Herbalife

Introduction

0:00Wait, can I tell you my one piece of like fun and exciting news? Yeah. So you know, I moved recently and made a selection of where to live in the like fall slash winter. It's now spring and all of the plants in the yard have started blooming. And I'll tell you what's fucking funny.

0:30Fun, Michael, as it turns out, I have two blueberry bushes, a cherry tree and an apricot tree fruit for days, no more ultra processed foods, only homegrown flamin hot cheetos. Yeah. When I was growing up, we also had a blueberry bush in the backyard. It's like a cherished memory from my childhood, like eating these homegrown blueberries. And then one day, when me and my brother were like, I think five and seven or something, we beat it with sticks. And then it never gave blueberries. I was about to be like, Oh, my God, we also had blueberry bushes in the backyard. It was also a cherished childhood memory of mine. Yeah. But then you really lost me at beat it with sticks and somehow killed a blueberry bush. But you were not a boy, a little boy who was like, I need to inflict violence on this beautiful thing for no reason.

1:22It was a little girl who was drinking pond water and calling it magic potion.

1:31This explains so much about us. There's kind of no point in saying our names at the beginning of the show anymore. So we can just say I'm someone who beat a blueberry bush with sticks.

1:42I'm someone who drank pond water. Absolutely. Okay, so I, I have a tagline. Oh, it's not about pond water and blueberry bushes? Well, it's potentially libelous, depending on what we decide in this episode. Can't wait. Welcome to Maintenance Phase, the podcast that wants you to recruit two of your own podcasters. And then if they recruit two podcasters, and they recruit two podcasters, you sleep on going with this. If you'd like to support the show, you can do that through Patreon at patreon.com slash maintenance phase. You can also subscribe through Apple Podcasts Premium. It's the same audio content.

2:17Same stuff. Michael. Aubrey. We are talking about a company that makes its own magic potions out of pond water. Ooh. Herbalife. Mike, do you know anything about Herbalife? Are you familiar? The thing is, I'm only familiar with this vaguely through, I guess it was like financial media. There was a whole thing with short selling this stock and the whole debate hinged on, like, is this a real business or is this an MLM? Yes, that was a big part of it. Absolutely.

2:48And I think you're right that the way that the story gets told is like super investor V super investor. Yes. And that's the primary way that the story of Herbalife has been told. But they are a weight loss and wellness company. Yeah, this is, okay, this is what I could never actually figure out is what does this company do? Great. Which is also one of my, like, telltale signs of an MLM. When you go on their website and you're like, sorry, what are you selling? One of the other telltale signs of an MLM is if there's,

3:19they don't tell you the prices of their products on their website. And if there's not like a buy now button, there's just a like, find a local distributor. Like, you know, you're donezo. Yeah, not something businesses typically do. So Herbalife sells supplements, shake mixes, protein bars, vitamins, energy drinks, sort of the whole shebang. They are, as you noted, a multi-level marketing company. Sometimes people describe them as a pyramid scheme.

3:50In different countries, there is a distinction there, right? Between multi-level marketing and a pyramid scheme. Pyramid schemes are illegal and multi-level marketing is not. Wait, what's the fucking difference between an MLM is a pyramid scheme? I would agree with you colloquially, right? That I'm like, whatever, fucking same difference. There are distinctions in the definitions, and I think the tipping point in a number of those is that a pyramid scheme is where you get officially that, like, your money is coming from recruiting other people way the fuck more than it's coming from actually selling the product.

4:26It's all bad, but fair enough. There's a difference. So their products, for folks who are unfamiliar with multi-level marketing, their products are sold by independent distributors who also recruit other independent distributors. This is like Amway, this is like Plexus, this is like Optivia. If one of the sister wives is selling you a shake on Instagram, just steer clear, buddy. Go to the store and buy normal products when you need a product. I should say, they're all ex-sister wives now.

4:59Okay. There's only one wife left, and now they're all like, I always knew he was a monogamist, and I'm like, this is very funny. Is that show called Sister Wife now?

5:10So in multi-level marketing, when you recruit someone else to become a salesperson, they become part of what's considered to be your downline. That's the term that they use. And when you have a downline, you get a commission off of their sales. Okay. So the sort of famous thing about multi-level marketing is that there are people who get super rich. It's just like the first 10 people who sign on. Yeah, yeah, yeah, yeah, yeah. And almost everybody after that gets a much shorter end of the stick than that.

5:41Because you're being promised that you're going to recruit a bunch of people, but these things kind of always top out because there just aren't that many people who want to do this. I don't want to hide the ball. Around 90% of Herbalife distributors make little or no income, which the company itself stipulated in 2013, according to the LA Times, right? So everyone here agrees. The company agrees. Distributors agree. More than 90% of people are making little or no money off of this and are actually in the hole because they had to buy some inventory to get themselves started.

6:16It's funny how I thought this was going to be like, is this a scam or is this not a scam? You're like stipulated, it's a scam. No, no, no, no, no, no, no, no. We're just starting out with 90% of people making no money. I do not even want to leave any room for people being like, maybe it's okay. It's really not okay. Yeah.

Company History

6:34The other thing to know about Herbalife is that they've been around for over 40 years. They're about the same age as Whole Foods. I didn't know that. As a company, they're older than me. Look at her flexing. Look at her flexing. I'm young and spry. I'm as old as an MLM.

6:51Herbalife was founded by a guy named Mark Hughes, who was born on January 1st, 1956 in La Mirada, California. Mark's parents divorced in 1970 when he was about 14. And his mom had sole custody after that. It is clear that Hughes' life as a kid was not easy. By his own account, his mother had what he referred to as quote unquote emotional problems.

7:21And the family subsisted on public assistance programs. Hughes dropped out of high school as a freshman. So at around 14 and described himself as quote, a little delinquent who got in trouble with the law. Okay. He said that he used drugs, predominantly amphetamines and barbiturates. So by the time he was 16, he was sent to a troubled teens boarding school. Well, another episode we got to do.

7:52It's a troubled teen incorporated shit. So rough. It's bleak. Yeah. This one, the one that he was sent to is called CEDU, C-E-D-U. Oh, like the jet skis. Like the jet skis. CEDU is a troubled teens boarding school in California that was run by Synanon. Mike, do you know anything about Synanon? Yeah, I used to go there in the mall all the time. No, no, no. You get like one of the, you get a frosted one. You get the center of the roll one. Uh-huh. That's the one to get.

8:22You asked me the little question because you knew I was going to make that terrible joke. Oh, wait, Synanon, is it like Alcoholics Anonymous, but it's Synanonymous? No. Synanon was an organization founded in the late 50s. Synanon was really unusual at the time. It focused on drug users helping other drug users move towards sobriety. However, over time, and like not very much time, the organization really kind of curdled and is now widely described as a cult. Oh.

8:53So, SEDU, the troubled teens sort of portion of it was famously absolutely no picnic. I can't believe being mean to teens is not a sustainable business model. Yeah, shocking. Yeah, shocking. This is model. Unsurprisingly, there was a lot of abuse that happened at SEDU, right? Yeah. By sort of all accounts of people who went there. This is actually the place that Paris Hilton went. When she talks about like the abuse that happened to her when she was a kid. Holy shit. All that is to say Mark Hughes as a teenager is in a rough place.

9:23So, one of the programs at SEDU required him to sell raffle tickets. Okay. Also, everything is so scam adjacent. Everything. And Hughes proudly told the press for pretty much his whole life that he was the school's highest grossing salesman. And I was like, God damn it. If you ever catch me telling a reporter about how I was the best at something in high school, like put me out of my misery. You know what I mean?

9:53Were you voted anything in high school? Nothing. Not a goddamn thing. You didn't get like most promising or anything? No. So, I was at a real overachiever school. Oh, okay. And I was sort of like middle of the pack amongst kids giving themselves stress ulcers and that kind of thing. I got most dramatic and most romantic. Gayest and gayest. Well, yeah. It basically meant that I was covering up my homosexuality with misogyny, but doing it badly. Those two things come together.

10:24So, Mark Hughes went door to door in L.A. for the Sea-Doo program selling raffle tickets. He claims that he managed to get a $500 check from someone who was then the former California governor, but not yet president, Ronald Reagan. Oh, I mean, okay, whatever. It does tell you about that guy that he's like, you'll never believe who I met. Reagan! Yeah, look how cool I am. Look how cool I am, Reagan!

10:54Although, I was once on a flight with Shakira, and I do actually think that makes me cooler. What the fuck? Are you kidding me? I was like mega late for a flight, and I don't know how it fucking works, but like I think celebrities, they like get everybody boarded, and then they like whisk a celebrity on to first class. Because Shakira can't be sitting there as everybody's filing past, right? And like getting their luggage in the bins. So, it's like everybody was boarded, and then as they're like sneaking Shakira on, I like run up to the gate, and I'm behind this like giant starburst of hair. In this like very small human being.

11:26She's very short. And I was like, what the fuck? And then she sort of turned around and looked, and I was like, oh my god, you're Shakira! But I didn't say anything. And then she got on, and I got on my flight. But anyway, look how cool I am. Do you say your estimation of me has expanded? I would say my estimation of Shakira has expanded. Then she like flies commercial. She understands the stakes of climate change. She walks among us. So, Mark really seems to find meaning and success in this raffle ticket sales business, and gets really into it. And when he is 19, he's still out at Sea-Doo, and his mother passed away.

12:03She died in her apartment, and her toxicology report showed that she had Darvon or Darvacet in her system. Her doctor acknowledged that she frequently abused prescription drugs, and was engaged in some like doctor shopping. Oh man. But also, like, this is happening in the 70s, when there's just like way less literacy on substance use disorders in general, right? And doctors are like, have you tried speed? Totally. You're trying to lose three pounds? Why don't you try meth? So, Hughes had just completed this troubled teens program after being a pretty heavy drug user

12:38himself, and then his mom dies of what appears from the autopsy to be an overdose. Hmm. Trauma-wise, especially for a 19-year-old, this is like an earthquake. Yeah. Right? Yeah, yeah. His mom passes away when he's 19. The very next year, he started selling diet drugs professionally. Okay. So, in 1976, he started selling something called Slender Now for Safe Worth Laboratories, and

13:08then moved on to selling diet products for a place called Golden Youth. Okay. Both of those were MLMs. Nice. Both of those went out of business. Nice. And that gave Mark an idea. What if he started his own cursed weight loss company, right? This is something me and Peter find in these, like, grifty self-help books all the time, and, like, financial scam books. It's like, oftentimes the people giving grifty advice are, like, victims of grifty advice. Yeah, yeah, yeah, yeah. Yeah, absolutely.

13:39In 1980, Mark is 24 years old, and that is when he founds Herbalife. He talks about starting the company, quote unquote, out of the trunk of his car, and then they pretty quickly get production space set up in an old wig factory in Beverly Hills. And when they said an old wig factory in Beverly Hills, I was like, we've been here in this era before early 80s Beverly Hills wig factory. I hope that it is Wigs Today, the establishment where Richard Simmons made friends with the

14:13proprietor of the wig shop. Is that true? Not to my knowledge. Okay. Wigs Today kept operating, but I like thinking that this place maybe had supplied wigs to Wigs Today. I don't know. I got really excited about it, and then it wasn't anything. Also, what are they selling right now? It's pills? They are selling, at this point, their main thing is essentially just like a powdered shake mix. So this is another challenge of Herbalife, but honestly, a lot of MLMs is that they're selling

14:47like a shake mix, and their shake mix is not like proprietary. It's not super different than other shake mixes on the market. But it'll be like $40 for a canister of shake mix when you can go to the store and get like a giant canister of Slim Fast mix for like 10 bucks or something. Right? Like, so that's part of the uphill battle here is that they're selling stuff that's like, you can also go get a lot of these things at the store.

15:20So you have to believe that there's like some magic beans in the in the Herbalife stuff or something, right? Right. His wife at the time, his first wife says that she was a co-founder of the company, but that when they split up, she was sort of scrubbed from any of the company's materials. Okay. Later, when journalists ask Hughes about her role, he says that she was actually just the first employee and acted as, quote, my first secretary, to which I say, get fucked, asshole.

15:53Again, this is all just five years after leaving SEDU and after his mom's death. And by this point, he has started talking about his mom's death a little more publicly and he's using it essentially as an origin story for himself. So I am going to send you a clip. Oh, okay.

16:19Now I'm very excited about talking about Herbalife because Herbalife has been something that not only that I wanted to do for a long time, but it's something that's very, very important for me. Just about everybody in my family has had a weight control problem, especially my mother as I was growing up. She was always trying to, you know, diet and trying some kind of goofy type of diets and so on. And eventually she went to doctors to try to get it cleaned up and they prescribed to her a product called Dexamil. And for those of you who are not familiar with Dexamil, it's a speed, it's a narcotic.

16:51It makes you not be able to eat. It makes you not be able to sleep. And from several years of using this particular drug, she ended up having to use sleep pills to be able to go to sleep at night. And from several years of doing that, she secretly behind doctor's back started getting her prescriptions spilled. And she started seeing three and four and five doctors to keep her habit up. And when I was 18 years old, she died from an overdose. And it seemed to me at that time that there was a lot better things that people could go out and do to themselves and just destroying their lives to try to lose weight.

17:22And because I've seen literally people do everything to themselves to try to lose a little bit of weight. People are even joining MLMs to lose weight. It's funny. I thought he was leading up to like, she started on this drug and then she started taking this other drug. And that's what we're selling at Herbalife. This is her. She lost 30 pounds. Yeah, yeah, yeah. His father later told the LA Times that he was like, I don't know what this guy's talking about. His mom was not fat. She overdosed on painkillers. Like, it's pretty straightforwardly just like a drug dependency story.

17:54That's actually really dark. Both versions are extremely dark. Yeah. Right. Either it's my mom overdosed on drugs and I'm going to figure out how to spin that up to sell weight loss supplements to people. Right. Or it's weight loss drugs are responsible for my mom's death. So that's the business I'm going into. Yeah. Yeah. Yeah. Neither one is like great news. Right. As if the solution to his mom's alleged problem is like, well, there's a better weight loss method.

18:26Absolutely. Right. Like, that's not the issue here. Yeah. Regardless of all of that, Herbalife very quickly takes off. They very quickly build their ranks of distributors and their ranks quickly build their downlines. By 1985, Inc. Magazine was reporting that the company's growth from $36,000 in sales in 1980 to $423 million. Oh, wow. In 1985. Wait, really? That's insane.

18:57You have become a billion dollar company by today's dollars, right? Right. By the end of those same five years, Herbalife is reporting that they had more than 700,000 distributors. Wow. Distributors were encouraged to share their own sort of personal stories of using Herbalife. If they don't have a personal story, if they don't have a personal story, they are instructed to quote unquote, get one from a friend, which I think is very funny. Nice. I'm crowdsourcing my like memoir anecdotes. Great job. Everyone. There's a little bit of reporting from the LA Times in 1985.

19:29This is a longtime distributor whose last name is Delacy and I just sent it to you. Showing that she has learned her lessons well, Delacy hiked up her white Herbalife sweatshirt to display the scar that runs the length of her chest and abdomen from a 1977 heart bypass surgery. I was on eight medications for my heart. I take no more drugs now. I take Herbalife. I've never felt happier and healthier in my whole adult life. Delacy quickly added, Herbalife cures nothing. Wait, wait, wait.

20:01Delacy quickly added, Herbalife cures nothing. We can't make medical claims, you know. That's a funny thing to include. It's so funny that she's like doing the thing and then it seems real, like it really seems like something popped up in her brain and was like, don't forget, reporter. And she was like, ah. Do you ever find yourself like talking to someone you don't know that well and then you say something and you realize as you're saying it that it's not true? She's like, oh my God, I'm like totally fixed. This is great. It's not great. I'm not allowed to say this. Okay. So we've been talking about this like exponential growth that Herbalife has been going through

20:38in these first few years of its inception, right? What we haven't talked about is the other thing that starts growing exponentially in that time. And that is FDA consumer complaints about Herbalife. You worked on that transition for so long. I did not. I'm so proud of you. I'm so proud of you. It's not even written in my notes. If every FDA complaint gets five more FDA complaints. All the FDA complaints in the world. Yes. Within just one year of the company's founding, the FDA starts getting consumer complaints

21:12about Herbalife products. Perfection. Customers complained of taking Herbalife products and then experiencing nausea, diarrhea, headaches and constipation. Distributors were reportedly instructed to tell people that that was all part of getting toxins out of your body. Ooh, yeah. I mean, when you think about it, pooping is getting toxins out of your body. Sure, sure. They're not incorrect. The toxins are just Herbalife products. There's this thing that your body does where it creates waste and then you have to get rid of the waste. So the FDA focused on Herbalife's Slim and Trim Formula 2.

21:47Okay. Which Herbalife said could, quote, cleanse the digestive system and curb the appetite. Sure. As it turned out, Slim and Trim Formula 2 contained mandrake and poke root. What the fuck? Mandrake is a hallucinogen that is famously toxic and can cause asphyxiation. That is an enemy in Dragon Quest. You are incorrect. And every part of pokeweed can be toxic, but none more than the root. And that is what they use. They're just like, why would they even do this?

22:18There's pretty random shit in there. Right. They're sort of doing a thing. Part of the kind of origin story of the company is that Mark Hughes went to this like herbalism sort of seminar led by a group of Chinese nationals. And I'm just like, sure, man. Oh, okay. This is such deep early 80s shit where it's like, I met a person from China once and they taught me about herbs and now I'm teaching you about herbs. Although it is interesting because it does indicate like some level of good faith that

22:48like he probably thought these were healthy and he put them in his product without really looking into it. It's not like he's like selling sawdust. It's sort of like he doesn't know it's a scam necessarily. He thinks that these are actually beneficial. Listeners, mark this moment down where Mike says he doesn't know it's a scam. Foreshadowing as a narrative device. Much of the notice of adverse findings from the FDA focused on what was called Herbalife's career book, which was its product guide for distributors to help them pitch products to customers.

23:19The career book said that formula two can also help with quote venereal disease, arteriosclerosis, tumors, bad breath and bedwetting. I love this is another thing we see all the time where it's like, oh, this like this cures acne and like HIV. Even if there's like no biological mechanism by which that would happen. It also claimed that a product called cellulose was a natural cellulite eliminator. And they were like, no, you don't hear that much about cellulite anymore.

23:51There were so many products for cellulite back in the day. You know what you hear about now is crepey skin. I am absolutely crepey skin years old. Are you really? I am a food truck outside of the Louvre. I am all crepe. So the FDA issues its adverse findings, its notice of adverse findings in 1982. By 1984, Canada's Department of Justice filed charges for false medical claims. And misleading advertising practices. Nice. The company just pleaded guilty to the Canadian charges and paid $8,000 in fines and kept on

24:25trucking. Oh my God. You can pay that a day and it wouldn't meaningfully cut into your revenue. Around this time, the company starts facing some questions and criticisms around its claims of expertise. So I mentioned earlier, Mark Hughes had an official bio with the company, which said that he had learned about herbs at a symposium hosted by a trade delegation from China. Okay. When an LA Times reporter pressed him on it, he admitted that he had never gone, nor had

24:55he been trained in any kind of herbalism. No way. What? So were you just lying about that? It's a symposium. It's not a degree. Yeah. It's not even like, cool, you did this. Right. It's like, I spent an afternoon doing a thing is what they're lying about. And then as soon as he gets questioned about it, he's like, whoops, nevermind. That's like, I recently heard of a podcaster who lied about seeing Shakira on a plane just to seem cool. I know where I heard that. Did you not see Shakira? No, I'm kidding. I'm kidding. I did actually see Shakira on a plane. I was about to be heartbroken.

25:26The thing is, it would be a really funny thing to lie about because it's not impressive. It's like, yeah, okay. A person exists. So in addition to Mark Hughes' credentials coming under fire, so did the credentials of one of his colleagues. Richard Marconi was Hughes' right-hand man at Herbalife and managed manufacturing of Herbalife's products. He also sort of acted as like the science guy to sort of justify the company's products from a scientific perspective and was frequently referred to as Dr. Marconi, right?

26:02Yeah. Just get, you already know where it's going. Again, context clues. Honestly, even his role as science guy seemed to amount to a lot of hand-waving at the time where he'd be like, herbs, nutrition, science, right? Yeah. They're putting poison mushrooms in the fucking smoothies, of course. Here is a quote from the LA Times. Businessman Richard Marconi, manufacturer of Herbalife food supplements and the man Hughes turns to for scientific backup, has represented himself in nutrition publications since 1983

26:32as a doctor of nutrition. But Marconi, who operates out of two Orange County plants, got a mail-order doctorate in 1984 from Dunsbach University School of Nutrition, an unaccredited correspondence course in Huntington Beach. I've been calling him doctor ever since we got started, Hughes said, adding, I got more credibility and so does Dick than anybody else in the weight loss business. That is true, but also bad because of our results. So I don't care about his degree. I don't care about anybody else's degrees. Great sign.

27:03I don't know why it makes it worse that the correspondence school is based in Huntington Beach, but it really does. He has a doctorate from the outdoor gym where buff guys go to do pull-ups. This is so close to the Simpsons, like Dr. Nick went to Hollywood upstairs medical school joke. The company's regulatory issues and legal issues just keep getting worse from here. In 1985, California's attorney general filed suit against Herbalife, saying that they violated

27:34laws against essentially pyramid schemes and that they lied about the caffeine content in their products. Oh, that's dangerous. The company once again ultimately settled for $850,000 without admitting any wrongdoing. According to California's AG, that was the largest settlement with a diet or wellness company to date in the state's history. I mean, that's also kind of sad because you should be doing bigger settlements than that. And also, they should be admitting wrongdoing.

28:05That same year, a U.S. Senate subcommittee called Mark Hughes to testify about Herbalife. And for context, we're going to watch a clip. A panel of medical experts had testified the day before, and then Mark Hughes comes up to testify.

28:27During six days of grueling televised hearings in which Herbalife was the main focus, Mark's confidence in his products and his dream never wavered.

28:37And they should have been brought to this hearing instead of the so-called expert weight loss people that were here yesterday. I think if they're so expert in weight loss, why were they so fat yesterday? It seems to me, and I'm not trying to make any jokes, but I do think that they ought to use our product. We're going to cut it there. He seems nice. What a blast. I'm doing, I run a weight loss company because I hate fat people. You're like a huge piece of shit if you're fat. Including fat, I hate fat people and I hate doctors. And there's no one I hate more than doctors who I perceive as being fat.

29:08Also, why the fuck is this documentary being like, he never stopped chasing his dream? Oh, honey, this is Herbalife shit. Oh, this is like Herbalife propaganda? Yes. This is them being like, look how good he did. Wait, they chose this clip to fucking show? They're like, nailed it, Mark. Nailed it. Get those fat doctors. My notes just say nightmare blunt rotation. Yeah. In the hearing, they also discussed an internal study conducted by Herbalife based on a sample

29:38of 428 Herbalife users. That study allegedly found that 40% of users had experienced significant symptoms as a result of using Herbalife products. Nausea, diarrhea, heart palpitations, headaches, all kinds of stuff, right? I will say those side effects didn't surprise experts who were familiar with the products. A number of Herbalife weight loss ingredients were just super strong laxatives and high doses of caffeine.

30:08When I think of my weight loss journey, I think of how I want to be jittery and pooping all the time. That's what, that's the, that's the life that awaits me. Well, Michael, I've got both a product and a business opportunity for you. That's how you recruit people. Have you thought about being jittery and pooping? So even amidst all of these charges and investigations from multiple jurisdictions and multiple nations, Herbalife just sort of soldiers on for years. It certainly takes some hits, both in its public perception on some level and in its, you know,

30:44having to pay these fines, but its sales remain in the hundreds of millions, right? Yeah. In that same time, when they're facing all of these charges from all of these different countries, they expand into Japan, Spain, New Zealand, Israel, and Mexico on top of their existing presences in the UK, the US, Canada, and Australia. By 1996, the company was operating in 32 countries. Why, why let a little lying get in the way of growth?

31:16That's right. Hey gang, editing mic here. We recorded this episode in a couple different sessions because we were having some lawnmower issues over at Aubrey's house. And when she came back for the third little session, her mic input got switched from the microphone to the laptop. So that is why she is going to sound a little bit different for the rest of the episode. Just wanted to let you know, and thank you for bearing with us. So, Herbalife keeps facing scrutiny and also keeps expanding in a pretty uninterrupted way

31:52until the summer of 2000. On May 21st, 2000, Mark Hughes died in his home in Malibu. He was 44 and was survived by his nine-year-old son, which is just a real painful echo of the stuff with him and his mom. So initially they say it's natural causes, but when the coroner's office released its autopsy results, they attributed his death to alcohol doxepin intoxication.

32:26Doxepin was prescribed to Hughes as an antidepressant. But after his death, people in the company start telling a really different story about him and his health. A few of his colleagues told reporters after his death that they had sort of hatched a plan that never got executed to take Mark Hughes to a Swiss treatment center for alcohol abuse. Also, as it turned out, he had been arrested twice for drunk driving in the few years before

33:00his death. Oh, wow. So this was like a known thing about this guy and the company had done a really effective job of sort of keeping the lid on it. Also, it was well known enough within the company that there was like plans and strategies and stuff. So it really, it must've been like quite bad. His colleagues actually like say this to reporters that they're like, we really knew that if news of his drinking got out, that that would be bad news for like all of our jobs and for the company, so they're also invested in a pretty direct self-interest kind of way and keeping

33:33it concealed. So you would think that this kind of, you know, event would be a real hit to the company, but the company continues to sort of soldier on even after the loss of its founder. And throughout the 2000s, they just keep getting sued and sanctioned. Interestingly, the lawsuits aren't from customers, they're from former distributors, right? So one class action lawsuit is filed in 2002.

34:04Another is filed in West Virginia in 2003. They had a class action settlement in 2004 with 8,700 distributors who accused the company of running a pyramid scheme again. They settle for $6 million. They admit no wrongdoing and they move on. This is sort of their whole thing, right? In 2005, there's a California class action lawsuit around Herbalife's marketing practices. They get sued around using auto dialers that violated the Telephone Consumer Protection Act.

34:37I mean, it's just like one after the next, right? In 2004, Israel's health minister investigated Herbalife and found that there was a causal relationship between Herbalife's products and liver damage. Oh. In 2007, a Swiss study found a link between consuming Herbalife products and contracting hepatitis. Oh my God. Part of the reason I don't have more detail here is that there are a handful of studies on Herbalife products in particular, but there are some real challenges to getting good data

35:13on them. One is that the company is not disclosing what it considers to be like proprietary blends of whatever. So it's not telling people all of what is in their products. Great sign. Great sign. But also, a bunch of people who come in with these, like this liver damage with all of this sort of stuff that is allegedly attached to Herbalife product. But when doctors say, hey, what are you taking, they don't actually volunteer the Herbalife stuff because they're like, it's not a prescription medication and it's just good for me.

35:43So there's nothing, why would I tell you about that, right? So it's really sort of hard to nail down from a research perspective. To remind everyone, this is the sector that people like RFK Jr. want to have way more power because he's like anti-big pharma. Yeah. Nutraceuticals. Say what you want about big pharma, but at least there's actual regulation of what the fuck they're selling to you and like products have to be tested. That can also be better, but like this sector is just, they can just say anything and sell you fucking anything. Okay. But counterpoint, what if there was no regulation for anyone?

36:16Yeah. What if- Wouldn't that be better? So there's fast fallout from all of this. Spain's health minister issues a public caution against using Herbalife products. But after investigation, they retract that statement for the same sorts of reasons. It's just really hard to prove in a causal way, right? In 2011, courts in Belgium ruled that Herbalife was in violation of the law by operating a pyramid scheme. But Herbalife then appealed that and won.

36:47So they're getting regulated and then it's getting overturned. We're not a pyramid scheme, you assholes. We're pyramid scheme adjacent. We're an MLM. After Mark Hughes' untimely death, Herbalife starts bouncing back with some new marketing tactics. And a number of these will be how many of our listeners will know Herbalife to begin with. One of its more conventional moves in the marketing world was that it goes really big on celebrity endorsements.

37:18Yale, yale, yale. Is it her? It's Shakira. It's your old pal, Shakira. My close friend, Shakira. They get celebrity endorsements from a number of huge deal soccer players. Cristiano Ronaldo does a bunch of endorsed content for them. At two, Cristiano Ronaldo. Messi does a bunch. And they sponsor the LA Galaxy. So every time David Beckham plays at the club level, he steps out onto the pitch with Herbalife

37:54written across his chest. Nice. Okay. According to the LA Times, that was the result of a 10-year, $44 million sponsorship. I like how we've also named literally the only three soccer players I could name. Gun to my head. Okay, like that's the only one. And he hasn't played soccer in like four decades. It's like those three people are the only soccer people I know.

38:18So, Michael, you're probably thinking we're talking about all these soccer players. There's one big name missing. We're going to watch an additional celebrity endorsement. I thought I could keep this secret from you. I can't. So I'm going to just send you the link now. Wait, what? You're fucking kidding me. This person's like barely even a celebrity. Bullshit. She's barely a celebrity. Tell the people who we're talking about. Okay, you just sent me a link called Madeline Albright and Herbalife.

38:50In a million years, I never would have guessed this. Former Secretary of State Madeline Albright. I think that women are a huge undervalued resource in every country. And I have believed that when women are politically and economically empowered, societies are more stable. And the part that I like about what you do with Herbalife is women are very good at interpersonal relations. Madeline! They're really developing a relationship with the person that they're dealing with.

39:24And I think that the kind of sales operation that Herbalife has is the one that really allows women to shine. Oh, my God. In terms of explaining what you're good about family health and nutrition. That's kind of what women do on a daily basis. And so I think they are a very natural sales force for you. Women are really good at being scammed and scamming others. There you go. I mean, not that I'm like so fucking disappointed in Madeline Albright.

39:54I know. But like to use this sort of women's empowerment language to defend a scammy business that is selling scam products. It's not like they're selling like bananas or like something useful. They're selling fucking scam products for weight loss. According to a new book that was released this year about multi-level marketing called Little Bosses Everywhere, Madeline Albright's firm was reportedly paid $10 million for its work with Herbalife.

40:25Yes, they underpaid for Beckham and they overpaid for Madeline. Their wildest endorser was someone named Louis Ignaro. Okay. Ignaro is really worth talking about because he won the Nobel Prize for Medicine in 1998. Okay. For his work focusing on cardiovascular health, particularly the function of nitric oxide. Okay. Ignaro endorsed Herbalife's heart supplement. Oh my god. Which sold for $90 a bottle for a month's supply.

40:57For a month? $3 a day? They used his signature on the bottle and the bottle also noted that he was a Nobel laureate. According to SEC filings, Ignaro's company received at least $1 million from Herbalife sales in just over one year. Dude. Some of his work for them appears to have been publishing studies in academic journals. Oh my god. So first he published two mice studies about vitamin C, vitamin E, and arginine, which is an amino acid.

41:36Those are all advertised active ingredients in a specific supplement from Herbalife. Dude, what if we enter a world where winners of the Nobel Prize come out to receive it also wearing branded jerseys? They're like, Vodafone! He published those papers without disclosing his existing financial relationship with Herbalife. He was a professor at UCLA at the time. UCLA also issued a press release that didn't acknowledge the relationship.

42:08I'm presuming that's because he didn't disclose it to them. The press release from UCLA did include an absolutely incredible quote from Ignaro, who said that the research quote shows that supplements work well even in the absence of exercise. What's good for mice is good for humans. Oh, as science tells us. Om nom nom! Eat some cheese! Go live in the walls! It's funny that, like, of these celebrity endorsements, like, David Beckham is kind of, like, the most honest one.

42:39You know when David Beckham wears a shirt, you're not like, he takes Herbalife. You're like, no, they paid him money. But this is, like, so much more insidious because, especially with the researcher, it's like, when you speak as a Nobel Prize winner about cardiovascular health, people assume you're speaking from science, not from your fucking wallet. I don't know, man. I heard Dale Earnhardt Jr. really likes Palmolive. I mean, no one fucking cares. It's so much worse. So, according to Fortune magazine, this is around the time in the sort of mid-2000s when Herbalife first starts taking on what it calls nutrition clubs.

43:16That was a concept that first started in Mexico with Mexican distributors of Herbalife. The idea is that an Herbalife distributor rents a storefront. They charge a small admission fee, $5 or $10, which gets you in the door. And once you're in the door, you get some drinks and snacks and Herbalife shakes and Herbalife products, right? The reason that they structure it that way, do you want to say?

43:47This is how they used to do raves is because you can't sell alcohol without a license. You sell the map to the rave for like $20. And then when you get there, you get free alcohol. If you're not technically selling it, you're not in violation of the licensing. I'm going to send you another quote from Little Bosses Everywhere. The clubs were not stores, however. Legally, they couldn't be. Operating as retail stores or shake shops would invite a whole host of regulations,

44:18negating one of the very reasons multilevel marketing exists, to avoid labor laws. So the company developed a slate of counterintuitive rules for distributors operating nutrition clubs in commercial spaces. They were not allowed to post signage anywhere that said Herbalife or call themselves a shake or smoothie shop. They couldn't have an open or closed sign. The only clue a storefront was an Herbalife operation was often its trim or facade painted in lime green, the company's signature color. They weren't even allowed to have windows, or if they did, they had to be covered.

44:48Distributors could not post prices or quote-unquote sell their products. They were allowed to sell low-cost daily memberships for which customers got a shake or drink. Dude, if you're selling products in this way, you're like not a real company. This is so fucking weird. It's so bad. If your products work and they're these miracle cures that you say they are, then just fucking sell them normally. The fact that you have to like go talk to a person and go through all this weird fucking rigmarole, this is how timeshares get you too. It's like you shouldn't have to sit through a fucking seminar to buy something.

45:19It's like just sell me a thing if it has inherent worth. You should just sell it to me normally. I watched a documentary at one point about someone who had rented a storefront and signed a lease for his Herbal Life Nutrition Club. And he was like, I didn't realize that I was getting in at sort of the end of that trend. Yeah. So he was like, I sort of had two options. I could either move into another kind of business that used that same storefront or I could find, you know, essentially like a rube to sort of pawn it off on.

45:53And he was like, I didn't feel great about that. Yeah. So I just moved on to another business and now he sells vapes. Okay. Fair enough. At least it's like a real business selling a real product. Right. A real business with a real product where like you do actually have to tell people that there are health risks instead of just health benefits. Yeah. Totally. So I'm like, I honestly see how he got there. And it's a weird position to be in where we're like cheering for someone moving into vape sales. Woo! More vapes! You did it! Thank you, sir! Yeah. So the Nutrition Club initiative is especially concentrated in Latino communities in the U.S., including among immigrants and monolingual Spanish speakers.

46:37Yeah, I was going to say this earlier. These things oftentimes prey on kind of existing close networks, like religious networks or like ethnic networks. And that's another like element of the kind of predatory nature of them is that they're like exploding these like personal connections between people. The last of their marketing tactics that we're going to talk about is arguably their most creative. Some of their distributors start buying up TV advertising time and advertising Herbalife as a get-rich-quick scheme.

47:11Oh. So I'm going to send you a little video clip. Dude, this is going to bum me out so much. One of the talk shows, they was advertising this in home business. It sounded pretty good. Listeners, just like you, are discovering how to earn quit-your-job type money right from their kitchen table. The secret, incomeathome.com. Oh, of course. I thought this would be a good opportunity. It was being endorsed by Sean Hannity. I believe it was Sean Hannity's program. Oh, sweetie. So I thought there was some validity to it. You know, listeners, just like you, are discovering how to earn quit-your-job type of money right from their kitchen table.

47:44We've been telling you about incomeathome.com. When I watched the video, that was the first time I heard Herbalife. This is a great business opportunity. You have the opportunity for financial independence and freedom. You can do it with helping people change their lives. By getting them in a better nutritional mode. By getting them healthier. We're going to stop it there. Dude. On a title card that says, In 2011, Johnson was the highest paid chief executive in the U.S., and that's attributed to Forbes. Think about his downline.

48:14His downline is like thousands of people. It's an astonishing downline. We haven't even covered the sort of the adjacency of right-wing politics to grifts. It's wild. If you watch like Fox News, they're selling them fucking gold and shit. So like this is straightforwardly, wildly unethical to just be like, here's a TV ad. If you do this thing, you will be able to quit your job is one of the claims. Yeah, quit your job money. Fuck no. And frankly, at this point in the company's development, it's too far developed for anyone

48:45to make a real payday. Right. Again, like you really only get the big paydays in multi-level marketing if you're one of the first in the door. If they're advertising on TV, you're not one of the first in the fucking door. Yeah. So in 2012, Bill Ackman of Pershing Square Capital makes a public presentation that essentially makes the case against Herbalife. He makes a three-hour presentation that consists of over 330 slides, all detailing why Herbalife

49:18is a bad investment and why he believes they're in violation of the law. My understanding is that Bill Ackman is like kind of a shithead as a person, but also I love like a petty grievance just like brought to this level. In addition to this presentation, he does a ton of press around Herbalife. He goes on CNBC, he goes on CNN, he goes on C-SPAN. He was like, I think this company is fake and it's going to like crater into oblivion. Right. That's why I'm trying to short sell it. Yeah. For folks who are unfamiliar, essentially in a short sale, if Herbalife's stock price dropped,

49:55Ackman would have made money. Buy high, sell low. Right. So if this guy who is sort of trying to ring the alarm about Herbalife is also going to make millions and millions and millions of dollars if they fail, it raises, I think, reasonable questions about to what degree he's raising the alarm for the crater good and to what degree he's doing that for some form of like market manipulation or personal profit. Right. In the same way, there's like a pump and dump scheme where you promote a stock and raise

50:26its price. This is like a, like a beflaceting and dump scheme where it's like, if you crater a stock, you can make money on cratering the stock. Beflaceting is just a terrible word. What? It's good. They give awards for podcast hosts. And then did this tank the stock price or was it relatively consistent during this time? The stock price took a hit. But again, like the company just kept profiting. It's like, this is America. Just because this company is a scam doesn't mean the stock price is going to fall or it's going to go away and I'm proud to be the short answer here is that Ackman's attempted short

51:02sale doesn't pay off for him, but it does lead to a new wave of scrutiny around the company. Yeah. This is what I heard about. I had never heard of Herbalife before this. I was like, why is everybody talking about this? In 2013, the LA Times writes a piece called Latinos Crucial to Herbalife's Financial Health. Herbalife acknowledged at the time that more than 60% of its product sales went to Latinos in the U.S. That's according to ABC News.

51:35In 2014, the New York Times publishes a big piece about the sort of Ackman thing. In 2015, Fortune Magazine publishes The Siege of Herbalife is the name of the story. And in 2016, Betting on Zero comes out and premieres at Tribeca. It is a documentary about Herbalife and Bill Ackman's fight to take it down. I love that we've managed to find a weight loss company that's like actually scammier than all the other weight loss companies. In 2014, the FTC launched an investigation into Herbalife.

52:10And by 2016, they announced a settlement for $200 million. Okay. But again, Herbalife admits no wrongdoing. Right. And they continue operating? They continue operating, although there are some conditions required by the FTC if they want to continue operating. One is that they have to overhaul Herbalife's compensation system for a distributor's sales to make sure that they're rewarding actual external sales rather than just distributors

52:42buying inventory, right? The FTC's public statement on this said, quote, To make sure everyone at Herbalife is on board with the new setup, 80% of the company's net sales will have to be real sales to real buyers. If that doesn't happen, the rewards that high-level distributors pocket will be cut. It's so funny to be like, by decree of the government of the United States, you have to run a real business. You have to sell a real fucking thing to real fucking people.

53:13You have to sell a good or service to actual customers. So that all happened in 2016 and 2017. In 2020, so they're still very much in the thick of that FTC settlement restructuring. They still have their auditor on staff. All of that is happening. Herbalife is hit with another penalty, this time from the DOJ. Oh my god. Michael, you may be worrying, what does the DOJ have to do with absolutely any of this? Well, here is a little recap from CNBC.

53:46I was not wondering that at all. Authorities said Herbalife schemed from 2007 to 2016 to bribe Chinese officials with cash, entertainment, meals, and travel to obtain direct selling licenses, reduce government security, and suppress negative coverage by state-controlled media. Overseas corruption complaint? Correct. China accounted for 19% of Herbalife's $4.49 billion in net sales in 2016, up from 7% in

54:162006 regulatory filing show. Herbalife approved extensive and systematic corrupt payments to Chinese officials while falsifying records to make the bribes appear as legitimate business expenses. Acting U.S. attorney Audrey Strauss in Manhattan said in a statement. Dude. They were ordered to pay $123 million as a result of this one, but their annual revenue at this point is still in below billions. Yeah, god. Right? So it's certainly a big price tag, but it's far from what would be needed to just deal

54:49a death blow to the company. They can afford it. They pay it and they keep trucking along, right? Also, if they've gone from 7% of their sales to 19% of their sales in China, that in itself probably swamps numerous times over the size of this settlement. So ultimately, their investment paid off. I tend to go pretty hard on regulation of diet and wellness companies as being a thing that we need to do more of. And I do stand by this, but this is a story where regulation was pretty heavy. Yeah, just failed to achieve anything good. Yeah. Right?

55:19Because their revenue is so great. Even when they take these kinds of hits in the public eye, even when they take these kinds of hits in the press or in their stock price, they are still making bank. Yeah. We now live in a world where other multi-level marketing companies have seen what is possible, right? Both from a profit perspective and from a regulation perspective and has seen that regulation is like not actually necessarily the end of your business, right? They'll still absolutely like make all kinds of noise about how terrible it is to be regulated.

55:55But ultimately, this is a real case of like, you know, cockroach survives the apocalypse kind of shit. We're now at the culmination of like 40 fucking years of complaints and from day one. Within the first year. Yeah. Before they even made it into the wig factory. Yeah. They were already getting FTC complaints, right? What we're getting is minuscule fines. And what we need is the government treating this company the way that me and my brother treated a blueberry bush. I'm imagining that.

56:25I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. I'm imagining that. Thank you.