Patrick T. Fallon, Bloomberg

Patrick T. Fallon, Bloomberg

Herbalife has come under fire by the government for possibly being a pyramid scheme. Thousands of people around the country operate as agents for the company. In typical pyramid scheme fashion, the feds feel as if the job of agents is to find more agents, not to actually sell products.

ABC’s Nightline did an in-depth report recently where two reporters signed up to be agents for Herbalife. They attended a seminar where they were bombarded with flashy images and the parade of supposedly successful agents who are now making thousands of dollars a week selling Herbalife.

The episode premiered last night. Promptly, Herbalife President Des Walsh has a response prepared.

“We provide clear, accurate and timely disclosures to prospective members regarding potential income,” a statement by the company said. “Studies have revealed that the vast majority of Herbalife members have realistic expectations of the business opportunity and the effort required to succeed at all levels.”

Hedge fund Pershing Square, released its own response to the reports on ABC News’ “World News With Diane Sawyer” and “Nightline”. Pershing Square has for a year been urging regulators to investigate Herbalife.

“ABC’s investigative report revealed examples of the pervasive and fraudulent wealth and health claims that drive Herbalife’s pyramid scheme,” the statement said.

Herbalife has been under scrutiny from both federal and state law enforcement agencies, which are reported to be looking into allegations that, among other things, the company and its distributors have misled prospective distributors about their earnings prospects.

Those probes have come as Pershing Square, led by the hedge fund billionaire Bill Ackman, has bet $1 billion on the prospect that the company’s stock will be driven down to zero as a result of the investigations. Ackman told ABC News he has already invested more than $20 million lobbying to bring media attention and a government crack-down.

Herbalife President Des Walsh told ABC News the company does not mislead its distributors about their money making prospects, and that Herbalife’s internal surveys show that very few Americans who sign up with the company are doing so to try and get rich.

“That is not our pitch,” said Walsh. “The reality is that most people know that this is a wonderful way in which to pay a $50 or $60 start-up fee to earn a few hundred extra supplemental dollars a month.”

Watch the Nightline report here 

Source: ABC News