Herbalife

• 1. Introduction

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  Herbalife began in February 1980, when Mark R. Hughes started selling a weight management product from the trunk of his car. Today it is an American multinational that develops and sells dietary supplements. It operates in 95 countries through roughly 4.5 million independent distributors and members. It employs an estimated 9,900 people, is incorporated in the Cayman Islands, and keeps its corporate headquarters in Los Angeles, California.

  Why did regulators on several continents, doctors, a prominent investor and a film festival documentary all focus on one seller of protein shakes? Who decides whether a business that rewards recruiting is a company or a pyramid? And what did Herbalife change when it was forced to? The answers start with a shake and a family loss.

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• 2. The Shake

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  Joanne was the name Mark Hughes gave when he explained where his company came from. He often said his product and program grew out of her weight loss concerns. He attributed her premature death to an eating disorder and an unhealthy approach to losing weight. His first product was a protein shake designed to help people manage their weight. He sold it through direct selling, organizing the company as a multi-level marketing business.

  That first shake is still sold as Formula 1, a soy-based meal-replacement drink. It debuted in 1980. As of 2015 it was the best-selling product, accounting for nearly 30% of total sales. The range has since grown to include protein bars, teas, aloes, vitamins, sports hydration and energy products, and personal care items. The personal care line arrived in 1995 with fragrances and facial cleansing products.

  Five manufacturing facilities in the United States and China make the products, supplemented by third-party manufacturing partners. In the United States, sites include Lake Forest, California, and Winston-Salem, North Carolina. In China, they include Suzhou and Nanjing. As of 2015-58% of the nutrition products came from facilities the company owns.

  Since 2013, a botanical extraction facility in Changsha, Hunan Province, China, has made extracts such as teas, guarana, chamomile, broccoli and bilberry. Those materials supply every branded manufacturing facility and the outside partners. Extracts pass through a botanical identification program and are tested several times during production. In the 2010s the company introduced what it calls a "seed to feed" strategy, which lets it trace where ingredients originated.

  A 2008 lawsuit tested those assurances after laboratory results showed lead in several products above the limit set by California state law. The suit warned that long exposure could lead to liver problems. The company ran its own laboratory tests and concluded the amounts were too low to require special labeling. Competing readings of the same evidence would recur in far larger disputes.

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• 3. First Brushes With Regulators

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  In 1982, the Food and Drug Administration sent Herbalife complaints about claims made for certain products. It also objected to mandrake, poke root and food-grade linseed oil in another product. In November 1984, the Department of Justice of Canada filed criminal charges over misleading medical claims in the company's advertisements. The company responded by changing its product claims and reformulating the product.

  Growth kept racing ahead anyway. By 1985, Inc. considered Herbalife the fastest-growing private company in America. Sales had climbed from $386 thousand to $423 million over the previous five years. That same year, the California Attorney General sued over inflated claims about how well the products worked.

  The lawsuit hit hard. By May 1985, Herbalife had laid off nearly 800 employees. It settled the case for $850,000 without admitting wrongdoing.

  The company became publicly traded on the NASDAQ in 1986 and renamed itself Herbalife International. The bad publicity still followed it, and it posted a $3 million loss that year. Recovery came through geography. By 1988, Herbalife had reached Japan, Spain, New Zealand, Israel and Mexico, and Israel would later host a health investigation of its own.

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• 4. Owners and Chiefs

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  In 1999, Hughes tried to take Herbalife private, asserting that Wall Street was undervaluing it. The board approved the buyout offer. Shareholders then sued, believing the price they were offered was unfair. Hughes abandoned the attempt and settled the suit. A secondary offering of five million shares had already taken place in 1993.

  On the 20th of May 2000, Mark Hughes died at age 44. Christopher Pair led the company until October 2001.

  In 2002, J.H. Whitney & Company and Golden Gate Capital bought Herbalife for US$685 million. That same year, plant sources of ephedrine were removed from its products after several U.S. states banned supplements containing such herbs. In April 2003, Michael O. Johnson joined as CEO after a 17-year career with The Walt Disney Company. On the 16th of December 2004, an initial public offering on the NYSE sold 14.5 million common shares at $14 per share. That netted the owners $1.3 billion.

  On the 7th of May 2014, the company announced a deal with Bank of America Merrill Lynch to repurchase $266 million of its stock. In August 2017, it announced it would repurchase up to $600 million. On the 25th of April 2018, it changed its name from Herbalife Ltd. to Herbalife Nutrition Ltd. Shareholders also approved a two-for-one stock split.

  Leadership changed hands often. In November 2016, the company said Chief Operating Officer Richard Goudis would become CEO in June 2017, with Johnson moving to Executive Chairman. In January 2019, Herbalife replaced Goudis after learning of comments he had made before taking over that were "contrary to the company's expense-related policies and business practices." Johnson took the job back on an interim basis.

  John Agwunobi became CEO in March 2020 and left in October 2022, when Johnson returned as chairman and interim CEO. In May 2025, Stephan Gratziani became CEO, the first distributor since Hughes to lead the company. Johnson moved to Executive Chairman. In March 2026, Herbalife bought Bioniq, a UK-based company that formulates personalized supplements using blood biomarker analysis, for up to US$150 million.

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• 5. Liver Questions

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  Hospitals in Israel, Spain, Switzerland, Iceland, Argentina and the United States have reported liver damage in patients who used Herbalife products. In 2004, Israel's Health Minister began an investigation after four people using the products were found to have liver problems. The company was accused of selling products containing toxic ingredients such as quaqua, comfrey and kraska. Samples went to Bio-Medical Research Design LTD, a private U.S. laboratory, and Israel's Forensic research laboratory.

  A study of the cases funded by the Israeli Ministry of Health concluded there was a causative relationship. Herbalife's SEC 10-Q filings said the ministry had not established a causal relationship. In 2009, an Israeli woman sued Herbalife International and Herbalife Israel, claiming her liver damage came from the products.

  In 2007, doctors at the University Hospital of Bern in Switzerland and the Liver Unit of the Hadassah-Hebrew University Medical Center in Israel published studies finding an association between the products and hepatitis. Spain's Ministry of Health issued an alert urging caution. Herbalife said it was cooperating fully. After investigating, the agency decided no action was required and removed the alert.

  In January 2009, the Scientific Committee of the Spanish Agency for Food Safety and Nutrition reached a similar view. Its 12-member panel reviewed cases from Spain, Switzerland, Israel, Finland, France, Italy, Iceland and Portugal. The report said: "The analyses of these cases and information regarding their circumstances have not allowed us to establish a causal relationship." The panel blamed metabolic changes from overzealous and unsupervised dieting.

  A July 2013 study in the World Journal of Hepatology reexamined the known cases using the liver-specific scale of the Council for International Organizations of Medical Sciences. It found causality probable in 1 case, and unlikely or excluded in the rest. The same author had described the relationship as "highly probable" in a review published less than a year earlier.

  In 2019, the Journal of Clinical and Experimental Hepatology published a paper titled "Slimming to the Death: Herbalife-Associated Fatal Acute Liver Failure-Heavy Metals, Toxic Compounds, Bacterial Contaminants and Psychotropic Agents in Products Sold in India." It examined one fatal case of acute liver failure in India. The journal retracted it in December 2020. One co-author said the retraction followed repeated legal threats to the editor-in-chief from DSK Legal, a New Delhi-based law firm hired by Herbalife. The retraction also ran contrary to COPE guidelines, which say the original paper should stay available, prominently marked as retracted.

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• 6. The Pyramid Question

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  A civil suit in 1997 by two former distributors accused Herbalife of withholding earned income. In 2004, a class action on behalf of 8,700 former and current distributors accused the company and distributors of "essentially running a pyramid scheme." A total of $6 million was to be paid, with the defendants not admitting guilt. Herbalife has consistently denied that it is a pyramid scheme.

  Distributor conduct drew suits too. On the 16th of July 2003, plaintiffs in West Virginia alleged that some distributors used pre-recorded phone messages and autodialers in violation of the Telephone Consumer Protection Act. Herbalife and its distributors paid $7 million into a fund for class members. A California class action filed on the 17th of February 2005 challenged the marketing practices of certain independent distributors under state laws.

  In November 2011, the Commercial Court in Brussels, Belgium, ruled that Herbalife was an illegal pyramid scheme. The company appealed on the 8th of March 2012. On the 3rd of December 2013, a Belgian appeals court reversed the lower court.

  On the 1st of May 2012, short seller David Einhorn asked pointed questions about Herbalife's business and sales models during the first-quarter earnings call. Suspicion grew that he held a short position. In January 2013, at an investor meeting, he revealed he had profited from one, closed before the end of 2012.

  On the 20th of December 2012, Bill Ackman of Pershing Square Capital called Herbalife a "sophisticated pyramid scheme" and argued its stock would hit zero. After a year-long investigation, he alleged that most distributors lose money. He put the chance of earning the headline income implied by testimonials at about one in five thousand. He also said the company overstated distributors' retail sales and understated their recruiting rewards.

  Financial commentators said Ackman bet roughly $1 billion against the company. Soon after his remarks to the press, the stock fell far enough that he would have made $300 million by closing. In March 2015, federal prosecutors and the FBI revealed they were investigating whether people paid by Ackman had made false statements to regulators to push the price down.

  In November 2017, Ackman closed the short after Herbalife shares rose 51 percent over the year. He replaced it with a less aggressive put option. By March 2018, The Wall Street Journal reported he had largely exited. Others reported the bet had cost his firm hundreds of millions of dollars and damaged investor confidence in his hedge fund.

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• 7. The Federal Reckoning

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  On the 4th of February 2013, the New York Post reported, based on a Freedom of Information Act request, that the Federal Trade Commission had a pending probe of Herbalife. The agency released 729 pages containing 192 complaints received over seven years. It later said its wording had been incorrect and that it could neither confirm nor deny an investigation.

  In March 2014, the FTC opened an investigation after calls from consumer groups and members of both houses of Congress. Herbalife said it "welcomes the inquiry" and was confident it complied with all applicable laws. In July 2016, it agreed to modify its business model and pay $200 million. Partial refund checks reached roughly 350,000 distributors in January 2017.

  The FTC alleged that Herbalife had deceived people into expecting substantial income. It said rewarding distributors for buying and recruiting, rather than serving real consumer demand, was an unfair practice under the FTC Act. Its press release stated: "it's virtually impossible to make money selling Herbalife products."

  The settlement rewrote the rules. Herbalife must prove that at least 80 percent of its sales go to people outside the distributor network, and distributors must supply receipts and show real customers. Only one-third of their rewards may come from recruitment. In the United States, members who buy at a discount are separated from distributors seeking a business, and discount buyers cannot earn rewards or sell. An outside party monitors compliance for seven years.

  Requalification adds pressure. Sales leaders must requalify by January each year, and in February anyone who missed the requirements over the previous 12 months is removed from that rank. For the period ending January 2019, approximately 67.9 percent of eligible sales leaders requalified.

  China brought a second front. In early 2019, the company remained under investigation by the Department of Justice and the Securities and Exchange Commission for corruption there. On the 27th of September 2019, the SEC announced Herbalife would pay $20 million to settle charges of false and misleading statements about its business model and operations in China between 2012 and 2018. It neither admitted nor denied the charges.

  In 2019, the Justice Department also charged two Herbalife employees with conspiracy under the Foreign Corrupt Practices Act. They were accused of bribing Chinese officials to obtain sales permits and influence an investigation into the company. They were also accused of offering bribes to China Economic Net to shape media coverage. Herbalife committed $40 million to resolve the issues. In August 2020, it agreed to pay $123 million to the Justice Department and the SEC.

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• 8. Sponsors and Screens

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  Since 2007, Herbalife has sponsored France's national volleyball team and the Major League Soccer club LA Galaxy. It sponsored FC Barcelona and Lionel Messi between 2010 and 2013. Cristiano Ronaldo has been a sponsored athlete since 2013. The basketball club Herbalife Gran Canaria has carried the name since 2012.

  In July 2020, Herbalife sponsored the Guangzhou Charge of the Overwatch League. Starting with the 2019-2020 regular season, Turkey's top women's basketball league was named the Herbalife Nutrition Women's Basketball Super League for three years. At the 2020 Summer Olympics, the company sponsored the Olympic Committee of Israel and the Indian Olympic Association.

  India became a major stage. Herbalife sponsored cricket star and former captain Virat Kohli from 2011 to 2025, along with Smriti Mandhana, Manika Batra, Lakshya Sen and Palak Kohli. In 2023, it became a sponsor of the Indian Premier League. That same year, it became the main shirt sponsor of the Western Sydney Wanderers FC women's team.

  In April 2016, the documentary Betting on Zero, directed by Ted Braun, premiered at the Tribeca Film Festival. It explored Ackman's allegation and the stories of distributors who lost their life savings. Hilary Rosen, a Democratic lobbyist and Herbalife adviser, questioned the festival's credibility. She claimed Ackman had "bought and paid" for the film "to make good on his stock bet."

  Also in 2016, a Last Week Tonight with John Oliver segment on multi-level marketing focused on Herbalife. It condemned a structure resembling a pyramid scheme and cited the FTC report. Oliver also criticized the company's treatment of Latino communities and its overstated health claims. One reviewer wrote that the segment leaned heavily on Betting on Zero and caused no immediate change in Herbalife's stock price.

  Scott Wapner's 2018 book When The Wolves Bite follows Ackman's short and his battle with Carl Icahn. Wapner called the wager dangerous, because it assumed the government would shut Herbalife down.

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