Herbalife's Business Model Draws Scrutiny From Senators in Italy
(Bloomberg) -- A handful of Italian senators called on the government to scrutinize Herbalife Ltd. and its peers, likening their multilevel-marketing operations to a pyramid scheme that needs greater oversight.
The six senators, mostly from the Democratic Party, cited a report showing that more than 84 percent of Herbalife distributors in Italy haven’t made any money, according to a transcript. They called on the Economic Development Ministry to review the companies’ activities, arguing that their tactics may be illegal. It wasn’t immediately clear what action, if any, the ministry would take.
Herbalife is still recovering from the fallout of an investigation by the U.S. Federal Trade Commission. The company reached a settlement in 2016 to revamp its U.S. operations and paid $200 million to refund sellers of its weight-loss shakes, vitamins and nutritional supplements. The regulator stopped short of calling Herbalife a pyramid scheme, but described the company’s business in critical terms, saying it must restructure its operations and stop misrepresenting how much money its members are likely to make.
A spokesman for Herbalife didn’t have an immediate response to a request for comment.
The company, which sells products through an army of global distributors, was accused of being a pyramid scheme by hedge-fund manager Bill Ackman five years ago. Ackman, founder of Pershing Square Capital Management, bet $1 billion against the company’s stock and started a well-funded campaign against it. The FTC then began an investigation in 2014.
In the face of persistent gains -- Herbalife shares have risen 46 percent this year -- Pershing has since converted its investment to put options, which would pay off if the shares fall.
In 2016, Herbalife generated $137.8 million in sales in Italy, representing 3 percent of its total revenue. The company has called Italy its largest European market.
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