Philip Reitcheck | greentrees

Herbalife Federal Court Case

Oct 17th 2013 at 11:41 AM

Now I have never done a review on the Herbalife MLM program, as I thought it was "above suspicion" of being anything but a legal MLM company.  With marketable products and a new April 2013 created non-affiliate customer base, I thought it would pass as a legit MLM program.

But now that one of its affiliates, Dana Bostick, filed a lawsuit against Herbalife in US Federal court, I am having second thoughts.   Bostick filed a 68 page complaint "accusing the company of being an

inherently fraudulent pyramid scheme" under Federal corruption and racketeering laws.  Bostick, who became a affiliate in April 2012, is suing Herbalife under California’s “endless chain” law that prohibits pyramid schemes, as well as under federal racketeering laws.

When I look at his complaint, it sounds like your typical case of a affiliate being able to "self-qualify" for a programs comp plan verses the need for non-affiliate customer purchases, to qualify for comp plan earnings. Which was a surprise to me, as I thought Herbalife had a non-affiliate customer purchases qualifying comp plan, that was put in place in April 2013.  I have also found out that Herbalife has quietly settled past such lawsuits with payoffs to affiliates.  But this time, no doubt do to the increased publicity over their program's comp plan being legal or not, Herbalife decided to fight this case.

Of course Herbalife filed a motion for dismissal of the case, which was denied by US District Judge Beverly Reid O'Connell.  Herbalife argued that Bostick’s claims were not significant enough for the case to proceed, which Judge O’Connell disagreed with.  With Judge O'Connell certifying the lawsuit claims, as being “significant”, it is obvious that the judge sees merit in the lawsuit.  Even if that merit was strictly to decide whether or not the lawsuit is a waste of time.

Oz at BehindMLM has personally reviewed the Herbalife program back in January and he found nothing stopping an affiliate from "self-purchasing" to qualify for comp plan commissions, and then profiting off signing up new affiliates that did the same.  He also stated that Herbalife’s comp plan is trying to hide the true source of revenue within the program by not differentiating between retail customers purchases and affiliates purchases.  This is because affiliates who fail to sign up any retail customers, are being able to earn comp plan commissions, by only having recruited affiliates.

But Herbalife did announce back in April 2013 that they were going to address this issue by creating a preferred customer “wholesale class”.  Now I did read Oz's Herbalife review back in January, but with their April 2013 announcement about creating a non-affiliate customer group, I believed that they corrected their comp plan legal problems.  But now I find out six months latter that Herbalife, for some reason, did not carry out this comp plan change.

Was it because Herbalife management realized that the creation of a "wholesale non-affiliate customer base" would reveal that Herbalife's revenue was overwhelming affiliate funded?  Who knows, but not creating a wholesale non-affiliate customer class does dismiss Herbalife’s statements that "failed" affiliates are just wholesale customers that are only in it for the products and not comp plan earnings.

By comparing affiliate money put into Herbalife, over the past 12 months, and the amount of money paid in for only products, which should be easy enough to uncover by the court.  As the FTC’s definition of a pyramid scheme is "a program that generates more money from recruited affiliates, then from non-affiliate retail customers", these two figures would reveal if  Herbalife is indeed either a pyramid scheme or a legit MLM business.

Now I am only waiting for the courts to decide if Oz's (from BehindMLM) opinion about Herbalife being a pyramid scheme is correct or not.  Stay tune for my update after the lawsuit is decided.

Just My Opinion,
Philip Reitcheck

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