,
Nutritional supplements,
vitamins, things like that,
But what they really sell
and what their distributors
make money from
Is by selling what they call
a business opportunity.
And the business opportunity
is to sell
The business opportunity
to your friends,
Who in turn sell
the business opportunity
to their friends.
You sign up to become
an herbalife distributor,
You spend $55 or $100
to get a starter kit.
And then eventually
you're convinced
to spend $3,000
To buy the minimum amount of
inventory you need to acquire
In order to become
a supervisor.
And you got
a business in a box
that can make you a fortune.
And that's when
you're entitled
to get royalties
From people beneath you
and your so-called downline.
These are the people
you recruit.
William keep:
What generates income
are purchases.
As products are purchased
from herbalife
by those in your downline,
They generate
a commission upline.
So, as you build
your downline,
And you recruit others,
friends, family members,
co-workers,
It's their purchases that
generate your commissions.
The secret is to get
five other people
To do the same thing
every month.
And teach them to get
five other people
To do the same thing
every month.
Before you know it,
not only will you
be a supervisor,
But you'll have
five supervisors under you
Who'll have five supervisors
underneath them
Who'll have five supervisors
under them.
That's 155 supervisors.
And if they're each doing
about 2,000 to 2,500
volume points a month,
You're gonna be making
somewhere in the neighborhood
of $42,000 a month.
Keep: In fact, building
the downline and product
purchases are required
In order for you
to be eligible for income.
So, only about 17%
of all distributors
Are eligible to earn anything
from herbalife.
According to herbalife's
earning statements,
of those 17%,
We know for sure,
30% or so will earn zero.
And approximately
48% will earn
$1,000 or less gross
earnings for the year.
Once we deduct expenses,
And consider the fact that
they have to maintain
a purchase volume,
The net income is negligible.
Ackman: You're deceived
into believing that this is
a good business opportunity
When, in fact,
you're selling a shake
For three or four times
the price of slimfast.
People can buy that
in their supermarket.
And those $3,000, $4,000,
$8,000 inventory purchases,
Inventory that's sitting
in your garage
that you can't sell,
Are fueling paychecks
for people
At the very, very top
of the pyramid
Who have hundreds of
thousands of people
beneath them.
The top 50
herbalife distributors make
Three, five, seven,
10-plus million dollars
a year.
Hence it is robin hood
in reverse.
Wapner: But he claims today,
He has hundreds of
hours of video, audio,
Documents to support
his claims.
On some level,
you must be worried.
Desimone: I'm not worried
about the substance
of what he has.
This is anecdotal,
it's very propaganda based.
What he's missing is that,
fundamentally,
We've got
millions of customers
that enjoy the product,
That use the product,
that's indisputable.
We actually had a release
today from a former ftc...
Keep: What we don't really
have good information on is,
Do herbalife purchases
translate into sales
To customers
who are not also distributors
of herbalife?
Or are herbalife purchases
a mechanism
for sustaining recruitment
And sustaining commissions
that have little to do
with outside customers.
What the research shows is
that the majority
of our distributors
Come and become distributors
Because of their affinity
with the product,
And they want to achieve
a product discount.
So, effectively,
what they want to do
Is become distributors
almost like members, right?
Club members,
just like in costco.
The lack of evidence,
In terms of
what portion of products
Ever leave herbalife's
distribution channel,
Is part of the criticism
And part of the wonder
about whether or not
This company can
be a pyramid scheme.
Here's the reality.
Our core training is
for a new distributor
who wants to build a business,
If they talk to
10 customers today,
10 people a day,
About the products
and the business opportunity.
I have never spoken
to any distributor,
Who is doing that,
who is actively engaged,
who is not making money.
Richard: Multilevel marketing,
mlms, just tap into beliefs
we have in america
That you really can accomplish
whatever you want to.
The rags-to-riches story
that's there for everybody.
Herbalife has done a great job
reaching into
the hispanic market.
The lower-income immigrants
have these hopes to find
a successful life here
To set up a small business.
Herbalife says, "yeah,
and here's how
you're gonna do it."
Okay, so, we'll get
everybody on one side.
Julie contreras:
The beginning, for me,
was senor phillipe colon.
Him and his wife called me,
talked about herbalife.
I didn't know what it was,
or understand.
When I went to his home,
it was completely filled
with product.
He had it in his living room,
his kitchen...
He had it in his basement
and in his garage.
That's how much product he had
That he could never move.
But he continued
to pay into it
Because he was told
that he would make more money.
And he's a very ethical man.
So he said, "I notice
after this time, julie,
that this is a scam.
"and I want my money back,"
he said.
So I just said,
"you know what?
Let's do a press conference
"and looking to see
if there were any more
victims out there."
And of course
when we made that call out,
the victims responded.
Where did you want to meet?
In here?
They're gonna come here.
They're all gonna
come up here.
They'll be arriving soon.
Okay, so, this is an estimate,
but I'm gonna give you...
-Contreras: Okay, that...
-This is unbelievable.
And they're just
regular people, right?
Contreras: They're regular
people and all the receipts
and everything to support it.
Jay reyes:
You've got a real mess here.
Contreras: A majority of
the group are undocumented.
So, they live
in that insecurity.
They are people
who worked very hard,
people who are paying taxes,
And people who were violated.
And they have a right to seek
what they call "justicia."
justice.
Contreras:
She has suffered a lot
Because her husband
continuously reminds her
About the $8,000
that she owes to them.
Contreras:
Many immigrants migrate here
for a better life,
And if people want to prey
on their lack of
knowledge and finances,
I find that despicable.
And no one is doing anything.
The federal trade commission,
the attorney general...
I mean, should we start
go making police reports?
Des walsh: And another charge
is that we're actually going
after latino community
Because, in some way,
this is an impoverished,
uneducated group.
If a supermarket chain
opens up a new store
In an area
that is economically deprived,
They're cheered and applauded
Because they're bringing
good nutrition,
They're bringing jobs
to that community.
And yet when we support
the latino community,
In some way,
this is a company
going after people
Who aren't able
to make an educated decision
regarding their nutrition.
I mean, frankly,
it's insulting to us,
It's insulting
to our customers,
Insulting to
the entire latino community.
Ackman: It's been happening
community by community.
Pyramid schemes are known for
the pop and drop phenomenon.
They need to find new victims.
And there's an initial boom
As a lot of people get excited
about the opportunity
Of being
herbalife distributor,
And as they run out
of people to recruit
And they find
they can't sell their product,
Uh, it busts.
Robert fitzpatrick:
80%, according to
their sec filing in 2005,
Of the people that had been
in the scheme quit,
and were replaced.
If you added all those up
in a five-year...
I mean, we're talking about
an absurd machine here,
Churning through
millions of people.
Promising them
this utopian unlimited income,
Delivering almost nothing.
Narrator:
Since its founding in 1980,
Herbalife has extended
operations around the globe.
Expanding across 10 countries
in their first decade
To a current reach
of 93 countries worldwide.
Johnson: We've just opened up
vietnam this week,
which is fantastic.
Why does that matter?
Do people in vietnam...
They want supplements?
What do they know?
I mean,
I'm not denigrating vietnam,
But I'm saying,
how do you convince them
that this is right for them?
Well, the company's
success recently
Has been built
on daily consumption.
This is a meal.
Vitamins, great nutrition,
good minerals, carbohydrates,
Proteins, all that.
Everybody needs
a good meal in their life.
Vietnam has 87 million people.
40% of the population
is under 25 years old.
They're looking for jobs,
looking for income.
So, we have
this two-way street,
Health and wealth. Great meal,
great business opportunity.
Fitzpatrick:
If they can grow globally,
go to new markets...
China,
1.3 billion people there,
Latino immigrants
into the us...
These will keep the thing
sustained for a bit longer.
How long can they go?
Nobody really knows.
Is there anything we can do
for capacity?
We should be prepared
for a million people.
We are prepared
for a million people.
I'm doing everything I can.
We have all three servers
blazing right now.
William cohan:
Bill ackman is on a holy war.
Now, he may end up
being wrong about herbalife.
Have you ever tried
herbalife's products?
Ackman: A sip.
I've actually heard
very negative things
About the manufacturing
process.
- I'm staying far away from it.
Cohan: I mean, this is the guy
Who's one of
the more precocious,
uh, confident,
Some people would say
arrogant, activist investors
on wall street.
He's made himself
a lot of money,
He spends a lot of that money.
Private jets,
beautiful apartments,
houses in the hamptons.
He's a master exploiter
of the media.
People love to have him on,
he always makes good copy,
And he turns that copy
into riches for himself.
And it's, frankly,
a brilliant strategy.
Uh, look, p&g is
one of the great
companies of all time.
Richard: I remember
just sitting at my desk,
After more than
a year of research,
Bill ackman was being
interviewed about something
completely different...
And I'm confident
they're gonna do
the right thing.
Real quick, you teased
in the sky investing
conference yesterday
-That you had
a short position.
-Yes.
-A secret short position.
-Yes.
Would you like to
share your secret with us?
Not yet.
I'm sure he knew once
you put this idea out there
Everyone would want to know,
"what is this short?"
-I can't say.
-We gotta go to a commercial.
I can't,
I'm happy to talk about it
When we're ready
to talk about it.
It's a good-for-america short.
What I mean by that is,
As soon as the company
goes out of business,
The country
would be better off.
Ackman: Short selling.
Imagine for a moment that
a friend of yours
collects rare coins.
And you have the view that
those coins are gonna go
down in value.
So, the way you would
short those coins
Is you call up your friend
and say,
"can I borrow
a few of your coins?"
And he says, "sure."
And you borrow the coins,
You then sell them
for the $1,000 each
That they sell for in
the market at the time,
And then you wait for them
to drop in value,
And you turned out to be right
and the coins
dropped in value to $500.
You go back into the market,
you buy them back for $500.
You've sold them for $1,000,
you've repurchased them
for $500,
You've made $500 on each coin,
And then you return the coins
to your friend.
Your friend is in
the same place he was
when he started
And he has the same coins
that he started with.
You might have to actually
pay him something
for borrowing the coins,
'cause he loaned them to you,
so you might pay him
an interest rate.
So he's happy
because he's made interest
lending you the coins,
You've made money profiting
from the decline of
the value of the coins,
And that's short selling.
That's when it works.
But if you sell it
at a high price
and it goes higher,
And it can go
infinitely higher,
Because the stock can go
infinitely higher,
Then you're on the hook
for that.
So, this is why it takes
big cojones to short stocks.
Especially something as public
and as big as herbalife.
Narrator: At the end of 2012,
ackman took to the stage
For the first time
to reveal his secret,
Good-for-america short.
Just want to point out
a few things.
We are short
the stock of herbalife.
Herbalife stock goes down,
we make money.
Herbalife stock goes up,
we lose money.
Cohan: The December, 2012
300-page presentation
was incredibly detailed.
It's overwhelming.
Ackman: One percent get 88%
of the rewards.
Cohan: When he advocates
for an idea,
He could sell ice
to the eskimos.
Ackman: Recruiting rewards are
substantially greater
Than the retail profit
that they generate.
You can lose a lot
of money being short.
So, in order to be short
a pyramid scheme
Like herbalife
and not get killed,
You have to be prepared to
share your thinking publicly.
Let's put it this way,
This is the best
managed pyramid scheme
in the history of the world.
Mr. Johnson should get
a lot of credit for that.
Male reporter: There's
herbalife stock down 14.6%.
The news bill ackman...
Richard: The reaction
was stunning.
I mean, it felt like,
"wow, people are getting out.
"they've seen something
that scares them."
Johnson: These guys are
listening to a report
That was generated by
a research firm in new york
And we sent her
a legal letter.
This is
a ridiculous assertation
By people who are trying
to manipulate our stock.
Reporter: What would you say
to those who say
That you are trying
to manipulate the success
of the company
-And therefore
the stock price?
-False.
We simply want
the truth to come out.
The moral argument that
he's making is
Closely aligned
with his financial interests,
And that's why he can seem
like he's holier than thou.
If you succeed, you're gonna
be donating the money,
By the way, to charity,
you said.
You called it "blood money."
-Yes.
-Because?
Everyone says,
"well, you can't believe
"what he says
because he short the stock
"and he's gonna profit
from this.
You can't trust him."
So,
by taking the economic part
out of my investment,
I.E., giving the money away,
It's harder for them
to make that argument.
You know, I am a moral person,
But we are, again,
managing capital for others,
And it's actually
in the best interests
of our investors
For us to bet
against the company
that's causing harm.
'cause those are
the kind of companies
That the government
and regulators
Will be more likely
to take action against.
Narrator: Now,
two years after his first
herbalife presentation,
Ackman is set to make
more revelations
That he believes will
deliver a death blow
to the company.
All poor people
are being exploited.
The deception knows no bounds.
Yeah, it's incredible.
Four hours later,
we get done with it,
great presentation,
And some genius
in the audience
Looks at the stock
and it's gone up.
What's our response?
It's irrelevant.
It's not going up though.
It's okay.
Question's
whether it opens again.
Jon silvan: What can we come
up with other than irrelevant?
Something.
Stock's not going up.
It's a certainty.
Stock's irrelevant,
but it's not going up.
Ackman:
we are gonna expose
an incredible fraud
In the way
they fundamentally operate.
These so-called
nutrition clubs
Where they talk about places
for people to get together
And learn about good nutrition
and lose weight,
That's not what's happening
at these venues.
Woman:
ladies and gentlemen,
please welcome...
Thank you.
...Founder and ceo of pershing
square capital management,
mr. Bill ackman.
Richard:
In the nutrition clubs,
herbalife has a story.
It's very eager
to tell that story
Once bill ackman
goes after the company.
Announcer: Herbalife fitness
and nutrition clubs
Are at the heart of how
herbalife is helping people
change their lives.
At a time when so many people
in the United States are
obese and overweight,
And in the latino community,
Where those percentages
are even higher
Than the national average,
It's important that there's
a company like herbalife
To send the message
that we need to change
our eating habits,
That we need to change
our lifestyle.
Richard: Initially I couldn't
understand how it worked.
How are lower-income people
finding the resources
to run these clubs?
And so I, several times,
went to go look at some
of these nutrition clubs.
I noticed in queens,
herbalife has a lot of them.
It's an immigrant population
from mexico and
guatemala and ecuador.
You have to search
to find them.
If you're standing
right in front of it,
you could almost miss it.
Tiny little stores
with a green curtain
covering the window.
There is no sign saying
this is an herbalife club,
Or hours of operation.
Hello.
They're supposed to be clubs,
they're not supposed to be
retail establishments.
Cost you $5,000 to $6,000,
sometimes something
greater than that,
To open one of these things,
in terms of the start-up cost.
The rules are
fairly interesting.
You're not allowed to display
the name of the company,
the logo,
Or the words
"nutrition club" or "shakes"
Or any implication that
it's an herbalife business,
outside.
You can't advertise
and you can't promote.
You're not allowed
to attract customers.
Richard: Can I get a shake,
can I buy a shake?
Man: Who are you?
Richard: I'm doing research.
Man: Research?
-Yeah, I'm not a member.
-Okay, take a seat.
Richard: You go in
and pay $5 a day.
They would serve you
a protein shake,
the formula one...
You also drink an aloe water
and you drink an herbal tea.
So, we looked at the economics
of 10 nutrition clubs
And we had people sit outside,
Track traffic trends,
people coming in and out...
We knew what the rent was,
how big they were,
how often they were open,
Estimate the utility cost,
the start-up cost,
inventory cost for serving...
When you do the math,
you find out,
Your average club,
these are the 10
we went to in queens,
Loses $12,000 a year.
This doesn't seem to be
a particularly good business
model and this is before
Paying for the person
who runs the club.
How do they make money?
Well, tell them
it's not about shakes,
It's about something
they call duplication.
Let's hear it from
the horse's mouth.
Even right now because, guys,
where your money's made is
not serving smoothies.
Where your money's made
is having hundreds or tens
Or thousands of distributers
around the globe.
Here's a presentation of
how nutritional clubs work
From one of
the top distributors.
Important to remember,
operators need to realize
The end goal is not how many
$4 services they sell each day
As that is not the way
for them to achieve
their financial goals.
Rather it's upgrading
a consumer
to become a customer
And eventually a distributor.
And ultimately having
distributors become operators
who will duplicate
The nutrition club method.
Note the, "duplicate again
and again and again!"
This is previously
an herbalife nutrition club.
Yeah, so this is turned over.
So, the last four clubs
that were here
A year and half ago
are no longer clubs.
There's too many
in one neighborhood.
Reporter: And what do you
say to your critics,
Who say, "yeah,
but the majority of
your distributors
"do not make any money,
"they make less
than 1,000 bucks
"in an entire year
and no commissions in a year?"
I'd say 1,000 bucks?
That's a lot of money
to a lot of people.
This is what these elitists
don't get,
That most people come in here
for part-time income
They're not coming in here
to recruit someone
or build an organization,
We know all the numbers.
Richard: Herbalife's lawyers
will tell you that
Everyone gets pointed
to the disclosure
But when you look
at how it's sold,
person to person
There's a very clever system
that drove
A continually
renewed group of people
to come into the business.
--announcer:
Ladies and gentlemen,
Welcome to
the herbalife extravaganza...
Richard: It's about a promise
that you would make it
to the president's team.
Man: I promise you,
If someone that was homeless,
that was lost on
the inside can do it,
Every last person breathing,
With a beating heart
that was born from
a mother and a father
Can do the exact same thing.
And they see these
distributors put on stage
At these extravaganzas
and they have
Pins with diamonds on them
and that's the american dream.
And the president's team,
that's basically
Half a million dollars a year
for the rest of your life.
Those are the top thousand
out of about
3.9 million distributors.
Richard: All right.
Muchas gracias.
Richard: So,
this club that I went into,
they said to me,
"come back in two years
and I'll be on
the president's team."
You so want
the people that you meet
in these clubs to succeed.
You know, and they seem
so sincere and hopeful,
But you know
the clubs don't last
And I think they take
individuals' life savings
With them when
they were convinced
to believe in this idea
And this business opportunity.
This is a great opportunity
for anybody, everybody
And latinos grabbed
it a little stronger.
What other ceo gets
to walk into their job
every day, going,
"I'm improving lives today,
I'm making people
healthier and better."
Their stories
are real stories,
you know at disney,
We sold stories
and we told stories
and we're really good at it.
Here we create stories.
Keep: The way an illegal
pyramid scheme works,
Success is based
almost exclusively
On the ability
to keep recruiting others.
A new recruit comes in towards
the bottom of that pyramid
And at any time if we stop
the recruitment process
We find that, those people
at those lower levels have
no way to earn income.
The probability
of success declines
as the number of people join
And we can prove
mathematically
That 95% of these people
literally have to lose
their money.
Fitzpatrick:
Multilevel marketing
presents this
As normal
business competition.
For example,
20 people enter a field,
they're all gonna
sell this product,
Only one will probably
be successful.
And the other 19
just didn't have what it took.
We all understand that.
You go through this in sports,
you go through it in school,
Then you enter
the business world.
Competition.
That's not what this is.
This is something
entirely different.
This is
a money transfer scheme,
In which the one managed
to get the 19
To give him or her
their money.
We are here
By the place where my office,
my construction office was.
I was sitting in
my office when the
Herbalife guy
came to knock my door.
He started showing me
the products,
He started
preparing me things...
Uh, teas...
Shakes...
And they are telling me,
they are making lot of money.
$20,000, $80,000 in a month.
So, that was something
to think a little bit.
Help a lot of people...
Do an easy work...
Not dangerous anymore,
so that's why
I started switching
my construction business
to herbalife.
So, I opened the club,
Buying thousands of
dollars of products.
I was feeling,
"I found herbalife,
"the best company
in the world."
And my upline,
miguel ruchiman,
He helped me to fix the place.
Anything that I need
to open the club.
Like anybody can dream,
you know?
Nice neighborhood here.
There is a lot of
hispanic people,
they were coming to my club.
I was trying to do my best
for the people,
I was not pushing them
To take the product,
I was just letting them to...
To taste... To rest...
To talk in my place...
To start liking the place.
This was my club,
nutritional club here.
So...
From here, all the way,
that was a big front
Of my business.
My upline told me,
"the more you spend
the more you will make."
That was the thing
That make me feel so sad,
Because I believed
this person.
That I thought
he was my friend.
Our business opportunity comes
from the sale of our products.
If I sponsor or
recruit 1,000 people,
I receive zero for that.
I only start earning money
from my downline,
as we call it,
Only based on product sales
or consumption.
Julio ulloa: I realized
in four months that I was
not making any money.
He lied to me.
He was just interested in
Making me spend all my money
Because he was
getting commission.
That's what I realized.
So, one day what I did...
I turned off everything.
The hot water for the tea...
I put the blenders
in one side,
Everything,
I covered everything,
then I locked this door.
I locked this door,
And just got away.
I said, "no more.
No more herbalife."
I lost a lot.
I lost my money that I had
to keep my construction
company running.
This is miguel
ruchiman's club.
This is the one who told me,
this is the best business.
See, he's there.
Yeah, that's him.
They took my dreams,
My hope to be successful.
Narrator: Just weeks after
bill ackman announced
He was shorting
herbalife stock,
Another wall street
heavyweight
leapt into the fray.
Dramatically changing
the nature of
ackman's campaign.
Paul vigna: Herbalife is up
much more in pre-market.
Why are they up so much?
'cause carl icahn,
the famed hedge fund trader
Has taken out a big
stake in the company.
Why has he done that?
It kind of seems like
he's done it pretty much
'cause he hates bill ackman.
Carl icahn:
most guys on wall street,
I sort of like
and I get along with.
And it's no secret,
I don't like ackman.
I don't respect him
and I don't like him
and that's not a secret.
Carl icahn is one of
the world's richest men
He's probably worth
like 25 billion dollars.
Carl was an activist investor,
you know
When bill was just
getting out of diapers.
He essentially could
buy out this company
And really just
crush ackman's short.
Icahn:
as far as I'm concerned,
He wanted to have
dinner once with me,
I had dinner with him,
And I gotta tell you, I left.
I couldn't figure out
if he was
The most sanctimonious guy
I ever met in my life
or the most arrogant.
Cohan: Ten years before,
they had invested in a deal.
Bill ackman
ended up suing icahn
for $10,000,000
That he thought
that carl owed him.
Ackman:
he's a bully, okay.
I was not in
a very good place
in my business career
And carl icahn thought,
you know what,
This guy is road kill
on the hedge fund highway.
I'm never gonna have to worry
about this kid again.
So, I'm not going to pay him.
They went to court
and ackman won
And icahn ended up having to
pay him this $10,000,000,
Which is kind of like nickel
and dimes to these guys.
Icahn:
and I'm telling you,
He's like the cry-baby
in the school yard,
You know I went
to a tough school
in queens that
They used to beat up
the little jewish boys
And he was like
one of these little
jewish boys crying
That the world was
taking advantage of him.
You know,
it's like in the old song
You rue the day
I ever met the guy.
Cohan: For 10 years,
they couldn't
stand each other.
This sort of
expressed itself when icahn
saw a technical opportunity
To put what's called
a "short squeeze"
onto bill ackman.
Some people have said this is
the ultimate short squeeze,
We've got a stock now,
It's up 20% year to date.
Icahn:
ackman has given us
An opportunity
to buy a company
at a discounted price.
And for that,
I thank him, actually.
Again, the worst thing
for a short seller
Is when the stock goes up
Because that stock can go
to infinity, theoretically.
That's gonna just make
his losses massive.
Why is the stock going up?
Simply because carl icahn
and others have been
promoting it, that's why.
Ultimately...
Meaning that the people
in investment communities
believe in carl icahn
More than they believe in you.
Certainly on this investment,
that's the case.
Icahn: I bought it
'cause I really do think,
It's an opportunity for
unemployed people
in these countries
To make money
and I think the product
is a good product.
Cohan: He's not there
because he believes
in herbalife's products
And what herbalife is
doing to lift people
Out of poverty
and into the middle class.
He's doing it because
he thinks he can make money
by squeezing bill ackman.
Ackman:
carl can try to orchestrate
a short squeeze,
He can try to scare
my investors,
From investing with me,
Which sounds like
he's attempting to do
on this call.
Icahn: Ackman takes
inordinate risk.
What the hell?
He's not risking his money.
He's risking
his investors' money
And I'll tell you,
This could be the mother
of all short squeezes.
Now, how long can bill ackman
hold out now?
He's got a billion dollars bet
that this company
is going to go down.
Man: How big do you
think their egos are?
Icahn:
then he talks about charity,
that's complete...
He's not giving it to charity.
Reporter: Carl, let me...
Let me remind you that we are
on live television.
That kind of
defines the market
for months and months.
All the discussion about
what herbalife is really doing
Gets displaced and it becomes
like a big wall street circus.
Ackman:
I told carl after
the whole thing,
He called me up
and he literally said,
"you know,
bill, we can be friends now,"
I wish I had a recording
of the conversation.
I simply said to him, "look,
carl, you are no friend of
mine," and that was it.
Icahn: I never said that
I wanted to be
friends with you, bill.
I wouldn't be
friends with you,
-And you said to me...
-Ackman: Okay, carl...
Icahn: You'd like to be
friends so that we can
invest together.
Ackman: Carl,
I have no interest...
Do you think
I want to invest with you?
-Okay, let's move on...
-Icahn: I wouldn't
invest with you
If you were
the last man on earth.
Reporter: Let's move on.
Zac kirby: I was in
my last semester of college,
finishing at business school.
Didn't really have
any job prospects,
Any idea what
I really wanted to do
even at that time
And I had
an old high school friend
approach me
About these nutrition clubs
that were popping up
everywhere.
We're in oklahoma
and the obesity rate
is extremely high,
It's 67% among adults
Over the age of 30,
so a weight loss company,
In a region where it was...
Weight loss is greatly needed.
I thought it'd be a good fit.
The person who signed me up
took me down to oklahoma city
To one of their
success trading seminars.
It's like a big
motivational event.
Johnson: Herbalife is
a global nutrition company
That sells our
products exclusively
Through a network of people
just like you.
After the presentation
You will have a chance
to discuss our products
And our business
opportunity
With the person who
invited you here today.
And welcome to
our herbalife family
And our herbalife opportunity.
These pres team guys,
they would actually
show you their checks
What herbalife
was sending them.
Saying how you should get
involved right now
Because these
nutrition clubs could
easily produce, you know,
$20-30,000 in sales
apiece each month.
So I'm thinking,
I've found a cash cow here.
Right as soon as somebody
gets into our club,
We say,
"welcome to the club."
And that's a little something,
we welcome them to the club...
You know,
they feel the high energy
That's in there,
there's music going.
You wanna watch out how much
you tell him about,
You know, the business,
'cause they're gonna be like,
"they're just looking
to recruit me,"
Or, "they're just looking for,
you know,
"to get me into
their business."
So you really
wanna start building
Your relationships
with these people first.
On that very first day,
It's all part of
planting the seeds.
You don't need
the whole tree yet.
That'll come in time.
Trust me.
But be patient. Do the deal.
The deal is here.
What we're doing
Inside the club, it's about
building herbalife.
It's about duplicating.
It's about
growing our royalty.
And if we're just there,
just, you know,
slinging a bunch of shakes,
And yes, having a lot
of fun in doing that.
But the thing is,
is that we're there
To duplicate,
to grow our checks.
Kirby: What kind of sold
me on the idea was,
I think, 40 nutrition clubs
That opened over
the course of two years
Down in
the southern part of oklahoma.
So, generally when you see
an industry
That's throwing up
brick and mortar storefronts
At that rapid of a pace,
There's some money being made.
I had student loan debt
And I didn't have
a savings account
for sure and, uh...
The only thing I did have was,
I have a '73 mach 1 mustang
That I restored all
through high school.
I actually used it
as collateral
To get a $15,000 loan
to actually open
a nutrition club.
The way herbalife
is structured, it sets
Small goals and macro goals
for the distributor.
The small goals
would be obtainable
and it keeps him going,
It keeps him in it.
They start him out
at a 25% discount.
Then later bump him up to a 35
And then soon on to a 42
and then a 50% discount.
So, I mean, those are little
stepping stone incentives
To keep people in the company.
And that,
for the average person
Will take six months to a year
Just to have finally achieved
that 50% discount.
I bought in and went straight
to the 50% marker
And opened a nutrition club.
Announcer: At herbalife,
your success is our business.
That's why we've developed
a training program
That can teach you everything
you need to know
To grow a successful business.
Kirby: Dan waldron,
he's been with the company
Almost since the beginning.
I had dinner with dan
And that really
legitimized it,
the fact that I'm meeting
This individual who's been
in the company
for nearly 30 years.
He's got this huge mansion.
$80,000 cars in the driveway,
you know.
And he's sitting there
telling me over dinner that
"you guys have got it
so much easier than I had it
"because you can
open a nutrition club
"and they'll just
come to you."
So, hook, line and sinker,
the next three months,
We were just all about opening
nutrition clubs because
The dude at the top told me
this is where the money's at.
I achieved
a level in the company,
they called the g.E.T. Team.
Global expansion team
is what it stands for.
You go from
supervisor to world team
to g.E.T. Team.
You're halfway up the ladder.
You're halfway
to the top already
And I achieved that
in six months.
That seemed
like a great start.
The only thing
that separates you
From not getting
on the president's team
Is one thing. Write this down.
Giving up.
Cohan: Herbalife
just didn't sit there and say,
"oh, bill ackman's right.
"we're just gonna
pull the plug
"on this operation."
You know, they fought back.
They built their
case in the media
And with their investors.
This is a war,
And for any of us to think
otherwise in here
would be foolish.
'cause name another company
this has ever happened to.
This is unique in
the american
business landscape.
Female reporter:
Your stock price
has taken a hit.
What do you say to
your shareholders?
How they should rally
to ride out this storm.
We're highly profitable,
Um, we're gonna continue
to be highly profitable.
And that stock price
will reflect the value
That's truly in this company.
Richard:
This company has built up
Such a protective armor.
They have the best law firms,
they have the best pr firms.
They hire all these
major sports figures
To promote the brand.
Now the best pyramid schemes
try to recruit credible people
Uh, to give them,
you know, credibility.
We've got richard carmona.
He was the surgeon general
of the United States.
He happens to be hispanic
And this is a person
of very high integrity.
He's on
the board of herbalife.
And then they have
this nobel laureate
To create credibility
around the products.
I believe dr. Ignarro
Is the wealthiest
nobel laureate. Why?
Herbalife has paid
him $21.2 million
For serving as the company's
spokesperson.
And for money...
Well, take a look.
And I like the idea
of an american product
Being helpful to people
in other parts of the world.
And so,
It has every combination
of things that I like.
I mean, the hardest part,
I have to tell you,
michael, is
We all diet and other
people are starving.
And you actually
have a product
that deals with both.
It's kind of amazing.
It's kind of amazing.
I do think it's amazing.
and no sticking
your hands out the windows.
You understand me?
I was raised
to be loud and proud
by my parents.
I do remember my mom
is part italian
And no one talked about that
Because they were such
a strong mexican family.
sometimes I could be wrong,
The mannerism in
which I conduct myself,
But it's out of passion.
herbalife has
come into our community
Like a thief in the night.
Stealing from our people.
We say,
"afuera with herbalife!"
Herbalife!
These people are
going to their gala
And, with no shame,
knowing that
On the other side of
the building are people
Who have received
financial harm from them.
They were preyed upon.
Herbalife!
Herbalife!
Herbalife!
You guys go and
enjoy the extravaganza.
But what are they saying?
Excuse me, could you guys
get on the sidewalk, please?
Thank you.
Contreras:
in 2002, my life changed.
There was this young man,
That was shooting people
in the neighborhood.
We understand he was part of
an aryan nation gang.
I was shot in
the back of my head.
When I was
losing consciousness
All I could think about was
my son and my daughter.
I think that's
when I was really born
Because before
I used to worry about
My house, my bank account,
that was my priorities.
And in an instant,
your life can be taken away.
Maybe that's why
I'm so sensitive
to victims of whatever.
Herbalife or whatever.
We need to be
understanding to them.
Yeah, we're gonna do that.
Um...
Yeah, I have returned.
-Are you hearing?
-Yeah.
Okay. I can see the return...
Not the most comfortable
chair in the world.
The return is behind bill.
What's new?
We saw this idea from you
late last December.
Since then we saw
the stock double.
You need the government
to get involved. They haven't.
What aren't they listening to?
Tell me.
The stock is up from
where we shorted it.
We shorted it in
the mid to high 40s.
So we've certainly lost
money mark to market
But what we focus on...
-How much?
-You know, a lot of money.
Four, five hundred
million dollars.
Something like that.
Uh, but what we focus
on with herbalife
Is telling a story
with regulators.
Making sure that
they understand
What the issues are,
And getting regulators
interested in the company.
But the fact that
you've been so outspoken
And we haven't seen
anything happen yet,
Could one make the argument
You might be
helping the company?
Okay. People can make
whatever arguments they want.
I'm quite comfortable
the government
is gonna do its job.
Narrator: With ackman
pressing regulators
to investigate,
Herbalife executives launched
a series of reforms.
Reducing shipping costs,
simplifying product returns,
And cracking down
on distributors
With questionable
side operations.
Richard: They outlawed
this deceptive system
Which is referred to
as lead generation.
Distributors would run ads
in television, on radio.
"be your own boss,"
"make unlimited income,"
And no details.
I had about $200 to my name
And so I found
an ad that said,
"work from home,"
And I called on it
and it happened
to be herbalife.
But a big part of it was to
spam out your message.
That was the real income.
The big players
Knew how to send out
a million emails.
And they were doing that
once a month.
Somebody would be sitting
on their computer,
All of a sudden
something would pop up.
And it would say,
"lose 30 pounds,
30 days for $30.
"put in your credit
card number. Click here."
And the top
distributors would sell
These names and
numbers of people
To existing
herbalife distributors
For as much as $130 a name.
And they would be
brand new leads,
Someone clicked on this
five minutes ago,
And here's your information,
Call the person,
they're ready to go.
They pick up the phone.
"hi, mary, this is aaron.
"don't you want to earn
an extra $500 a month?"
Richard:
Distributors were told,
you gotta buy these leads.
You gotta keep buying them.
And at some point
you're gonna start
recruiting enough people,
Who will recruit
enough people
That you will make it to
the president's team.
These lead generation systems
Were so
financially devastating.
Because people would
not just have to
buy the products,
But they would buy,
in some cases,
Thousands of dollars
of leads a month.
So people lost
their retirements,
and they lost their savings
Following this system.
When herbalife shut this down,
Wall street said,
"too bad if
people lost that money.
"as long as they
clean it up,
"you know,
we're fine with it."
Johnson: Build it better
every single day,
And building it
better means
Changing a few
philosophies in the company.
Get rich quick.
That's for someone else to do.
Get healthy now.
That's for us to do.
Kirby: We opened five
nutrition clubs,
Kind of spread out
around northern oklahoma.
And when I achieved the g.E.T.
Team level,
Then the pres team
members start telling me
How the payout system
really works.
I'll never forget
we had a meeting
At tim files' nutrition club.
He's like the head honcho
here in oklahoma of herbalife.
He was actually my upline.
30k executive
president team member,
Tim files.
I'm telling you
every one of you guys
Have an opportunity to
live this kind of life.
Whatever you want,
just dream big...
Kirby: Tim was saying
That we used to just
make commission
Off of our top three,
But now we're
also going to make it
Off our fourth,
fifth and sixth.
And once you got past
your sixth downline,
Once you got to your
seventh, eighth and ninth,
There was still a pay out,
it was like half a percent.
So, I mean, essentially,
what he told us was,
It never stops.
And this was his
little hand motion
he would do.
Because he says it
just keeps going down.
Because it goes
down on everybody.
No matter where it goes.
I mean,
I got a degree in business.
It's pretty obvious...
That's gonna keep going down.
That's a pyramid.
It's not sustainable.
Ackman: The idea here is
you're gonna
build this business
Only recruiting six people
and each of them
recruiting six people.
But you're coming in at
nearly the bottom
of the pyramid.
And by the time
you get to level 13,
your prospects are pretty dim.
'cause you have to
recruit more than twice
the population of the world.
Kirby: That's when I
started to learn more about
The different ways that
they use to recruit people.
Right before I got
into the company,
it was selling leads.
I'm like, "okay,
so I'm basically caught up
in a phase right now.
"I'm in the nutrition club
phase."
And I was like, "and I'm
on the tail end of it."
I'd made a mistake.
But I've signed
a three-year lease
for five clubs.
Most people will
recruit a new distributor,
And convince them to
actually take over the lease,
And then they'll skate off
and draw commission off
Of the person
they'd just scammed
into taking over their lease.
The kind of people
that can do that,
I mean, they're crooks.
When you know,
when you're trying
To get somebody
into a business
That you know they
are going to fail,
that is a crook.
I did have a close friend,
roommates through college,
And his
nutrition clubs failed.
We had a pretty much
complete falling out
Over the deal because
I'm the one that
introduced him to herbalife.
It was clearly
a pyramid scheme,
But when you're
that heavily invested,
It's kind of hard
six months in to say,
"oops, screwed up."
Keep: Herbalife is
a company with a business
model in an industry
That has been subject
to criticism for years.
But even
the federal trade commission
doesn't know the difference
Between
an illegal pyramid scheme
And a legal multilevel
marketing company
Without having
a fact intensive inquiry.
Fitzpatrick: They had
one court case against amway
That gave multilevel
marketing a loophole.
But far more important,
the government,
Starting with
the reagan administration,
Adopted a position
of deregulation
And the industry
started pouring millions
into our political system.
All with one goal.
The same goal
the cigarette industry had
Because like
the cigarette industry,
It had an existential need
to prevent regulation.
It has one advantage though,
That the cigarette
industry didn't have.
Until now,
there has really been
no voice of the victim.
Douglas brooks:
A lot of times, people think
the reason they fail
Is that they
didn't try hard enough,
Or that they weren't
suited to the recruiting
that you have to do.
But once they find
out that other people
are in the same situation,
Then they realize that
it wasn't their fault.
That there is a system here
that prevented them from
Having the kind of success
that was portrayed to them.
hi, mr. Brooks.
Ackman: In an attempt to
recover their losses,
The herbalife
distributors from chicago
Retained
attorney douglas brooks
To represent them
in the class action lawsuit,
Bostick vs. Herbalife.
Instead of going to trial,
Lawyers for
herbalife and bostick
Had agreed to
a cash settlement
of $15 million.
On the eve of
the federal court's approval,
The chicago group
has come to california
To object to the settlement.
Fairly early on,
when I heard
about this settlement,
I realized that this
was a very bad deal.
How many of you
have ever played the lottery?
when you became
herbalife distributors,
You were buying
a lottery ticket
For a lottery that
was already over.
The class is approximately
1.5 million herbalife
distributors.
Herbalife is paying
a settlement
fund of $15 million,
Which works out to
about $10 a person.
- Tomorrow in court...
I'm saying to
the judge that at least
280,000 people
reached supervisor level
And the average losses
are around 8,000
or maybe even more.
I think that the aggregate
damages for the class
Are between $700 million
and $1.1 billion.
I want the judge to see
that there are real people
Who have been really damaged
by this company.
The rules are that the judge
has to find that
the settlement is
Fair, reasonable and adequate.
I had each of these people
sign a declaration
About their experiences
and their objection
to the settlement.
They understood that
this is a long shot.
if you wanna
come here in the circle.
Father god, I ask you today
to call upon our ancestors,
And I call upon you,
mother earth,
To come into
the life of douglas brooks.
Brooks: Thirty-three years
of practicing law,
I've never had clients put me
in the middle of
a prayer circle.
Contreras: I ask you to hold
each one of our victims
And douglas brooks
by their hand,
And that inside of douglas
is the energy of
the holy spirit, father god.
Amen.
Amen.
It brought home to me
That this is not just
an abstract legal issue.
This is something
that affects people's lives.
If I can do
something to help them,
That will make me feel like
I'm doing
something meaningful.
Questions?
Yes, sir.
I don't understand something.
You got this nice presentation
which you spent
a lot of money on.
Everybody is
clueless except for you.
I don't understand.
Tell me why is carl icahn
making a mistake?
Show me exactly the illegality
that herbalife is doing
To get this company shut down.
I don't see it.
And why is everybody else
on the other side?
Okay, well,
sounds like you're bull.
No, no.
I'm not a bull, or a bear.
By the way,
it's a great question.
Okay, it's a great question.
Let me answer it.
Give me a great answer.
We've had an army
working on this project.
Hundreds of people,
investigators, lawyers.
Carl icahn didn't do
the kind of due
diligence we did.
Look, the nutrition club thing
is designed to be secretive.
This is an ingenious fraud.
You go after people who are
the lowest income,
most unsophisticated,
Many of them are undocumented.
You don't complain when you're
an undocumented immigrant
Because you might
get thrown out of the country.
Are all of these
latino distributors
Documented here in the us?
So, every
distributor that signs up,
First they provide us
with a taxpayer id number.
That is our obligation
to ensure
That us taxes are being
paid by all our distributors.
Well, then, what is
a "no-fly distributor"?
Because that doesn't
seem to make sense to me.
When you look
at the rewards,
Points that you
get within herbalife,
You have those eligible
to go on
Cruises and airplanes,
But then a separate group
that are no-fly.
What does that mean?
So, that's not part
of our terminology.
Our focus is on supporting
all the distributors.
Woman: They don't know what
a "no-fly distributor" is?
It's not something
that's in our terminology.
Narrator: Late in 2013,
Herbalife stock soared
towards an all-time high
As a series of developments
Undercut ackman's
short position.
He went after belgium,
When belgium looked like
it was going in his favor.
And when belgium
came out in our favor,
Actually discrediting
ackman's thesis,
It was no longer important.
Bill ackman at
one point had said,
He didn't believe the audit
would come back clean.
It did.
That stock right now is up 7%.
This is viewed as
a very positive move.
What does this news
mean to you, carl?
Icahn: You know
sometimes investment
is just sort of a no-brainer.
I think this one,
when I bought it,
Obviously it was.
You've laid out
an argument today
That seems, frankly,
largely circumstantial.
And so...
Maybe you could
connect the dots.
There's nothing
circumstantial about it.
We have facts.
It seems like all of
wall street is against you.
Analysts,
investment bankers...
Ackman: People on wall street,
it seems,
Don't really
care whether or not
The company is
a pyramid scheme.
All they really care about
Is the stock price
in the short term.
Since you haven't looked
at the stock price,
I'll tell you,
It's up about 13%
bouncing around.
Herbalife is
gonna use the fact
That the stock price
is up today
To say that
everyone is ignoring
what we have to say.
My advice is
you probably
shouldn't ignore it.
Next?
It's not a good idea to take
moral issues to wall street
And have them be the judge.
But at heart,
it is a moral issue.
Ackman: I think a good model
in terms of how to behave,
Is to think about
how your actions
would be perceived
If they were written about
on the front page
Of the new york
times tomorrow,
And your friends
and your family
Open up the paper
and they read it,
It accurately
describes your behavior.
And is that a story
you'd like them to read?
To learn more
about the wonderful
things you're doing,
Or is it a story that would
cause them to
think ill of you?
If your actions would cause
your friends to be concerned,
If they understood the facts
On the front page of
the new york times,
Then you shouldn't do it.
Narrator: Fifteen months
after his opening salvo
Against herbalife,
Ackman did find himself
on the front page
Of the new york times,
But in a way he neither
anticipated nor welcomed.
Michael schmidt:
This is a guy who made a bet
against a company,
Who's now trying
to get regulators
To bring down that company.
He needs to have victims.
These people that have been
harmed by this company,
Able to connect
with the regulators,
And show the regulators
how they'd been hurt by this.
He's been paying non-profit
hispanic groups
For their help in this.
Richard: Undocumented
former distributors
Are not going to
go to the government
And give them their name
and their information.
Which people tend not to do
When they've been victims of
pyramid schemes anyway.
They feel ashamed.
They feel embarrassed.
They feel they've been
part of perpetuating
the crime.
Ackman: So we reached out
to latino grassroots
organizations
For a national victim
recruiting campaign.
I think we
committed as much as
$130,000 to that effort.
Mr. Ackman has made
a lot of donations
To these non-profit
organizations,
stuff like that,
That we simply
don't know about.
We only know a sliver of that.
So people question,
Is he simply bringing
the information to regulators,
Or is he doing things that
maybe he shouldn't be doing?
Ackman: The day after
this fairly horrible
New york times article,
I was having
an advisory board meeting.
I said,
"look, what do we have to do?
"I can't believe
the government hasn't acted."
And maybe
the right thing to do
is we cover the position,
And just decide that
we're somehow interfering.
Because
the government is afraid to
Step into a situation
with a short seller.
We actually had a discussion.
In the middle of
that discussion,
I got a call from our trader.
Our head trader, ramy, said,
"bill, herbalife stock's
been halted."
And I said,
"perhaps there is a god."
Less than 90 minutes ago,
we learned
The controversial maker
Of health shakes
and supplements
Has been served with notice
By the federal
trade commission
That it will be investigated.
Male reporter:
The investigation could last
six months to a year.
The stock has
just taken a pounding
And is actually giving ackman
Back to somewhat
near breakeven.
Female reporter: Herbalife
says it welcomes the inquiry,
And is "confident that
herbalife is in compliance
"with all applicable
laws and regulations."
This is the one thing
That herbalife
wanted to avoid,
I can tell you that,
from day one.
Icahn:
Now with the ftc in there,
I'm just hoping that
we get a clean bill of health,
'cause I really do
think that this company...
Yeah, yeah,
did some marketing stuff.
Was that wrong?
Look, do they make promises?
Possibly,
But there was
also a lot of people
earning a lot of money.
And ackman has this mantle,
"I'm saving the hispanics."
Why doesn't he
go save himself?
Female anchor: We wanna
bring you an update
on this breaking news story
On herbalife.
Herbalife is now
being investigated
By the fbi,
by federal authorities,
And this looks
like an escalation
Of the probe,
but the company themselves,
Saying they have
no knowledge of it whatsoever.
Ackman: You've got multiple
government regulators,
agencies
Looking at the company
from civil
And criminal point of view.
And I think
that's where the rubber
Ultimately meets the road,
In terms of
whether or not herbalife
Gets found to be
a pyramid scheme.
-Man: A quick question...
-Wait. I'm gonna go...
My father is
asking a question.
It is always risky to
call on your father.
The definition of
a pyramid scheme
is what, bill?
And how close are you
getting to be able to prove
That it is a pyramid scheme?
- Dad, if you don't
know it by now...
Brooks:
I've always hated bullies.
People that use their
force of personality
To push other people around.
-Good morning, mr. Brooks.
-Good morning.
When I look at
the victims of these things,
I hope I can do something
to fight back
Against the bullies.
We're ready.
So am I.
And we're gonna put these away
when we get to the courthouse.
We object to the settlement!
Herbalife!
Herbalife!
Brooks: Today's hearing is
a final approval hearing.
I filed a fairly lengthy
objection to the settlement.
For herbalife to get a release
from 1.5 million class members
In exchange for $15 million,
Is getting off very cheap.
We're gonna
follow you in, okay?
Okay, yes.
Brooks: I hope that
the judge comes out and says,
"I'm really troubled
by this settlement.
"I think mr. Brooks
and his objectors
"have raised some concerns,
"and I'm not gonna
approve this deal."
I mean, that's my...
That's my dream.
Well, every once in a while
you get kicked in the head,
And I just got
kicked in the head.
Oh, yeah.
I think there's
very little doubt
That she is going to
approve this settlement.
She rejected every
argument that I made.
I didn't score a single point.
Nothing... Nothing moved her.
Not the slightest.
Contreras:
Whatever decision she makes,
We won today,
Because you
brought our message.
And for her to say
it didn't matter,
They do matter.
And we're not
gonna stop this fight.
We thank you. I thank you.
-Yeah. Thank you.
-Thank you.
Thank you.
Thank you for helping us.
I'm very afraid that herbalife
are going to say to the ftc,
"look,
a federal district judge
"has approved a settlement.
"we've got a release
from 1.5 million
class members,
"we paid a bunch of money..."
And there's gonna be at least
a faction
Within the ftc that will say,
"well, why shouldn't we
just sort of go onboard?
"maybe we'll make
them pay a fine.
"but basically we're not
going to go to the heart
"of why this industry is gonna
continue to burn people."
Ackman: So how could they have
gotten away with this?
What pyramid scheme
has five billion in revenues,
Is listed on the new
york stock exchange,
Is audited by pricewaterhouse?
Now big lies are used
by totalitarian regimes,
And by the nazis,
and by lots of people.
And people
generally believe big lies
Because they are so bold,
That how can it
possibly be false?
Madoff was
managing $50 billion.
The notion that
a $50 billion money manager
was running a pyramid scheme,
Well, that's why people
kept putting money into it,
'cause it was
the biggest lie of all time.
Small lies people
don't get away with.
Big lies people get away with.
Kirby:
You open your nutrition club,
You realize you've
gotta recruit people,
And start making a commission
from your downlines.
But I couldn't lie to people
And tell them,
"you're gonna make
really good money,"
When I knew I had
five nutrition clubs
That had been
operating for six months,
And we had yet
to turn a profit.
So, uh, we try to make
their business model work,
And stay away
from the recruiting
And trying to sell the dream,
We tried to just
sell the products.
It didn't work.
The products
are too expensive.
And you're
trying to get people
To drink a liquid shake
over eating a meal.
You're going
against human nature here.
For the most part,
we would eat half of it,
And try to sell
the other half.
Interviewer:
What happened to the rest?
You throw it in the dumpster.
We kept it going
for a year and a half.
For a lot of
people in herbalife,
They would just
go look for a job
And feel like a failure
and be embarrassed,
Because they'd brought
all their friends and family
Into this scam.
Let's see if I can handle this
without choking myself.
But I was one of
the fortunate ones that
Luckily found
a new and emerging
industry to get into,
That went right along
with the storefronts
That I'd already built out.
We just made a quick switch
and turned it
into a vapor lounge.
We were helping
people to lose weight,
Now we help people
to stop smoking.
So it all worked out,
but not as a nutrition club.
Luckily I didn't lose
my collateral with the bank.
I still have the car.
Mark hughes: Trust me.
I can tell you with
absolute sincerity,
The wildest dreams
you've ever thought of
can come true in herbalife.
I came home today and
this was on my door.
It's addressed to me.
It says, "dear ms. Contreras.
"on July 15, 2014,
"univision chicago
aired a piece
"in which it published
the following statement.
"according to
lulac's julie contreras,
"there is fear
in the community
"that herbalife is
spreading the rumor
"that those who make
accusations
"against the company,
"will be reported
to immigration authorities."
They say, "we suspect
that your statement
"is the product
of misinformation,
"disseminated by
pershing square
capital management."
Who in the hell is
pershing square
capital management?
I've heard of that
in the newspapers.
Well, we went on money
that we collected
From our community,
From the victims.
No one's paying us.
"nonetheless this statement
is illegal and defamatory."
"the statement is
illegal and defamatory."
Herbalife distributors
have intimidated,
Have threatened our people.
Threatened them
with their legal status.
Threatened them
with physical harm.
Waiting outside of
walmarts for them,
Or grocery stores
that they go to,
To collect their $1,500,
or $500, or $200.
It says, "we demand that
you cease and desist
from this conduct
"and that you submit
a written retraction
of your statement
"to univision immediately.
"we also request
that you meet with us.
"that we might correct
your misunderstandings
"regarding
herbalife's relationship
"within the latino community."
It's almost the exact tone
of people who attack me
When I defend the most
vulnerable in my community.
And this is an intimidation.
my dad used to tell me,
"never apologize
for being mexican."
And we used to grow
up and we used to say,
"we're mexican-american."
And my dad died when
he was 50 years old.
I think I have
this tiger inside of me.
My dad is inside of me.
I'm not gonna
apologize for who I am,
And I'm definitely,
sure as hell,
Not gonna apologize
For bringing
a truth to the public
Of what's happening
to my community.
The truth is not far away.
Johnson: It's the recruiting,
Meaning bringing
new distributors
into our company,
Which is the most vital part
of our bloodstream.
We bring new
distributors in, we grow.
It's that simple.
It's that simple.
And the company has built
its whole reputation,
Its whole life on recruiting.
Our top dogs,
Greg calls them
the "hunters" out there,
Our hunters,
our top distributors,
Our chairman's club,
our pres team,
They're professionals at this.
Nobody can do it better.
You get next to alan lorenz,
And he'll recruit
taxi cabdrivers, and busboys,
And waiters, and everybody.
He doesn't care who it is.
Boom!
He's got him in this game.
Ackman: So, herbalife,
The business opportunity
is a scam.
This is being orchestrated
not just by senior management,
By the chairman's club
members,
By the president's team,
They conceived, designed,
and executed the strategy
To exploit the poor.
The recruiting tactics,
very positive
for the most part.
Sometimes led people
down a false road.
$4,000, jam it into them,
by an instant distributorship.
Load that product in.
See ya.
Good luck.
The credit card bill comes,
spouse says,
"how are we gonna pay this?
"you didn't sell the stuff
that's in the garage.
"that's in the pantry.
That's out there..."
Ackman:
This company was a fraud
before michael johnson.
Michael johnson
elevated the fraud,
Brought modern
management techniques.
Johnson:
So what happens today?
Today, we're recruiting.
We're still
a recruiting company.
We've gotta never not be this.
Michael johnson is a predator,
okay?
This was
a criminal enterprise, okay?
I hope you're listening,
michael.
It's time to shut
the company down.
Bill ackman's
got a lot of money
Invested against this.
And I think the only thing
he cares about
Is being the richest man
in the world.
And to me,
that's a very sad pursuit.
All right, you guys
have been incredibly patient.
Stay tuned. Thank you.
Female reporter 1:
Just a short while ago,
Pershing square capital's
bill ackman
Delivering what
was promised to be
the death blow to herbalife.
Male reporter 1: Investors
just got a three hour, wonky,
regulatory presentation
That was not what
they were promised
the day before.
Female reporter 1:
He's trying to basically
make his wish materialize,
And they weren't impressed.
And in fact,
shares rose more than 23%
Coming in at six-year highs.
Here he comes, guys.
Female reporter 2:
Herbalife said in a statement,
"bill ackman
further demonstrated today
"that the facts
are on our side."
Male reporter 2:
It's highly unusual
That you can just charge
a company with fraud,
And then think you
can get away with it,
Without the kind of
smoking gun evidence
That ackman lacked.
Congratulations, sir.
Okay.
What a day.
What a day.
It was a good day.
It was a very good day.
Contreras: Herbalife's
a huge corporation.
And after they sent me
the cease and desist letter,
I sent them a response.
And the response was that,
I welcomed them
To come to tell me
About their commitment
To the latino community.
And we invite them
to come to our church.
For months on end,
they continued to
string us along.
"okay, this date..."
then canceled.
"okay, this date..."
then canceled.
Then they had the nerve
To invite us to
go to their gala
And pay for our
airplane tickets
and pay for our hotel,
As if we would take
something like that.
Just as I sent
herbalife a letter,
That's the same
thing I sent bill ackman.
I was getting
frustrated that I was hearing
About all the things
he was doing,
But, "okay,
you're doing those things,
"but they're not
really helping my people."
And by the way, "we're here."
Hello.
Hey. Thanks for having me.
Contreras:
I'm glad you are here. Yes.
-How you feeling?
-I didn't know him.
He's from another world,
And he came into
our world for a little while.
Regardless of the investment,
I will pursue this to
the end of the earth...
All right.
Until the company's shut down,
The people who caused the harm
are held accountable,
And I also commit
to give away 100%
Of any profit
I make from this.
I think we'll make
100 plus million dollars.
These are big numbers.
I really did not know
the latino community before.
You guys are
the principle victims
So the money is gonna focus
on the latino community.
Can you send two
or three officers
over here to the church,
Because there are
three coach buses
Of herbalife protestors.
Like they're for herbalife.
Contreras:
Herbalife paid them to come.
One of them, he told me,
"they gave us $200
to be out there."
I said,
"oh, well, I can't blame you."
I can't blame my people.
Who doesn't need $200?
Crowd: herbalife!
Herbalife! Herbalife!
Herbalife!
Herbalife! Herbalife!
Herbalife!
Herbalife! Herbalife!
Herbalife! Herbalife!
Herbalife!
Herbalife! Herbalife!
Hello, herbalife.
We're ready to rock and roll
with this company.
We got a long
road ahead of us,
And guess what, we're just
getting started, right?
This is the name of the game.
So the history is
I come from
an immigrant family.
Except my family immigrated
to this country in the 1890s.
120 years ago.
And my great-grandfather
was born in the ukraine
Which was part of russia.
And so at 17 years old,
he walked 1,400 miles
to austria
And he learned a trade.
Someone taught him
how to be a tailor.
And then he went
from austria to hamburg,
Which was another 600 miles,
And he got on a boat
and he came to this country.
He arrived with no money.
Then eventually,
he started making coats,
And he had his own factory
in staten island.
And so I'm here.
I'm one of the most
fortunate people in america.
Uh, I think back,
Imagine if my
great-grandfather
Had gotten to america,
And instead of being a tailor,
Someone sucked him
into a pyramid scheme. Right?
So I stand on the shoulders
of people who came before me,
It is my obligation
to protect people
who come now.
You gotta understand
we're gonna
protect this company,
We're gonna grow this company,
And any of these
outside sources
Who wanna portray us,
We will seize
the narrative from them.
Time is on our side.
We've spent $50 million...
A little more than $50 million
in the last...
It's now three years
In our investigation
of the company.
I'm glad that there are
a lot of governmental
organizations
Looking into herbalife.
But I'm a bit
frustrated about the pace
The issues are
being addressed.
And you with us together,
it's family,
And nobody messes
with the family.
Right?
- Nobody.
-
Nobody.
So, uh, this was
a very lonely battle.
Our battle against herbalife.
Contreras: No more.
We're taking this
fight smart to the street.
We will win.
And we got you covered.
And this guy is not
gonna get away
With what he thinks he's
gonna get away with,
Because he isn't fighting me.
He thinks he's fighting me,
he's fighting an army.
And we've got
an army of people
Doing good out there
in the world.
All: herbalife!
Herbalife! Herbalife!
Herbalife! Herbalife!
Herbalife! Herbalife!
Herbalife had all
of the earmarks of something
That probably should
not have been shorted.
Certainly not to
the tune of a billion dollars
And in such a public way.
They are all victims.
This is olivia torres.
Cohan: But he's on a crusade.
And I don't see him stopping
till he gets to
the promised land.
I gave $20,000
in the business.
I had nothing back.
Ackman: When you meet
the people who've been harmed
And you hear their stories,
It's very moving
and very troubling.
And the fact that
the company knows
they've been ripping off,
Literally, millions of
these people over time.
And they don't care.
It's incredible.
You know, it's incredible.
We are very, very
confident that as the ftc
Comes to their
investigation's finality,
Or they get all
the facts on the table,
They're gonna go,
"this is a pretty good
company."
Your company,
in mark hughes word,
"the future is
bright beyond compare."
- Let's go herbalife!
Crowd:
herbalife! Herbalife!
Herbalife! Herbalife!
The ftc has charged herbalife
With deceiving
hundreds of thousands
Of hopeful people,
Who saw herbalife's
promotional campaigns
In english and in spanish,
And signed on for
what they thought
Was a legitimate
and lucrative
business opportunity.
The ftc has charged
that this wasn't true.
That the dream portrayed
by herbalife was an illusion.
The vast majority of
herbalife distributors
Found they could
make little or no money
Selling herbalife products.
People who leased space
To open a nutrition club
and worked long hours,
Made no money, or lost money.
The small minority of
herbalife distributors
Who did make a lot of money
Were paid by herbalife,
Not for selling
the company's products,
But for buying
the products themselves,
And then
successfully recruiting
Large networks of others
to do the same.
That's why, in addition to
charging deception,
The complaint
alleges that herbalife's
Compensation
structure is unfair,
Because it
rewards its distributors
for recruiting others to join
And purchase products
to advance in
the marketing program,
Rather than in response
To actual retail demand
for the product.