Business Called A Pyramid Scheme

Many of us have likely endured a business opportunity presentation that sounded like a pyramid scheme. Pyramid schemes are actually illegal. They prey on consumers and confuse "investors." Highly respected investor, Bill Ackman, is publically calling out the gigantic business, Herbalife, claiming it is a pyramid scheme. This is a bold claim against Herbalife, which does about four billion dollars in annual sales and has 3.2 million salespeople in 82 different countries. Ackman is even claiming that their stock will "go to zero."

Apparently, Ackman is betting $1 billion of his company's money against Herbalife. If he ends up being wrong, his company will lose the money. However, if he is correct, his company will make billions. After Ackman made the announcement, Herbalife's stock immediately dropped 35%! However, it did quickly rise up after wards. They are now only down 14%. Still, that's the power and influence Ackman holds. However, if he turns out to be wrong, he will forfeit much of his influence.

Ackman claims that Herbalife is an "inherently fraudulent company." He acknowledges that they sell products, "But what they really sell and what their distributors make money from is by selling a business opportunity, and the business opportunity is to sell the business opportunity to your friends, who in turn sell it to their friends." Most of us have heard of this multi-level marketing idea.

What exactly is a pyramid scheme? The Federal Trade commission says that a company is a pyramid scheme if salespeople earn the majority of their income by recruiting new people rather than actually selling products.

Herbalife has hired lawyers to address their legal concerns. They hired Boies, Schiller & Flexner, which represented Al Gore during the 2000 presidential recount. These attorneys were also involved in the Microsoft anti-trust litigation.

Just recently, I heard of another new multilevel business selling vitamins and weightloss products. They were giving presentation in Kansas and Missouri. I doubt Ackman has much to say about them though, as they are way to small yet to even be a blip on his radar.

Categories: Criminal law
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