Bill ackman: this will be the most important presentation
That I've made in my career.
So, how's that for raising expectations?
Man: Uh, what are we gonna learn?
Ackman: You're gonna learn why herbalife is going to collapse,
And that's a pretty strong statement,
But this is the largest fraud in terms of scale, of countries involved,
Harm to people...
Man: And right now, we are joined by the ceo of herbalife, michael johnson.
He has called in.
Michael johnson: First of all, guys,
This isn't about herbalife's business model.
This is about bill ackman's business model.
This is blatant market manipulation.
We're not a pyramid scheme. That's a bogus accusation.
This is a legitimate company.
We've been in business 32 years.
Millions of customers around the world.
Mr. Ackman's proposition
That the United States will be better when herbalife is gone...
The United States will be better when bill ackman's gone.
Good. How're you doing?
Um, clock, countdown clock.
Do you want time of day, or do you want to count time?
What do you mean?
-We have a speaker timer. -During the presentation itself...
Just count going up.
-Count going up from zero? -Yeah.
You got it. Thank you, sir.
Ackman: the company is clearly panicking.
They know what we have.
Male reporter: They say, bill, that herbalife continues to face
An unprecedented attack
To support your billion-dollar bet
To manipulate and drive herbalife stock price to zero.
Female reporter: Seems like all of wall street is against you.
Man 2: Ackman is a liar.
You scare the hell out of people, get the stock down,
And tells the world how great he is.
Female reporter: You still believe this company is worth zero?
Ackman: Yes.
The company is the goose that laid the golden egg.
And trust me, I have never seen a goose put out so many golden eggs
- In my entire life.
Narrator: For two years, hedge fund ceo bill ackman
Has been managing a massive short position in herbalife.
Betting that company would soon fail,
And that, as the price of herbalife stock plummeted towards zero,
His investors in pershing square would make a fortune.
I just need to be authentic.
-Make you look like a zombie? -Exactly.
Ackman: we are managing capital for others,
And most of the time
We buy stakes in companies and work to make them more valuable.
But a couple times in our history,
We come across a company we think is causing harm
Operating illegally, uh,
And we can make money betting against that company.
How much money have you spent betting against herbalife?
Uh, we have a short position of over a billion dollars.
On the makeup, I'm kind of a less-is-more guy.
-Yeah. -Okay.
Ackman: I've had one other very big public short in my career,
Which was this short I took in a company called mbia.
We were saying that a aaa-graded company was basically insolvent.
People thought this was absurd.
The company accused us
Of spreading false and misleading information about their business.
Mbia took seven years for us to be proven right.
And ultimately, the company collapsed during the credit crisis,
Because of exposure to subprime mortgages.
A reporter named christine richard
At bloomberg news got interested in the story,
And then ended up writing a book
About my battle with mbia called confidence game.
And then she joined an independent research firm
To focus on short ideas,
Companies to bet against.
And she called me one day and said, "bill, I think I've got the next mbia."
Hello. I'm michael johnson.
Chairman and chief executive officer of herbalife.
And it's my pleasure to be your guide for our tour of herbalife.
In 1980, our company founder mark hughes started with a dream.
That dream was a mission for nutrition.
For people to improve their health
And also to improve their financial well-being
Through our direct sales business opportunity,
Which, we believe, is the best in our industry.
Herbalife is a multilevel marketing company,
Which means you can earn on your own sales,
And if you're a supervisor or above,
On the sales of those you introduce
And sponsor directly or indirectly.
Our products are available exclusively through you,
Our independent herbalife distributor.
That's why we have a rule
About not selling through retail stores, outlets or on auction sites.
Christine richard: If you look at it, on the surface,
It's a wildly successful company
Selling high-priced nutritional supplements.
But going back to the '80s,
There were questions about how the products were pitched.
You know, extreme promises that were made about the products,
And of course, always the extreme promises about the income opportunity.
I was really committed to making herbalife work,
And I was like, "I'll do whatever it takes.
"whatever it takes, I'll do it."
I'd always come out fishing just way below
And I always spotted this particular house
With the staircase going down.
As I grew in herbalife, I ended up buying it.
Man: I step out of the ferrari, the bentley, whatever,
People go, "what does that guy do for a living?"
And I go, "I'm an herbalife independent distributor."
And people are absolutely amazed that that's what I do.
It's an incredible quality of life.
So far, in the last 90 days, the company has paid us over $15,000 part-time.
And I make, right now, I can't believe it myself,
Over $8,000 a day
To over $3,000,000 a year.
It's unbelievable!
If I can do it, I've made a small fortune,
Actually a large fortune, with the company,
Anyone can. It's simple.
Richard: I think it's a fraudulent pitch,
But it persists over a decade, so...
It seems like it should be something
That wall street investors would want to take a look at.
Ackman: I was appropriately skeptical,
Which is the approach we try to take
With any investment, long or short,
And then a belgian court found herbalife
To be a pyramid scheme in 2011.
I thought that was kind of a materially interesting development,
And that's what motivated the research.
And this is a case where the more layers of the onion you peeled away,
The more interesting, uh, it became.
You follow what I say, write this down,
You're gonna make a minimum of $50,000 this year.
That's the least amount of money that you're gonna make.
The second year, you'll make $125,000,
And that's the least amount of money that you're gonna make.
Narrator: In 1986, founder mark hughes and herbalife
Received a permanent injunction from the state of california,
Barring them from making false income and health claims.
Nevertheless, the company continued to thrive.
But 14 years later, hughes was found dead in his malibu home
Of an overdose of antidepressants and alcohol.
And a group of private investors
Soon took control of herbalife.
Before listing the company on the new york stock exchange,
They sought and found a new leader.
Michael o. Johnson.
Johnson had risen through the ranks at the disney corporation
To become president of disney international.
Announcer: The eyes of the world are on herbalife.
We will be faster, better, stronger than ever before.
Narrator: A competitive triathlete,
Johnson's passion for fitness perfectly mirrored his new company's image.
At herbalife, he had a midas touch.
Revenues grew at astonishing rates.
From $1.3 billion to $4.8 billion in his first 10 years.
Oh, we're just getting started.
We're just scratching the surface of what can be.
We haven't penetrated the markets and communities
Anywhere close to what we're gonna see.
Narrator: Johnson did well by herbalife and himself.
In 2011, he was the highest paid ceo in america.
His compensation package totaled $89.4 million.
Mexican sales, up 31%. Asia pacific, up 29%.
India, 121%! South, central america, 44%.
This company seems to be unstoppable.
You know, my mother and father were incredibly strong influences in my life.
And integrity was the name of the game in our house.
Um, you know, if you did something wrong, own up to it.
Just never tell that lie, you know,
Because you're gonna lose the trust.
And I think what we've done here is
We've built an integrity and a trust in our organization,
In our people, in our product.
And if I'm the one out in front, leading that, okay.
You know, I'll take that responsibility.
Scott wapner: John desimone is sitting here with me.
John, it's good to see you.
John desimone: Thank you, scott.
Wapner: At this very moment, bill ackman and more than 500 people
Are inside a theater in midtown manhattan.
Bill's getting ready to give his latest presentation,
And they're watching this interview live.
In his words, he's gonna expose incredible fraud at herbalife today.
What do you expect?
Uh, we know this mo. This is not the first time.
As a matter of fact, this has been 18 months of always... The guy here...
It's always "the bark is worse than the bite."
Uh, he's made some outrageous statements.
He's made 435 accusations over the last 18 months,
Each one is the latest and greatest until it's proven not to be.
First of all, what are you accusing herbalife of?
Of being a pyramid scheme.
We believe herbalife is a pyramid scheme.
Explain, what do you mean by that?
Well, herbalife sells products, weight loss products,
Nutritional supplements, vitamins, things like that,
But what they really sell and what their distributors make money from
Is by selling what they call a business opportunity.
And the business opportunity is to sell
The business opportunity to your friends,
Who in turn sell the business opportunity to their friends.
You sign up to become an herbalife distributor,
You spend $55 or $100 to get a starter kit.
And then eventually you're convinced to spend $3,000
To buy the minimum amount of inventory you need to acquire
In order to become a supervisor.
And you got a business in a box that can make you a fortune.
And that's when you're entitled to get royalties
From people beneath you and your so-called downline.
These are the people you recruit.
William keep: What generates income are purchases.
As products are purchased from herbalife by those in your downline,
They generate a commission upline.
So, as you build your downline,
And you recruit others, friends, family members, co-workers,
It's their purchases that generate your commissions.
The secret is to get five other people
To do the same thing every month.
And teach them to get five other people
To do the same thing every month.
Before you know it, not only will you be a supervisor,
But you'll have five supervisors under you
Who'll have five supervisors underneath them
Who'll have five supervisors under them.
That's 155 supervisors.
And if they're each doing about 2,000 to 2,500 volume points a month,
You're gonna be making somewhere in the neighborhood of $42,000 a month.
Keep: In fact, building the downline and product purchases are required
In order for you to be eligible for income.
So, only about 17% of all distributors
Are eligible to earn anything from herbalife.
According to herbalife's earning statements, of those 17%,
We know for sure, 30% or so will earn zero.
And approximately 48% will earn
$1,000 or less gross earnings for the year.
Once we deduct expenses,
And consider the fact that they have to maintain a purchase volume,
The net income is negligible.
Ackman: You're deceived into believing that this is a good business opportunity
When, in fact, you're selling a shake
For three or four times the price of slimfast.
People can buy that in their supermarket.
And those $3,000, $4,000, $8,000 inventory purchases,
Inventory that's sitting in your garage that you can't sell,
Are fueling paychecks for people
At the very, very top of the pyramid
Who have hundreds of thousands of people beneath them.
The top 50 herbalife distributors make
Three, five, seven, 10-plus million dollars a year.
Hence it is robin hood in reverse.
Wapner: But he claims today,
He has hundreds of hours of video, audio,
Documents to support his claims.
On some level, you must be worried.
Desimone: I'm not worried about the substance of what he has.
This is anecdotal, it's very propaganda based.
What he's missing is that, fundamentally,
We've got millions of customers that enjoy the product,
That use the product, that's indisputable.
We actually had a release today from a former ftc...
Keep: What we don't really have good information on is,
Do herbalife purchases translate into sales
To customers who are not also distributors of herbalife?
Or are herbalife purchases a mechanism for sustaining recruitment
And sustaining commissions that have little to do with outside customers.
What the research shows is that the majority of our distributors
Come and become distributors
Because of their affinity with the product,
And they want to achieve a product discount.
So, effectively, what they want to do
Is become distributors almost like members, right?
Club members, just like in costco.
The lack of evidence,
In terms of what portion of products
Ever leave herbalife's distribution channel,
Is part of the criticism
And part of the wonder about whether or not
This company can be a pyramid scheme.
Here's the reality.
Our core training is for a new distributor who wants to build a business,
If they talk to 10 customers today, 10 people a day,
About the products and the business opportunity.
I have never spoken to any distributor,
Who is doing that, who is actively engaged, who is not making money.
Richard: Multilevel marketing, mlms, just tap into beliefs we have in america
That you really can accomplish whatever you want to.
The rags-to-riches story that's there for everybody.
Herbalife has done a great job reaching into the hispanic market.
The lower-income immigrants have these hopes to find a successful life here
To set up a small business.
Herbalife says, "yeah, and here's how you're gonna do it."
Okay, so, we'll get everybody on one side.
Julie contreras: The beginning, for me, was senor phillipe colon.
Him and his wife called me, talked about herbalife.
I didn't know what it was, or understand.
When I went to his home, it was completely filled with product.
He had it in his living room, his kitchen...
He had it in his basement and in his garage.
That's how much product he had
That he could never move.
But he continued to pay into it
Because he was told that he would make more money.
And he's a very ethical man.
So he said, "I notice after this time, julie, that this is a scam.
"and I want my money back," he said.
So I just said, "you know what? Let's do a press conference
"and looking to see if there were any more victims out there."
And of course when we made that call out, the victims responded.
Where did you want to meet? In here?
They're gonna come here.
They're all gonna come up here. They'll be arriving soon.
Okay, so, this is an estimate, but I'm gonna give you...
-Contreras: Okay, that... -This is unbelievable.
And they're just regular people, right?
Contreras: They're regular people and all the receipts and everything to support it.
Jay reyes: You've got a real mess here.
Contreras: A majority of the group are undocumented.
So, they live in that insecurity.
They are people who worked very hard, people who are paying taxes,
And people who were violated.
And they have a right to seek what they call "justicia." justice.
Contreras: She has suffered a lot
Because her husband continuously reminds her
About the $8,000 that she owes to them.
Contreras: Many immigrants migrate here for a better life,
And if people want to prey on their lack of knowledge and finances,
I find that despicable.
And no one is doing anything.
The federal trade commission, the attorney general...
I mean, should we start go making police reports?
Des walsh: And another charge is that we're actually going after latino community
Because, in some way, this is an impoverished, uneducated group.
If a supermarket chain opens up a new store
In an area that is economically deprived,
They're cheered and applauded
Because they're bringing good nutrition,
They're bringing jobs to that community.
And yet when we support the latino community,
In some way, this is a company going after people
Who aren't able to make an educated decision regarding their nutrition.
I mean, frankly, it's insulting to us,
It's insulting to our customers,
Insulting to the entire latino community.
Ackman: It's been happening community by community.
Pyramid schemes are known for the pop and drop phenomenon.
They need to find new victims.
And there's an initial boom
As a lot of people get excited about the opportunity
Of being herbalife distributor,
And as they run out of people to recruit
And they find they can't sell their product,
Uh, it busts.
Robert fitzpatrick: 80%, according to their sec filing in 2005,
Of the people that had been in the scheme quit, and were replaced.
If you added all those up in a five-year...
I mean, we're talking about an absurd machine here,
Churning through millions of people.
Promising them this utopian unlimited income,
Delivering almost nothing.
Narrator: Since its founding in 1980,
Herbalife has extended operations around the globe.
Expanding across 10 countries in their first decade
To a current reach of 93 countries worldwide.
Johnson: We've just opened up vietnam this week, which is fantastic.
Why does that matter? Do people in vietnam...
They want supplements? What do they know?
I mean, I'm not denigrating vietnam,
But I'm saying, how do you convince them that this is right for them?
Well, the company's success recently
Has been built on daily consumption. This is a meal.
Vitamins, great nutrition, good minerals, carbohydrates,
Proteins, all that.
Everybody needs a good meal in their life.
Vietnam has 87 million people. 40% of the population is under 25 years old.
They're looking for jobs, looking for income.
So, we have this two-way street,
Health and wealth. Great meal, great business opportunity.
Fitzpatrick: If they can grow globally, go to new markets...
China, 1.3 billion people there,
Latino immigrants into the us...
These will keep the thing sustained for a bit longer.
How long can they go? Nobody really knows.
Is there anything we can do for capacity?
We should be prepared for a million people.
We are prepared for a million people. I'm doing everything I can.
We have all three servers blazing right now.
William cohan: Bill ackman is on a holy war.
Now, he may end up being wrong about herbalife.
Have you ever tried herbalife's products?
Ackman: A sip.
I've actually heard very negative things
About the manufacturing process.
- I'm staying far away from it.
Cohan: I mean, this is the guy
Who's one of the more precocious, uh, confident,
Some people would say arrogant, activist investors on wall street.
He's made himself a lot of money,
He spends a lot of that money.
Private jets, beautiful apartments, houses in the hamptons.
He's a master exploiter of the media.
People love to have him on, he always makes good copy,
And he turns that copy into riches for himself.
And it's, frankly, a brilliant strategy.
Uh, look, p&g is one of the great companies of all time.
Richard: I remember just sitting at my desk,
After more than a year of research,
Bill ackman was being interviewed about something completely different...
And I'm confident they're gonna do the right thing.
Real quick, you teased in the sky investing conference yesterday
-That you had a short position. -Yes.
-A secret short position. -Yes.
Would you like to share your secret with us?
Not yet.
I'm sure he knew once you put this idea out there
Everyone would want to know, "what is this short?"
-I can't say. -We gotta go to a commercial.
I can't, I'm happy to talk about it
When we're ready to talk about it.
It's a good-for-america short.
What I mean by that is,
As soon as the company goes out of business,
The country would be better off.
Ackman: Short selling.
Imagine for a moment that a friend of yours collects rare coins.
And you have the view that those coins are gonna go down in value.
So, the way you would short those coins
Is you call up your friend and say,
"can I borrow a few of your coins?"
And he says, "sure."
And you borrow the coins,
You then sell them for the $1,000 each
That they sell for in the market at the time,
And then you wait for them to drop in value,
And you turned out to be right and the coins dropped in value to $500.
You go back into the market, you buy them back for $500.
You've sold them for $1,000, you've repurchased them for $500,
You've made $500 on each coin,
And then you return the coins to your friend.
Your friend is in the same place he was when he started
And he has the same coins that he started with.
You might have to actually pay him something for borrowing the coins,
'cause he loaned them to you, so you might pay him an interest rate.
So he's happy because he's made interest lending you the coins,
You've made money profiting from the decline of the value of the coins,
And that's short selling.
That's when it works.
But if you sell it at a high price and it goes higher,
And it can go infinitely higher,
Because the stock can go infinitely higher,
Then you're on the hook for that.
So, this is why it takes big cojones to short stocks.
Especially something as public and as big as herbalife.
Narrator: At the end of 2012, ackman took to the stage
For the first time to reveal his secret,
Good-for-america short.
Just want to point out a few things.
We are short the stock of herbalife.
Herbalife stock goes down, we make money.
Herbalife stock goes up, we lose money.
Cohan: The December, 2012 300-page presentation was incredibly detailed.
It's overwhelming.
Ackman: One percent get 88% of the rewards.
Cohan: When he advocates for an idea,
He could sell ice to the eskimos.
Ackman: Recruiting rewards are substantially greater
Than the retail profit that they generate.
You can lose a lot of money being short.
So, in order to be short a pyramid scheme
Like herbalife and not get killed,
You have to be prepared to share your thinking publicly.
Let's put it this way,
This is the best managed pyramid scheme in the history of the world.
Mr. Johnson should get a lot of credit for that.
Male reporter: There's herbalife stock down 14.6%. The news bill ackman...
Richard: The reaction was stunning.
I mean, it felt like, "wow, people are getting out.
"they've seen something that scares them."
Johnson: These guys are listening to a report
That was generated by a research firm in new york
And we sent her a legal letter.
This is a ridiculous assertation
By people who are trying to manipulate our stock.
Reporter: What would you say to those who say
That you are trying to manipulate the success of the company
-And therefore the stock price? -False.
We simply want the truth to come out.
The moral argument that he's making is
Closely aligned with his financial interests,
And that's why he can seem like he's holier than thou.
If you succeed, you're gonna be donating the money,
By the way, to charity, you said.
You called it "blood money."
-Yes. -Because?
Everyone says, "well, you can't believe
"what he says because he short the stock
"and he's gonna profit from this. You can't trust him."
So, by taking the economic part out of my investment,
I.E., giving the money away,
It's harder for them to make that argument.
You know, I am a moral person,
But we are, again, managing capital for others,
And it's actually in the best interests of our investors
For us to bet against the company that's causing harm.
'cause those are the kind of companies
That the government and regulators
Will be more likely to take action against.
Narrator: Now, two years after his first herbalife presentation,
Ackman is set to make more revelations
That he believes will deliver a death blow to the company.
All poor people are being exploited.
The deception knows no bounds.
Yeah, it's incredible.
Four hours later, we get done with it, great presentation,
And some genius in the audience
Looks at the stock and it's gone up.
What's our response?
It's irrelevant. It's not going up though. It's okay.
Question's whether it opens again.
Jon silvan: What can we come up with other than irrelevant? Something.
Stock's not going up.
It's a certainty.
Stock's irrelevant, but it's not going up.
Ackman: we are gonna expose an incredible fraud
In the way they fundamentally operate.
These so-called nutrition clubs
Where they talk about places for people to get together
And learn about good nutrition and lose weight,
That's not what's happening at these venues.
Woman: ladies and gentlemen, please welcome...
Thank you.
...Founder and ceo of pershing square capital management, mr. Bill ackman.
Richard: In the nutrition clubs, herbalife has a story.
It's very eager to tell that story
Once bill ackman goes after the company.
Announcer: Herbalife fitness and nutrition clubs
Are at the heart of how herbalife is helping people change their lives.
At a time when so many people in the United States are obese and overweight,
And in the latino community,
Where those percentages are even higher
Than the national average,
It's important that there's a company like herbalife
To send the message that we need to change our eating habits,
That we need to change our lifestyle.
Richard: Initially I couldn't understand how it worked.
How are lower-income people finding the resources to run these clubs?
And so I, several times, went to go look at some of these nutrition clubs.
I noticed in queens, herbalife has a lot of them.
It's an immigrant population from mexico and guatemala and ecuador.
You have to search to find them.
If you're standing right in front of it, you could almost miss it.
Tiny little stores with a green curtain covering the window.
There is no sign saying this is an herbalife club,
Or hours of operation.
Hello.
They're supposed to be clubs, they're not supposed to be retail establishments.
Cost you $5,000 to $6,000, sometimes something greater than that,
To open one of these things, in terms of the start-up cost.
The rules are fairly interesting.
You're not allowed to display the name of the company, the logo,
Or the words "nutrition club" or "shakes"
Or any implication that it's an herbalife business, outside.
You can't advertise and you can't promote.
You're not allowed to attract customers.
Richard: Can I get a shake, can I buy a shake?
Man: Who are you?
Richard: I'm doing research. Man: Research?
-Yeah, I'm not a member. -Okay, take a seat.
Richard: You go in and pay $5 a day.
They would serve you a protein shake, the formula one...
You also drink an aloe water and you drink an herbal tea.
So, we looked at the economics of 10 nutrition clubs
And we had people sit outside,
Track traffic trends, people coming in and out...
We knew what the rent was, how big they were, how often they were open,
Estimate the utility cost, the start-up cost, inventory cost for serving...
When you do the math, you find out,
Your average club, these are the 10 we went to in queens,
Loses $12,000 a year.
This doesn't seem to be a particularly good business model and this is before
Paying for the person who runs the club.
How do they make money?
Well, tell them it's not about shakes,
It's about something they call duplication.
Let's hear it from the horse's mouth.
Even right now because, guys, where your money's made is not serving smoothies.
Where your money's made is having hundreds or tens
Or thousands of distributers around the globe.
Here's a presentation of how nutritional clubs work
From one of the top distributors.
Important to remember, operators need to realize
The end goal is not how many $4 services they sell each day
As that is not the way for them to achieve their financial goals.
Rather it's upgrading a consumer to become a customer
And eventually a distributor.
And ultimately having distributors become operators who will duplicate
The nutrition club method.
Note the, "duplicate again and again and again!"
This is previously an herbalife nutrition club.
Yeah, so this is turned over.
So, the last four clubs that were here
A year and half ago are no longer clubs.
There's too many in one neighborhood.
Reporter: And what do you say to your critics,
Who say, "yeah, but the majority of your distributors
"do not make any money,
"they make less than 1,000 bucks
"in an entire year and no commissions in a year?"
I'd say 1,000 bucks? That's a lot of money to a lot of people.
This is what these elitists don't get,
That most people come in here for part-time income
They're not coming in here to recruit someone or build an organization,
We know all the numbers.
Richard: Herbalife's lawyers will tell you that
Everyone gets pointed to the disclosure
But when you look at how it's sold, person to person
There's a very clever system that drove
A continually renewed group of people to come into the business.
--announcer: Ladies and gentlemen,
Welcome to the herbalife extravaganza...
Richard: It's about a promise that you would make it to the president's team.
Man: I promise you,
If someone that was homeless, that was lost on the inside can do it,
Every last person breathing,
With a beating heart that was born from a mother and a father
Can do the exact same thing.
And they see these distributors put on stage
At these extravaganzas and they have
Pins with diamonds on them and that's the american dream.
And the president's team, that's basically
Half a million dollars a year for the rest of your life.
Those are the top thousand out of about 3.9 million distributors.
Richard: All right. Muchas gracias.
Richard: So, this club that I went into, they said to me,
"come back in two years and I'll be on the president's team."
You so want the people that you meet in these clubs to succeed.
You know, and they seem so sincere and hopeful,
But you know the clubs don't last
And I think they take individuals' life savings
With them when they were convinced to believe in this idea
And this business opportunity.
This is a great opportunity for anybody, everybody
And latinos grabbed it a little stronger.
What other ceo gets to walk into their job every day, going,
"I'm improving lives today, I'm making people healthier and better."
Their stories are real stories, you know at disney,
We sold stories and we told stories and we're really good at it.
Here we create stories.
Keep: The way an illegal pyramid scheme works,
Success is based almost exclusively
On the ability to keep recruiting others.
A new recruit comes in towards the bottom of that pyramid
And at any time if we stop the recruitment process
We find that, those people at those lower levels have no way to earn income.
The probability of success declines as the number of people join
And we can prove mathematically
That 95% of these people literally have to lose their money.
Fitzpatrick: Multilevel marketing presents this
As normal business competition.
For example,
20 people enter a field, they're all gonna sell this product,
Only one will probably be successful.
And the other 19 just didn't have what it took.
We all understand that.
You go through this in sports, you go through it in school,
Then you enter the business world.
Competition. That's not what this is.
This is something entirely different.
This is a money transfer scheme,
In which the one managed to get the 19
To give him or her their money.
We are here
By the place where my office, my construction office was.
I was sitting in my office when the
Herbalife guy came to knock my door.
He started showing me the products,
He started preparing me things...
Uh, teas...
Shakes...
And they are telling me, they are making lot of money.
$20,000, $80,000 in a month.
So, that was something to think a little bit.
Help a lot of people...
Do an easy work...
Not dangerous anymore, so that's why
I started switching my construction business to herbalife.
So, I opened the club,
Buying thousands of dollars of products.
I was feeling, "I found herbalife,
"the best company in the world."
And my upline, miguel ruchiman,
He helped me to fix the place.
Anything that I need to open the club.
Like anybody can dream, you know?
Nice neighborhood here.
There is a lot of hispanic people, they were coming to my club.
I was trying to do my best for the people, I was not pushing them
To take the product, I was just letting them to...
To taste... To rest...
To talk in my place...
To start liking the place.
This was my club, nutritional club here.
So...
From here, all the way, that was a big front
Of my business.
My upline told me,
"the more you spend the more you will make."
That was the thing
That make me feel so sad,
Because I believed this person.
That I thought he was my friend.
Our business opportunity comes from the sale of our products.
If I sponsor or recruit 1,000 people,
I receive zero for that.
I only start earning money from my downline, as we call it,
Only based on product sales or consumption.
Julio ulloa: I realized in four months that I was not making any money.
He lied to me.
He was just interested in
Making me spend all my money
Because he was getting commission.
That's what I realized.
So, one day what I did...
I turned off everything.
The hot water for the tea...
I put the blenders in one side,
Everything, I covered everything, then I locked this door.
I locked this door,
And just got away.
I said, "no more. No more herbalife."
I lost a lot.
I lost my money that I had to keep my construction company running.
This is miguel ruchiman's club.
This is the one who told me, this is the best business.
See, he's there.
Yeah, that's him.
They took my dreams,
My hope to be successful.
Narrator: Just weeks after bill ackman announced
He was shorting herbalife stock,
Another wall street heavyweight leapt into the fray.
Dramatically changing the nature of ackman's campaign.
Paul vigna: Herbalife is up much more in pre-market.
Why are they up so much?
'cause carl icahn, the famed hedge fund trader
Has taken out a big stake in the company.
Why has he done that?
It kind of seems like he's done it pretty much 'cause he hates bill ackman.
Carl icahn: most guys on wall street,
I sort of like and I get along with.
And it's no secret, I don't like ackman.
I don't respect him and I don't like him and that's not a secret.
Carl icahn is one of the world's richest men
He's probably worth like 25 billion dollars.
Carl was an activist investor, you know
When bill was just getting out of diapers.
He essentially could buy out this company
And really just crush ackman's short.
Icahn: as far as I'm concerned,
He wanted to have dinner once with me, I had dinner with him,
And I gotta tell you, I left. I couldn't figure out if he was
The most sanctimonious guy I ever met in my life or the most arrogant.
Cohan: Ten years before, they had invested in a deal.
Bill ackman ended up suing icahn for $10,000,000
That he thought that carl owed him.
Ackman: he's a bully, okay.
I was not in a very good place in my business career
And carl icahn thought, you know what,
This guy is road kill on the hedge fund highway.
I'm never gonna have to worry about this kid again.
So, I'm not going to pay him.
They went to court and ackman won
And icahn ended up having to pay him this $10,000,000,
Which is kind of like nickel and dimes to these guys.
Icahn: and I'm telling you,
He's like the cry-baby in the school yard,
You know I went to a tough school in queens that
They used to beat up the little jewish boys
And he was like one of these little jewish boys crying
That the world was taking advantage of him.
You know, it's like in the old song
You rue the day I ever met the guy.
Cohan: For 10 years, they couldn't stand each other.
This sort of expressed itself when icahn saw a technical opportunity
To put what's called a "short squeeze" onto bill ackman.
Some people have said this is the ultimate short squeeze,
We've got a stock now,
It's up 20% year to date.
Icahn: ackman has given us
An opportunity to buy a company at a discounted price.
And for that, I thank him, actually.
Again, the worst thing for a short seller
Is when the stock goes up
Because that stock can go to infinity, theoretically.
That's gonna just make his losses massive.
Why is the stock going up?
Simply because carl icahn and others have been promoting it, that's why.
Ultimately...
Meaning that the people in investment communities believe in carl icahn
More than they believe in you.
Certainly on this investment, that's the case.
Icahn: I bought it 'cause I really do think,
It's an opportunity for unemployed people in these countries
To make money and I think the product is a good product.
Cohan: He's not there because he believes in herbalife's products
And what herbalife is doing to lift people
Out of poverty and into the middle class.
He's doing it because he thinks he can make money by squeezing bill ackman.
Ackman: carl can try to orchestrate a short squeeze,
He can try to scare my investors,
From investing with me,
Which sounds like he's attempting to do on this call.
Icahn: Ackman takes inordinate risk.
What the hell? He's not risking his money.
He's risking his investors' money
And I'll tell you,
This could be the mother of all short squeezes.
Now, how long can bill ackman hold out now?
He's got a billion dollars bet that this company is going to go down.
Man: How big do you think their egos are?
Icahn: then he talks about charity, that's complete...
He's not giving it to charity.
Reporter: Carl, let me...
Let me remind you that we are on live television.
That kind of defines the market for months and months.
All the discussion about what herbalife is really doing
Gets displaced and it becomes like a big wall street circus.
Ackman: I told carl after the whole thing,
He called me up and he literally said,
"you know, bill, we can be friends now,"
I wish I had a recording of the conversation.
I simply said to him, "look, carl, you are no friend of mine," and that was it.
Icahn: I never said that I wanted to be friends with you, bill.
I wouldn't be friends with you,
-And you said to me... -Ackman: Okay, carl...
Icahn: You'd like to be friends so that we can invest together.
Ackman: Carl, I have no interest...
Do you think I want to invest with you?
-Okay, let's move on... -Icahn: I wouldn't invest with you
If you were the last man on earth.
Reporter: Let's move on.
Zac kirby: I was in my last semester of college, finishing at business school.
Didn't really have any job prospects,
Any idea what I really wanted to do even at that time
And I had an old high school friend approach me
About these nutrition clubs that were popping up everywhere.
We're in oklahoma and the obesity rate is extremely high,
It's 67% among adults
Over the age of 30, so a weight loss company,
In a region where it was...
Weight loss is greatly needed.
I thought it'd be a good fit.
The person who signed me up took me down to oklahoma city
To one of their success trading seminars.
It's like a big motivational event.
Johnson: Herbalife is a global nutrition company
That sells our products exclusively
Through a network of people just like you.
After the presentation
You will have a chance to discuss our products
And our business opportunity
With the person who invited you here today.
And welcome to our herbalife family
And our herbalife opportunity.
These pres team guys, they would actually show you their checks
What herbalife was sending them.
Saying how you should get involved right now
Because these nutrition clubs could easily produce, you know,
$20-30,000 in sales apiece each month.
So I'm thinking, I've found a cash cow here.
Right as soon as somebody gets into our club,
We say, "welcome to the club."
And that's a little something, we welcome them to the club...
You know, they feel the high energy
That's in there, there's music going.
You wanna watch out how much you tell him about,
You know, the business,
'cause they're gonna be like, "they're just looking to recruit me,"
Or, "they're just looking for, you know,
"to get me into their business."
So you really wanna start building
Your relationships with these people first.
On that very first day,
It's all part of planting the seeds.
You don't need the whole tree yet.
That'll come in time. Trust me.
But be patient. Do the deal.
The deal is here. What we're doing
Inside the club, it's about building herbalife.
It's about duplicating.
It's about growing our royalty.
And if we're just there, just, you know, slinging a bunch of shakes,
And yes, having a lot of fun in doing that.
But the thing is, is that we're there
To duplicate, to grow our checks.
Kirby: What kind of sold me on the idea was,
I think, 40 nutrition clubs
That opened over the course of two years
Down in the southern part of oklahoma.
So, generally when you see an industry
That's throwing up brick and mortar storefronts
At that rapid of a pace,
There's some money being made.
I had student loan debt
And I didn't have a savings account for sure and, uh...
The only thing I did have was, I have a '73 mach 1 mustang
That I restored all through high school.
I actually used it as collateral
To get a $15,000 loan to actually open a nutrition club.
The way herbalife is structured, it sets
Small goals and macro goals for the distributor.
The small goals would be obtainable and it keeps him going,
It keeps him in it. They start him out at a 25% discount.
Then later bump him up to a 35
And then soon on to a 42 and then a 50% discount.
So, I mean, those are little stepping stone incentives
To keep people in the company.
And that, for the average person
Will take six months to a year
Just to have finally achieved that 50% discount.
I bought in and went straight to the 50% marker
And opened a nutrition club.
Announcer: At herbalife, your success is our business.
That's why we've developed a training program
That can teach you everything you need to know
To grow a successful business.
Kirby: Dan waldron, he's been with the company
Almost since the beginning.
I had dinner with dan
And that really legitimized it, the fact that I'm meeting
This individual who's been in the company for nearly 30 years.
He's got this huge mansion.
$80,000 cars in the driveway, you know.
And he's sitting there telling me over dinner that
"you guys have got it so much easier than I had it
"because you can open a nutrition club
"and they'll just come to you."
So, hook, line and sinker, the next three months,
We were just all about opening nutrition clubs because
The dude at the top told me this is where the money's at.
I achieved a level in the company, they called the g.E.T. Team.
Global expansion team is what it stands for.
You go from supervisor to world team to g.E.T. Team.
You're halfway up the ladder.
You're halfway to the top already
And I achieved that in six months.
That seemed like a great start.
The only thing that separates you
From not getting on the president's team
Is one thing. Write this down.
Giving up.
Cohan: Herbalife just didn't sit there and say,
"oh, bill ackman's right.
"we're just gonna pull the plug
"on this operation."
You know, they fought back.
They built their case in the media
And with their investors.
This is a war,
And for any of us to think otherwise in here would be foolish.
'cause name another company this has ever happened to.
This is unique in the american business landscape.
Female reporter: Your stock price has taken a hit.
What do you say to your shareholders?
How they should rally to ride out this storm.
We're highly profitable,
Um, we're gonna continue to be highly profitable.
And that stock price will reflect the value
That's truly in this company.
Richard: This company has built up
Such a protective armor.
They have the best law firms, they have the best pr firms.
They hire all these major sports figures
To promote the brand.
Now the best pyramid schemes try to recruit credible people
Uh, to give them, you know, credibility.
We've got richard carmona.
He was the surgeon general of the United States.
He happens to be hispanic
And this is a person of very high integrity.
He's on the board of herbalife.
And then they have this nobel laureate
To create credibility around the products.
I believe dr. Ignarro
Is the wealthiest nobel laureate. Why?
Herbalife has paid him $21.2 million
For serving as the company's spokesperson.
And for money...
Well, take a look.
And I like the idea of an american product
Being helpful to people in other parts of the world.
And so,
It has every combination of things that I like.
I mean, the hardest part, I have to tell you, michael, is
We all diet and other people are starving.
And you actually have a product that deals with both.
It's kind of amazing.
I do think it's amazing.
and no sticking your hands out the windows.
You understand me?
I was raised to be loud and proud by my parents.
I do remember my mom is part italian
And no one talked about that
Because they were such a strong mexican family.
sometimes I could be wrong,
The mannerism in which I conduct myself,
But it's out of passion.
herbalife has come into our community
Like a thief in the night.
Stealing from our people.
We say, "afuera with herbalife!"
Herbalife!
These people are going to their gala
And, with no shame, knowing that
On the other side of the building are people
Who have received financial harm from them.
They were preyed upon.
Herbalife!
You guys go and enjoy the extravaganza.
But what are they saying?
Excuse me, could you guys get on the sidewalk, please?
Thank you.
Contreras: in 2002, my life changed.
There was this young man,
That was shooting people in the neighborhood.
We understand he was part of an aryan nation gang.
I was shot in the back of my head.
When I was losing consciousness
All I could think about was my son and my daughter.
I think that's when I was really born
Because before I used to worry about
My house, my bank account, that was my priorities.
And in an instant, your life can be taken away.
Maybe that's why
I'm so sensitive to victims of whatever.
Herbalife or whatever.
We need to be understanding to them.
Yeah, we're gonna do that. Um...
Yeah, I have returned.
-Are you hearing? -Yeah.
Okay. I can see the return...
Not the most comfortable chair in the world.
The return is behind bill.
What's new?
We saw this idea from you late last December.
Since then we saw the stock double.
You need the government to get involved. They haven't.
What aren't they listening to? Tell me.
The stock is up from where we shorted it.
We shorted it in the mid to high 40s.
So we've certainly lost money mark to market
But what we focus on...
-How much? -You know, a lot of money.
Four, five hundred million dollars.
Something like that.
Uh, but what we focus on with herbalife
Is telling a story with regulators.
Making sure that they understand
What the issues are,
And getting regulators interested in the company.
But the fact that you've been so outspoken
And we haven't seen anything happen yet,
Could one make the argument
You might be helping the company?
Okay. People can make whatever arguments they want.
I'm quite comfortable the government is gonna do its job.
Narrator: With ackman pressing regulators to investigate,
Herbalife executives launched a series of reforms.
Reducing shipping costs, simplifying product returns,
And cracking down on distributors
With questionable side operations.
Richard: They outlawed this deceptive system
Which is referred to as lead generation.
Distributors would run ads in television, on radio.
"be your own boss," "make unlimited income,"
And no details.
I had about $200 to my name
And so I found an ad that said, "work from home,"
And I called on it and it happened to be herbalife.
But a big part of it was to spam out your message.
That was the real income.
The big players
Knew how to send out a million emails.
And they were doing that once a month.
Somebody would be sitting on their computer,
All of a sudden something would pop up.
And it would say, "lose 30 pounds, 30 days for $30.
"put in your credit card number. Click here."
And the top distributors would sell
These names and numbers of people
To existing herbalife distributors
For as much as $130 a name.
And they would be brand new leads,
Someone clicked on this five minutes ago,
And here's your information,
Call the person, they're ready to go.
They pick up the phone. "hi, mary, this is aaron.
"don't you want to earn an extra $500 a month?"
Richard: Distributors were told, you gotta buy these leads.
You gotta keep buying them.
And at some point you're gonna start recruiting enough people,
Who will recruit enough people
That you will make it to the president's team.
These lead generation systems
Were so financially devastating.
Because people would not just have to buy the products,
But they would buy, in some cases,
Thousands of dollars of leads a month.
So people lost their retirements, and they lost their savings
Following this system.
When herbalife shut this down,
Wall street said, "too bad if people lost that money.
"as long as they clean it up,
"you know, we're fine with it."
Johnson: Build it better every single day,
And building it better means
Changing a few philosophies in the company.
Get rich quick. That's for someone else to do.
Get healthy now. That's for us to do.
Kirby: We opened five nutrition clubs,
Kind of spread out around northern oklahoma.
And when I achieved the g.E.T. Team level,
Then the pres team members start telling me
How the payout system really works.
I'll never forget we had a meeting
At tim files' nutrition club.
He's like the head honcho here in oklahoma of herbalife.
He was actually my upline.
30k executive president team member,
Tim files.
I'm telling you every one of you guys
Have an opportunity to live this kind of life.
Whatever you want, just dream big...
Kirby: Tim was saying
That we used to just make commission
Off of our top three,
But now we're also going to make it
Off our fourth, fifth and sixth.
And once you got past your sixth downline,
Once you got to your seventh, eighth and ninth,
There was still a pay out, it was like half a percent.
So, I mean, essentially, what he told us was,
It never stops.
And this was his little hand motion he would do.
Because he says it just keeps going down.
Because it goes down on everybody.
No matter where it goes.
I mean, I got a degree in business.
It's pretty obvious...
That's gonna keep going down. That's a pyramid. It's not sustainable.
Ackman: The idea here is you're gonna build this business
Only recruiting six people and each of them recruiting six people.
But you're coming in at nearly the bottom of the pyramid.
And by the time you get to level 13, your prospects are pretty dim.
'cause you have to recruit more than twice the population of the world.
Kirby: That's when I started to learn more about
The different ways that they use to recruit people.
Right before I got into the company, it was selling leads.
I'm like, "okay, so I'm basically caught up in a phase right now.
"I'm in the nutrition club phase."
And I was like, "and I'm on the tail end of it."
I'd made a mistake.
But I've signed a three-year lease for five clubs.
Most people will recruit a new distributor,
And convince them to actually take over the lease,
And then they'll skate off and draw commission off
Of the person they'd just scammed into taking over their lease.
The kind of people that can do that, I mean, they're crooks.
When you know, when you're trying
To get somebody into a business
That you know they are going to fail, that is a crook.
I did have a close friend, roommates through college,
And his nutrition clubs failed.
We had a pretty much complete falling out
Over the deal because
I'm the one that introduced him to herbalife.
It was clearly a pyramid scheme,
But when you're that heavily invested,
It's kind of hard six months in to say, "oops, screwed up."
Keep: Herbalife is a company with a business model in an industry
That has been subject to criticism for years.
But even the federal trade commission doesn't know the difference
Between an illegal pyramid scheme
And a legal multilevel marketing company
Without having a fact intensive inquiry.
Fitzpatrick: They had one court case against amway
That gave multilevel marketing a loophole.
But far more important, the government,
Starting with the reagan administration,
Adopted a position of deregulation
And the industry started pouring millions into our political system.
All with one goal.
The same goal the cigarette industry had
Because like the cigarette industry,
It had an existential need to prevent regulation.
It has one advantage though,
That the cigarette industry didn't have.
Until now, there has really been no voice of the victim.
Douglas brooks: A lot of times, people think the reason they fail
Is that they didn't try hard enough,
Or that they weren't suited to the recruiting that you have to do.
But once they find out that other people are in the same situation,
Then they realize that it wasn't their fault.
That there is a system here that prevented them from
Having the kind of success that was portrayed to them.
hi, mr. Brooks.
Ackman: In an attempt to recover their losses,
The herbalife distributors from chicago
Retained attorney douglas brooks
To represent them in the class action lawsuit,
Bostick vs. Herbalife.
Instead of going to trial,
Lawyers for herbalife and bostick
Had agreed to a cash settlement of $15 million.
On the eve of the federal court's approval,
The chicago group has come to california
To object to the settlement.
Fairly early on, when I heard about this settlement,
I realized that this was a very bad deal.
How many of you have ever played the lottery?
when you became herbalife distributors,
You were buying a lottery ticket
For a lottery that was already over.
The class is approximately 1.5 million herbalife distributors.
Herbalife is paying a settlement fund of $15 million,
Which works out to about $10 a person.
- Tomorrow in court...
I'm saying to the judge that at least
280,000 people reached supervisor level
And the average losses are around 8,000 or maybe even more.
I think that the aggregate damages for the class
Are between $700 million and $1.1 billion.
I want the judge to see that there are real people
Who have been really damaged by this company.
The rules are that the judge has to find that the settlement is
Fair, reasonable and adequate.
I had each of these people sign a declaration
About their experiences and their objection to the settlement.
They understood that this is a long shot.
if you wanna come here in the circle.
Father god, I ask you today to call upon our ancestors,
And I call upon you, mother earth,
To come into the life of douglas brooks.
Brooks: Thirty-three years of practicing law,
I've never had clients put me in the middle of a prayer circle.
Contreras: I ask you to hold each one of our victims
And douglas brooks by their hand,
And that inside of douglas is the energy of the holy spirit, father god.
Amen.
It brought home to me
That this is not just an abstract legal issue.
This is something that affects people's lives.
If I can do something to help them,
That will make me feel like I'm doing something meaningful.
Questions?
Yes, sir.
I don't understand something.
You got this nice presentation which you spent a lot of money on.
Everybody is clueless except for you.
I don't understand.
Tell me why is carl icahn making a mistake?
Show me exactly the illegality that herbalife is doing
To get this company shut down.
I don't see it.
And why is everybody else on the other side?
Okay, well, sounds like you're bull.
No, no. I'm not a bull, or a bear.
By the way, it's a great question.
Okay, it's a great question. Let me answer it.
Give me a great answer.
We've had an army working on this project.
Hundreds of people, investigators, lawyers.
Carl icahn didn't do the kind of due diligence we did.
Look, the nutrition club thing is designed to be secretive.
This is an ingenious fraud.
You go after people who are the lowest income, most unsophisticated,
Many of them are undocumented.
You don't complain when you're an undocumented immigrant
Because you might get thrown out of the country.
Are all of these latino distributors
Documented here in the us?
So, every distributor that signs up,
First they provide us with a taxpayer id number.
That is our obligation to ensure
That us taxes are being paid by all our distributors.
Well, then, what is a "no-fly distributor"?
Because that doesn't seem to make sense to me.
When you look at the rewards,
Points that you get within herbalife,
You have those eligible to go on
Cruises and airplanes,
But then a separate group that are no-fly.
What does that mean?
So, that's not part of our terminology.
Our focus is on supporting all the distributors.
Woman: They don't know what a "no-fly distributor" is?
It's not something that's in our terminology.
Narrator: Late in 2013,
Herbalife stock soared towards an all-time high
As a series of developments
Undercut ackman's short position.
He went after belgium,
When belgium looked like it was going in his favor.
And when belgium came out in our favor,
Actually discrediting ackman's thesis,
It was no longer important.
Bill ackman at one point had said,
He didn't believe the audit would come back clean.
It did.
That stock right now is up 7%.
This is viewed as a very positive move.
What does this news mean to you, carl?
Icahn: You know sometimes investment is just sort of a no-brainer.
I think this one, when I bought it,
Obviously it was.
You've laid out an argument today
That seems, frankly, largely circumstantial.
And so... Maybe you could connect the dots.
There's nothing circumstantial about it. We have facts.
It seems like all of wall street is against you.
Analysts, investment bankers...
Ackman: People on wall street, it seems,
Don't really care whether or not
The company is a pyramid scheme.
All they really care about
Is the stock price in the short term.
Since you haven't looked at the stock price, I'll tell you,
It's up about 13% bouncing around.
Herbalife is gonna use the fact
That the stock price is up today
To say that everyone is ignoring what we have to say.
My advice is you probably shouldn't ignore it.
Next?
It's not a good idea to take moral issues to wall street
And have them be the judge.
But at heart, it is a moral issue.
Ackman: I think a good model in terms of how to behave,
Is to think about how your actions would be perceived
If they were written about on the front page
Of the new york times tomorrow,
And your friends and your family
Open up the paper and they read it,
It accurately describes your behavior.
And is that a story you'd like them to read?
To learn more about the wonderful things you're doing,
Or is it a story that would cause them to think ill of you?
If your actions would cause your friends to be concerned,
If they understood the facts
On the front page of the new york times,
Then you shouldn't do it.
Narrator: Fifteen months after his opening salvo
Against herbalife,
Ackman did find himself on the front page
Of the new york times,
But in a way he neither anticipated nor welcomed.
Michael schmidt: This is a guy who made a bet against a company,
Who's now trying to get regulators
To bring down that company.
He needs to have victims.
These people that have been harmed by this company,
Able to connect with the regulators,
And show the regulators how they'd been hurt by this.
He's been paying non-profit hispanic groups
For their help in this.
Richard: Undocumented former distributors
Are not going to go to the government
And give them their name and their information.
Which people tend not to do
When they've been victims of pyramid schemes anyway.
They feel ashamed. They feel embarrassed.
They feel they've been part of perpetuating the crime.
Ackman: So we reached out to latino grassroots organizations
For a national victim recruiting campaign.
I think we committed as much as $130,000 to that effort.
Mr. Ackman has made a lot of donations
To these non-profit organizations, stuff like that,
That we simply don't know about.
We only know a sliver of that.
So people question,
Is he simply bringing the information to regulators,
Or is he doing things that maybe he shouldn't be doing?
Ackman: The day after this fairly horrible
New york times article,
I was having an advisory board meeting.
I said, "look, what do we have to do?
"I can't believe the government hasn't acted."
And maybe the right thing to do is we cover the position,
And just decide that we're somehow interfering.
Because the government is afraid to
Step into a situation with a short seller.
We actually had a discussion.
In the middle of that discussion, I got a call from our trader.
Our head trader, ramy, said, "bill, herbalife stock's been halted."
And I said, "perhaps there is a god."
Less than 90 minutes ago, we learned
The controversial maker
Of health shakes and supplements
Has been served with notice
By the federal trade commission
That it will be investigated.
Male reporter: The investigation could last six months to a year.
The stock has just taken a pounding
And is actually giving ackman
Back to somewhat near breakeven.
Female reporter: Herbalife says it welcomes the inquiry,
And is "confident that herbalife is in compliance
"with all applicable laws and regulations."
This is the one thing
That herbalife wanted to avoid,
I can tell you that, from day one.
Icahn: Now with the ftc in there,
I'm just hoping that we get a clean bill of health,
'cause I really do think that this company...
Yeah, yeah, did some marketing stuff.
Was that wrong?
Look, do they make promises? Possibly,
But there was also a lot of people earning a lot of money.
And ackman has this mantle, "I'm saving the hispanics."
Why doesn't he go save himself?
Female anchor: We wanna bring you an update on this breaking news story
On herbalife.
Herbalife is now being investigated
By the fbi, by federal authorities,
And this looks like an escalation
Of the probe, but the company themselves,
Saying they have no knowledge of it whatsoever.
Ackman: You've got multiple government regulators, agencies
Looking at the company from civil
And criminal point of view.
And I think that's where the rubber
Ultimately meets the road,
In terms of whether or not herbalife
Gets found to be a pyramid scheme.
-Man: A quick question... -Wait. I'm gonna go...
My father is asking a question.
It is always risky to call on your father.
The definition of a pyramid scheme is what, bill?
And how close are you getting to be able to prove
That it is a pyramid scheme?
- Dad, if you don't know it by now...
Brooks: I've always hated bullies.
People that use their force of personality
To push other people around.
-Good morning, mr. Brooks. -Good morning.
When I look at the victims of these things,
I hope I can do something to fight back
Against the bullies.
We're ready.
So am I.
And we're gonna put these away when we get to the courthouse.
We object to the settlement!
Herbalife!
Brooks: Today's hearing is a final approval hearing.
I filed a fairly lengthy objection to the settlement.
For herbalife to get a release from 1.5 million class members
In exchange for $15 million,
Is getting off very cheap.
We're gonna follow you in, okay?
Okay, yes.
Brooks: I hope that the judge comes out and says,
"I'm really troubled by this settlement.
"I think mr. Brooks and his objectors
"have raised some concerns,
"and I'm not gonna approve this deal."
I mean, that's my...
That's my dream.
Well, every once in a while you get kicked in the head,
And I just got kicked in the head.
Oh, yeah.
I think there's very little doubt
That she is going to approve this settlement.
She rejected every argument that I made.
I didn't score a single point.
Nothing... Nothing moved her.
Not the slightest.
Contreras: Whatever decision she makes,
We won today,
Because you brought our message.
And for her to say it didn't matter,
They do matter.
And we're not gonna stop this fight.
We thank you. I thank you.
-Yeah. Thank you. -Thank you.
Thank you. Thank you for helping us.
I'm very afraid that herbalife are going to say to the ftc,
"look, a federal district judge
"has approved a settlement.
"we've got a release from 1.5 million class members,
"we paid a bunch of money..."
And there's gonna be at least a faction
Within the ftc that will say,
"well, why shouldn't we just sort of go onboard?
"maybe we'll make them pay a fine.
"but basically we're not going to go to the heart
"of why this industry is gonna continue to burn people."
Ackman: So how could they have gotten away with this?
What pyramid scheme has five billion in revenues,
Is listed on the new york stock exchange,
Is audited by pricewaterhouse?
Now big lies are used by totalitarian regimes,
And by the nazis, and by lots of people.
And people generally believe big lies
Because they are so bold,
That how can it possibly be false?
Madoff was managing $50 billion.
The notion that a $50 billion money manager was running a pyramid scheme,
Well, that's why people kept putting money into it,
'cause it was the biggest lie of all time.
Small lies people don't get away with.
Big lies people get away with.
Kirby: You open your nutrition club,
You realize you've gotta recruit people,
And start making a commission from your downlines.
But I couldn't lie to people
And tell them, "you're gonna make really good money,"
When I knew I had five nutrition clubs
That had been operating for six months,
And we had yet to turn a profit.
So, uh, we try to make their business model work,
And stay away from the recruiting
And trying to sell the dream,
We tried to just sell the products.
It didn't work.
The products are too expensive.
And you're trying to get people
To drink a liquid shake over eating a meal.
You're going against human nature here.
For the most part, we would eat half of it,
And try to sell the other half.
Interviewer: What happened to the rest?
You throw it in the dumpster.
We kept it going for a year and a half.
For a lot of people in herbalife,
They would just go look for a job
And feel like a failure and be embarrassed,
Because they'd brought all their friends and family
Into this scam.
Let's see if I can handle this without choking myself.
But I was one of the fortunate ones that
Luckily found a new and emerging industry to get into,
That went right along with the storefronts
That I'd already built out.
We just made a quick switch and turned it into a vapor lounge.
We were helping people to lose weight,
Now we help people to stop smoking.
So it all worked out, but not as a nutrition club.
Luckily I didn't lose my collateral with the bank.
I still have the car.
Mark hughes: Trust me.
I can tell you with absolute sincerity,
The wildest dreams you've ever thought of can come true in herbalife.
I came home today and this was on my door.
It's addressed to me. It says, "dear ms. Contreras.
"on July 15, 2014,
"univision chicago aired a piece
"in which it published the following statement.
"according to lulac's julie contreras,
"there is fear in the community
"that herbalife is spreading the rumor
"that those who make accusations
"against the company,
"will be reported to immigration authorities."
They say, "we suspect that your statement
"is the product of misinformation,
"disseminated by pershing square capital management."
Who in the hell is pershing square capital management?
I've heard of that in the newspapers.
Well, we went on money that we collected
From our community,
From the victims.
No one's paying us.
"nonetheless this statement is illegal and defamatory."
"the statement is illegal and defamatory."
Herbalife distributors have intimidated,
Have threatened our people.
Threatened them with their legal status.
Threatened them with physical harm.
Waiting outside of walmarts for them,
Or grocery stores that they go to,
To collect their $1,500, or $500, or $200.
It says, "we demand that you cease and desist from this conduct
"and that you submit a written retraction of your statement
"to univision immediately.
"we also request that you meet with us.
"that we might correct your misunderstandings
"regarding herbalife's relationship
"within the latino community."
It's almost the exact tone of people who attack me
When I defend the most vulnerable in my community.
And this is an intimidation.
my dad used to tell me,
"never apologize for being mexican."
And we used to grow up and we used to say,
"we're mexican-american."
And my dad died when he was 50 years old.
I think I have this tiger inside of me.
My dad is inside of me.
I'm not gonna apologize for who I am,
And I'm definitely, sure as hell,
Not gonna apologize
For bringing a truth to the public
Of what's happening to my community.
The truth is not far away.
Johnson: It's the recruiting,
Meaning bringing new distributors into our company,
Which is the most vital part of our bloodstream.
We bring new distributors in, we grow.
It's that simple.
And the company has built its whole reputation,
Its whole life on recruiting.
Our top dogs,
Greg calls them the "hunters" out there,
Our hunters, our top distributors,
Our chairman's club, our pres team,
They're professionals at this.
Nobody can do it better.
You get next to alan lorenz,
And he'll recruit taxi cabdrivers, and busboys,
And waiters, and everybody.
He doesn't care who it is.
Boom! He's got him in this game.
Ackman: So, herbalife,
The business opportunity is a scam.
This is being orchestrated not just by senior management,
By the chairman's club members,
By the president's team,
They conceived, designed, and executed the strategy
To exploit the poor.
The recruiting tactics, very positive for the most part.
Sometimes led people down a false road.
$4,000, jam it into them, by an instant distributorship.
Load that product in.
See ya.
Good luck.
The credit card bill comes, spouse says,
"how are we gonna pay this?
"you didn't sell the stuff that's in the garage.
"that's in the pantry. That's out there..."
Ackman: This company was a fraud before michael johnson.
Michael johnson elevated the fraud,
Brought modern management techniques.
Johnson: So what happens today?
Today, we're recruiting.
We're still a recruiting company.
We've gotta never not be this.
Michael johnson is a predator, okay?
This was a criminal enterprise, okay?
I hope you're listening, michael.
It's time to shut the company down.
Bill ackman's got a lot of money
Invested against this.
And I think the only thing he cares about
Is being the richest man in the world.
And to me, that's a very sad pursuit.
All right, you guys have been incredibly patient.
Stay tuned. Thank you.
Female reporter 1: Just a short while ago,
Pershing square capital's bill ackman
Delivering what was promised to be the death blow to herbalife.
Male reporter 1: Investors just got a three hour, wonky, regulatory presentation
That was not what they were promised the day before.
Female reporter 1: He's trying to basically make his wish materialize,
And they weren't impressed.
And in fact, shares rose more than 23%
Coming in at six-year highs.
Here he comes, guys.
Female reporter 2: Herbalife said in a statement,
"bill ackman further demonstrated today
"that the facts are on our side."
Male reporter 2: It's highly unusual
That you can just charge a company with fraud,
And then think you can get away with it,
Without the kind of smoking gun evidence
That ackman lacked.
Congratulations, sir.
Okay.
What a day.
It was a good day. It was a very good day.
Contreras: Herbalife's a huge corporation.
And after they sent me the cease and desist letter,
I sent them a response.
And the response was that,
I welcomed them
To come to tell me
About their commitment
To the latino community.
And we invite them to come to our church.
For months on end, they continued to string us along.
"okay, this date..." then canceled.
Then they had the nerve
To invite us to go to their gala
And pay for our airplane tickets and pay for our hotel,
As if we would take something like that.
Just as I sent herbalife a letter,
That's the same thing I sent bill ackman.
I was getting frustrated that I was hearing
About all the things he was doing,
But, "okay, you're doing those things,
"but they're not really helping my people."
And by the way, "we're here."
Hello.
Hey. Thanks for having me.
Contreras: I'm glad you are here. Yes.
-How you feeling? -I didn't know him.
He's from another world,
And he came into our world for a little while.
Regardless of the investment,
I will pursue this to the end of the earth...
All right.
Until the company's shut down,
The people who caused the harm are held accountable,
And I also commit to give away 100%
Of any profit I make from this.
I think we'll make 100 plus million dollars.
These are big numbers.
I really did not know the latino community before.
You guys are the principle victims
So the money is gonna focus on the latino community.
Can you send two or three officers over here to the church,
Because there are three coach buses
Of herbalife protestors.
Like they're for herbalife.
Contreras: Herbalife paid them to come.
One of them, he told me,
"they gave us $200 to be out there."
I said, "oh, well, I can't blame you."
I can't blame my people. Who doesn't need $200?
Crowd: herbalife! Herbalife! Herbalife!
Herbalife! Herbalife! Herbalife!
Hello, herbalife.
We're ready to rock and roll with this company.
We got a long road ahead of us,
And guess what, we're just getting started, right?
This is the name of the game.
So the history is I come from an immigrant family.
Except my family immigrated to this country in the 1890s.
120 years ago.
And my great-grandfather was born in the ukraine
Which was part of russia.
And so at 17 years old, he walked 1,400 miles to austria
And he learned a trade.
Someone taught him how to be a tailor.
And then he went from austria to hamburg,
Which was another 600 miles,
And he got on a boat and he came to this country.
He arrived with no money.
Then eventually, he started making coats,
And he had his own factory in staten island.
And so I'm here.
I'm one of the most fortunate people in america.
Uh, I think back,
Imagine if my great-grandfather
Had gotten to america,
And instead of being a tailor,
Someone sucked him into a pyramid scheme. Right?
So I stand on the shoulders of people who came before me,
It is my obligation to protect people who come now.
You gotta understand we're gonna protect this company,
We're gonna grow this company,
And any of these outside sources
Who wanna portray us,
We will seize the narrative from them.
Time is on our side.
We've spent $50 million...
A little more than $50 million in the last... It's now three years
In our investigation of the company.
I'm glad that there are a lot of governmental organizations
Looking into herbalife.
But I'm a bit frustrated about the pace
The issues are being addressed.
And you with us together, it's family,
And nobody messes with the family.
Right?
- Nobody. -
Nobody.
So, uh, this was a very lonely battle.
Our battle against herbalife.
Contreras: No more.
We're taking this fight smart to the street.
We will win.
And we got you covered.
And this guy is not gonna get away
With what he thinks he's gonna get away with,
Because he isn't fighting me.
He thinks he's fighting me, he's fighting an army.
And we've got an army of people
Doing good out there in the world.
All: herbalife! Herbalife! Herbalife!
Herbalife! Herbalife!
Herbalife had all of the earmarks of something
That probably should not have been shorted.
Certainly not to the tune of a billion dollars
And in such a public way.
They are all victims. This is olivia torres.
Cohan: But he's on a crusade.
And I don't see him stopping till he gets to the promised land.
I gave $20,000 in the business. I had nothing back.
Ackman: When you meet the people who've been harmed
And you hear their stories,
It's very moving and very troubling.
And the fact that the company knows they've been ripping off,
Literally, millions of these people over time.
And they don't care.
It's incredible.
You know, it's incredible.
We are very, very confident that as the ftc
Comes to their investigation's finality,
Or they get all the facts on the table,
They're gonna go, "this is a pretty good company."
Your company, in mark hughes word,
"the future is bright beyond compare."
- Let's go herbalife!
Crowd: herbalife! Herbalife! Herbalife! Herbalife!
The ftc has charged herbalife
With deceiving hundreds of thousands
Of hopeful people,
Who saw herbalife's promotional campaigns
In english and in spanish,
And signed on for what they thought
Was a legitimate and lucrative business opportunity.
The ftc has charged that this wasn't true.
That the dream portrayed by herbalife was an illusion.
The vast majority of herbalife distributors
Found they could make little or no money
Selling herbalife products.
People who leased space
To open a nutrition club and worked long hours,
Made no money, or lost money.
The small minority of herbalife distributors
Who did make a lot of money
Were paid by herbalife,
Not for selling the company's products,
But for buying the products themselves,
And then successfully recruiting
Large networks of others to do the same.
That's why, in addition to charging deception,
The complaint alleges that herbalife's
Compensation structure is unfair,
Because it rewards its distributors for recruiting others to join
And purchase products to advance in the marketing program,
Rather than in response
To actual retail demand for the product.