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Denny's Daily Zinger: Is This Business a Fraud?

March 19, 2014 By Denny Hatch
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William Ackman, 47, is CEO of a hedge fund. He is out to destroy Herbalife International, a company founded in 1980. It sells (in its own words):

… protein shakes and snacks, vitamins and dietary supplements, energy and fitness drinks, skin and hair care products.

Ackman has bet $1 billion against it (sold short) and has called it a fraud and "the best-managed pyramid scheme in the history of the world."

The Federal Trade Commission has launched an investigation, causing Herbalife stock to plunge 17 percent.

Herbalife Is Not a Pyramid Scheme
A pyramid scheme is a fraudulent investment operation.

Herbalife is a multilevel marketing company (M-L-M) like Avon or Mary Kay Cosmetics.

The Avon model: homemaker Eileen buys cosmetics from Joyce, her Avon lady. Joyce offers Eileen the opportunity to sell Avon products, whereupon Joyce gets a commission on Eileen's sales.

Eileen has two choices: (1) sell Avon products and/or (2) recruit other sales reps to sell Avon. 

Eileen may be perfectly happy selling.

Or she may prefer to build a "down-line"—finding reps who, in turn, will recruit more reps. Eileen gets a commission on the sales of every member of her down-line.

A multi-level marketing company—à la Amway, Avon, Mary Kay and Herbalife—is not a fraudulent pyramid scheme.

It's a chance for Eileen to create a business

Takeaways to Consider

  • M-L-Ms are complex business models.
  • A good salesperson can probably make more money selling than trying to create and run a big sales organization.

Denny Hatch is a copywriter, designer and direct marketing consultant. You are invited to click on the title below and read the first 3 chapters of Denny's new book: "Write Everything Right!" No cost. No risk. No obligation. Contact him at:



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