Ex-Los Angeles Mayor Becomes Advisor To Company Accused Of Pyramid Scheme

September 6, 2013 7:24 a.m.

A nutritional supplements company that has been accused of being a pyramid scheme has enlisted the help of former Los Angeles Mayor Antonio Villaraigosa.In a press release on Thursday, the company, Herbalife, announced that Villaraigosa, a Democrat, had agreed to serve as a senior advisor to both the company’s chairman and CEO, Michael Johnson, and the company’s board of directors.

“Herbalife has been a solid member of the Los Angeles business community and a strong presence within the Latino community since the company was founded here in 1980,” Villaraigosa said in a statement put out by the company. “During my time as mayor, Herbalife demonstrated its commitment to the city by choosing to locate its corporate offices in the LA Live complex and through its association with the LA Galaxy and the Herbalife LA Triathlon. I’ve long admired Herbalife’s commitment to giving back to the community though their support of local organizations like the Union Rescue Mission, the LA Chapter of the Red Cross and the Los Angeles City Fellows Program. I’m excited to have the opportunity to work with the Herbalife leadership team to help the company continue to grow and contribute.”

The company said Villaraigosa will counsel Herbalife on “strategic business development and global community outreach.”

A multilevel marketing company like Amway or Avon, Herbalife products are not available in stores. Instead, the company’s products are sold by individuals who sign up to be “independent distributors.” That business model has prompted scrutiny from various quarters.

According to the Los Angeles Times, 60 percent of the company’s distributors are Latino, and Latino civil rights groups have accused the company of misleading people about their chances of making money.

“I absolutely think they’re being victimized, and I think it’s a really bad idea to become a distributor,” Brent Wilkes, national executive director of the League of United Latin American Citizens, said in July. LULAC was one of five groups that met with the Federal Trade Commission in July to discuss concerns about Herbalife.

The company has also famously become part of long-time feud between two New York City financial titans: Carl Icahn and William Ackman. Ackman has accused Herbalife of being a pyramid scheme, and has shorted around $1 billion worth of the company’s stock. Ackman’s firm, Pershing Square Capital Management, maintains a website called “Facts About Herbalife” that prominently displays a phone number to submit Federal Trade Commission complaints.

On its website, Herbalife directly refutes the accusation that it is a pyramid or Ponzi scheme.

“Pyramid or Ponzi schemes are illegal, while multilevel or network marketing organizations such as Herbalife are carefully regulated and are legal business structures that involve the sales of real products of value to consumers,” the company states. “By contrast, the Herbalife business is founded upon product sales Herbalife independent distributors sell products to customers and to distributors who they have recruited and continue to motivate, directly and indirectly. Depending on the level of product sales a distributor achieves each month, they become eligible for volume price discounts on the products they buy from Herbalife. Higher volume translates to lower product prices, allowing them to make more money and encouraging them to find other customers who may want to buy and in turn sell Herbalife® products.”

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