Herbalife

We’re talking about our first diet MLM and IT’S A REAL DOOZY! Support us: Hear bonus episodes on PatreonWatch Aubrey's documentaryBuy Aubrey's bookListen to Mike's other podcastGet Maintenance Phase T-shirts, stickers and more Links! Herbalife: Weighty Profits and Government Probes Herbalife Exec's Death Prompts Bizarre FalloutAutopsy on Herbalife founder finds death caused by accidental overdose The Uncertain Start of a Remarkable LifeNobel Prize Winner Didn't Disclose Herbalife Co...

• 0:11Speaker 00

  Wait, can I tell you my one piece of like fun and exciting?

• 0:14Speaker 01

  Yeah.

• 0:14Speaker 00

  News?

• 0:15Speaker 01

  Yeah.

• 0:15Speaker 00

  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.

• 0:27Speaker 01

  Ooh.

• 0:27Speaker 00

  And I'll tell you what's fucking fun, Michael. As it turns out, I have two blueberry bushes, a cherry tree and an apricot tree.

• 0:38Speaker 01

  Fruit for days. No more ultra-processed foods.

• 0:41Speaker 00

  Only homegrown Flamin' Hot Cheetos.

• 0:44Speaker 01

  Flamin' Hot Cheetos.

• 0:45Speaker 00

  Yeah.

• 0:46Speaker 01

  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 again.

• 1:04Speaker 00

  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.

• 1:11Speaker 01

  Yeah.

• 1:11Speaker 00

  But then you really lost me at beat it with sticks and somehow killed a blueberry bush.

• 1:16Speaker 01

  But you were not a boy, a little boy who was like, I need to inflict violence on this beautiful thing for no reason.

• 1:22Speaker 00

  I was a little girl who was drinking pond water and calling it magic potion.

• 1:31Speaker 01

  This 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.

• 1:42Speaker 01

  I'm someone who drank pond water.

• 1:44Speaker 00

  Absolutely.

• 1:45Speaker 01

  Okay, so I, I have a tagline.

• 1:47Speaker 00

  Oh, it's not about pond water and blueberry bushes?

• 1:50Speaker 01

  Well, it's potentially libelous, depending on what we decide in this episode.

• 1:53Speaker 00

  Can't wait.

• 1:54Speaker 01

  Welcome to Main Its 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 see where I'm going with this.

• 2:06Speaker 00

  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.

• 2:17Speaker 01

  Same stuff.

• 2:18Speaker 00

  Michael.

• 2:19Speaker 01

  Aubrey.

• 2:20Speaker 00

  We are talking about a company that makes its own magic potions out of pond water.

• 2:26Speaker 01

  Ooh.

• 2:27Speaker 00

  Herbalife. Mike, do you know anything about Herbalife? Are you familiar?

• 2:31Speaker 01

  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?

• 2:46Speaker 00

  Yes, that was a big part of it. Absolutely. And I think you're right that the way that the story gets told is like super investor v super investor.

• 2:55Speaker 01

  Yes.

• 2:56Speaker 00

  And that's the primary way that the story of Herbalife has been told. But they are a weight loss and wellness company.

• 3:04Speaker 01

  Yeah, this is, okay, this is what I could never actually figure out is what does this company do?

• 3:08Speaker 00

  Great.

• 3:09Speaker 01

  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?

• 3:15Speaker 00

  One of the other telltale signs of an MLM is if there's, they 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.

• 3:31Speaker 01

  Yeah, not something businesses typically do.

• 3:33Speaker 00

  So Herbalife sells supplements, shake mixes, protein bars, vitamins, energy drinks, sort of the whole shebang.

• 3:42Speaker 01

  Okay.

• 3:43Speaker 00

  They are, as you noted, a multi-level marketing company. Sometimes people describe them as a pyramid scheme. In 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.

• 4:00Speaker 01

  Wait, what's the fucking difference between MLM is a pyramid scheme?

• 4:03Speaker 00

  I would agree with you colloquially, right? That I'm like, whatever, fucking same difference.

• 4:09Speaker 01

  Yeah.

• 4:09Speaker 00

  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. Coming from recruiting other people way the fuck more than it's coming from actually selling the product.

• 4:26Speaker 01

  Oh, it's all bad, but fair enough. There's a difference. Okay.

• 4:28Speaker 00

  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 Optavia. If one of the sister wives is selling you a shake on Instagram, just steer clear, buddy.

• 4:52Speaker 01

  Go to the store and buy normal products when you need a product.

• 4:56Speaker 00

  I should say, they're all ex-sister wives now.

• 4:59Speaker 01

  Okay.

• 4:59Speaker 00

  There's, there's only one wife left, so, and now they're like, I always knew he was a monogamist. And I'm like, this is very funny.

• 5:06Speaker 01

  Is that show called Sister Wife now, Sealer?

• 5:10Speaker 00

  So 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.

• 5:25Speaker 01

  Okay.

• 5:26Speaker 00

  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. And almost everybody after that gets a much shorter end of the stick than that.

• 5:41Speaker 01

  Cause you're being promised that you're gonna 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.

• 5:48Speaker 00

  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, right?

• 6:16Speaker 01

  It's funny how like, I thought this was gonna be like, is this a scam or is this not a scam? You're like, stipulated, it's a scam, but...

• 6:22Speaker 00

  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.

• 6:33Speaker 01

  Yeah.

• 6:34Speaker 00

  The 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.

• 6:40Speaker 01

  I didn't know that.

• 6:40Speaker 00

  As a company, they're older than me.

• 6:43Speaker 01

  Look at her flexing.

• 6:44Speaker 00

  Look at her flexing.

• 6:45Speaker 01

  I'm young and spry.

• 6:47Speaker 00

  I'm as old as an MLM.

• 6:51Speaker 00

  Herbalife 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", and the family subsisted on public assistance programs. Hughes dropped out of high school as a freshman, so at around 14,

• 7:32Speaker 00

  and described himself as, quote, "a little delinquent who got in trouble with the law."

• 7:37Speaker 01

  Okay.

• 7:38Speaker 00

  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.

• 7:50Speaker 01

  Well, another, another episode we gotta do.

• 7:52Speaker 00

  It's-

• 7:53Speaker 01

  The Troubled Teen Incorporated shit?

• 7:55Speaker 00

  So rough.

• 7:56Speaker 01

  It's bleak. Yeah.

• 7:57Speaker 00

  This one, the one that he was sent to is called CEDU, C-E-D-U.

• 8:02Speaker 01

  Oh, like the jet skis.

• 8:04Speaker 00

  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?

• 8:15Speaker 01

  Yeah, I used to go there in the mall all the time.

• 8:17Speaker 00

  No, no, no.

• 8:17Speaker 01

  You get like one of the, you can get a frosted one.

• 8:19Speaker 00

  You get the center of the hole one? Uh huh. That's the one to get.

• 8:22Speaker 01

  You asked me the little question because you knew I was gonna make that terrible joke. Oh, it's Sin, is it like Alcoholics Anonymous, but it's Sin Anonymous? No.

• 8:30Speaker 00

  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.

• 8:42Speaker 01

  Interesting.

• 8:42Speaker 00

  However, over time, and like not very much time, the organization really kind of curdled and is now widely described as a cult.

• 8:52Speaker 01

  Oh.

• 8:53Speaker 00

  CDU, the troubled teens sort of portion of it was famously absolutely no picnic.

• 9:00Speaker 01

  I can't believe being mean to teens is not a system.

• 9:03Speaker 00

  Yeah, shocking.

• 9:04Speaker 01

  This is model.

• 9:05Speaker 00

  Unsurprisingly, there was a lot of abuse that happened at CDU, right? By sort of all accounts of people who went there. This is actually the place that Paris Hilton went.

• 9:15Speaker 01

  When she talks about like the abuse that happened to her when she was a kid, holy shit.

• 9:18Speaker 00

  All that is to say, Mark Hughes as a teenager is in a rough place. So one of the programs at CDU required him to sell raffle tickets.

• 9:29Speaker 01

  Okay. Also, everything is so scam adjacent.

• 9:32Speaker 00

  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?

• 9:53Speaker 01

  Were you voted anything in high school?

• 9:55Speaker 00

  Nothing, not a goddamn thing.

• 9:57Speaker 01

  You didn't get like most, like most promising or anything?

• 10:01Speaker 00

  No, I was at a real overachiever school.

• 10:05Speaker 01

  Oh.

• 10:05Speaker 00

  And I was sort of like middle of the pack amongst kids giving themselves stress ulcers and that kind of thing.

• 10:11Speaker 01

  I got most dramatic and most romantic.

• 10:13Speaker 00

  Gayest and gayest.

• 10:15Speaker 01

  Well, yeah, I, it basically meant that I was covering up my homosexuality with misogyny, but doing it badly. Those two things come together.

• 10:25Speaker 00

  So Mark Hughes went door to door in LA for this CDO 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.

• 10:43Speaker 01

  Oh, I mean, okay, whatever.

• 10:45Speaker 00

  It does tell you about that guy that he's like, you'll never believe who I met Reagan.

• 10:49Speaker 01

  Yeah, look how cool I am.

• 10:51Speaker 00

  Look how cool I am Reagan, right?

• 10:54Speaker 01

  Although I was once on a flight with Shakira and I do actually think that makes me cooler.

• 10:58Speaker 00

  What the fuck are you kidding me?

• 11:00Speaker 01

  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 was 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. She'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?

• 11:37Speaker 00

  I would say my estimation of Shakira has expanded.

• 11:40Speaker 01

  Does she like flies commercial?

• 11:43Speaker 00

  She understands the stakes of climate change.

• 11:45Speaker 01

  She walks among us.

• 11:46Speaker 00

  So Mark really seems to find meaning and success in this raffle ticket sales business and gets really into it. When he is 19, he's still out at CDO and his mother passed away. She died in her apartment and her toxicology report showed that she had Darvon or Darvocet in her system. Her doctor acknowledged that she frequently abused prescription drugs and was engaged in some like doctor shopping.

• 12:16Speaker 01

  Oh, man.

• 12:17Speaker 00

  But also like this is happening in the seventies when there's just like way less literacy on substance use disorders in general, right?

• 12:25Speaker 01

  And doctors are like, have you tried speed?

• 12:27Speaker 00

  Totally.

• 12:28Speaker 01

  You're trying to lose three pounds? Why don't you try meth?

• 12:31Speaker 00

  So Hughes had just completed this troubled Teens program after being a pretty heavy drug user himself. And then his mom dies of what appears from the autopsy to be an overdose. Trauma wise, especially for a 19 year old, this is like an earthquake, right?

• 12:51Speaker 01

  Yeah.

• 12:51Speaker 00

  His mom passes away when he's 19. The very next year, he started selling diet drugs professionally.

• 12:59Speaker 01

  Okay.

• 12:59Speaker 00

  So in 1976, he started selling something called Slender Now for Sayforth Laboratories. And then moved on to selling diet products for a place called Golden Youth.

• 13:14Speaker 01

  Okay.

• 13:14Speaker 00

  Both of those were MLMs.

• 13:16Speaker 01

  Nice.

• 13:17Speaker 00

  Both of those went out of business.

• 13:19Speaker 01

  Nice.

• 13:19Speaker 00

  And that gave Mark an idea. What if he started his own cursed weight loss company, right?

• 13:27Speaker 01

  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.

• 13:36Speaker 00

  Yeah, yeah, yeah, yeah, absolutely. In 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 eighties Beverly Hills wig factory. I hope that it is Wigs Today, the establishment where Richard Simmons made friends with the proprietor of the wig shop.

• 14:14Speaker 01

  Is that true?

• 14:15Speaker 00

  Not to my knowledge. 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.

• 14:29Speaker 01

  Also, what are they selling right now? It's pills?

• 14:32Speaker 00

  They are selling, at this point, their main thing is like 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 like 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.

• 15:02Speaker 01

  Oh my god!

• 15:03Speaker 00

  When you can go to the store and get like a giant canister of Slim Fast Mix.

• 15:09Speaker 01

  Right.

• 15:10Speaker 00

  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. So you have to believe that there's like some magic beans in the Herbalife stuff or something, right?

• 15:27Speaker 01

  Right.

• 15:27Speaker 00

  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.

• 15:38Speaker 01

  Okay.

• 15:39Speaker 00

  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."

• 15:53Speaker 01

  Yeah.

• 15:53Speaker 00

  Again, this is all just five years after leaving Sido 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.

• 16:17Speaker 01

  Ooh, okay.

• 16:20Speaker 02

  Now, 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's 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. It 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 sleeping pills to be able to go to sleep at night. And from several years of doing that, she secretly, behind doctors' backs, started getting

• 17:05Speaker 02

  her prescriptions filled 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. And, uh, cause I've seen literally people do everything to themselves to try to lose a little bit of weight.

• 17:28Speaker 01

  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.

• 17:40Speaker 00

  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.

• 17:54Speaker 01

  That's actually really dark.

• 17:56Speaker 00

  Both versions are extremely dark, right? Either it's, "My mom overdosed on drugs and I'm gonna figure out how to spin that up to sell weight loss supplements to people."

• 18:08Speaker 01

  Right.

• 18:09Speaker 00

  Or it's, "Weight loss drugs are responsible for my mom's death, so that's the business I'm going into."

• 18:17Speaker 01

  Yeah, yeah, yeah.

• 18:18Speaker 00

  Neither one is like, great news, right?

• 18:21Speaker 01

  Right, as if the solution to his mom's alleged problem is like, "Well, there's a better weight loss method."

• 18:26Speaker 00

  Absolutely, right? Like, that's not the issue here.

• 18:29Speaker 01

  Yeah.

• 18:30Speaker 00

  Regardless of all of that, Herbalife very quickly takes off. They very quickly build their ranks of distributors and their ranks quick- Quickly build their downlines. By 1985, Inc. Magazine was reporting that the company's growth from $36,000 in, uh, sales in 1980 to 423 million.

• 18:54Speaker 01

  Oh, wow.

• 18:54Speaker 00

  In 1985.

• 18:56Speaker 01

  Wait, really? That's insane.

• 18:57Speaker 00

  You have become a billion dollar company by today's dollars, right?

• 19:00Speaker 01

  Right.

• 19:01Speaker 00

  By the end of those same five years, Herbalife is reporting that they had more than 700,000 distributors.

• 19:08Speaker 01

  Wow.

• 19:08Speaker 00

  Distributors were encouraged to share their own sort of personal stories of using Herbalife. 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.

• 19:21Speaker 01

  Nice. I'm crowdsourcing my like memoir anecdotes.

• 19:24Speaker 00

  Great job, everyone. There's a little bit of reporting from the LA Times in 1985. This is a longtime distributor whose last name is Delacy, and I just sent it to you.

• 19:37Speaker 01

  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. Delacy quickly added, "Herbalife cures nothing. We can't make medical claims, you know." That's a funny thing to include.

• 20:08Speaker 00

  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."

• 20:17Speaker 01

  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.

• 20:31Speaker 00

  Okay, so we've been talking about this like exponential growth that Herbalife has been going through in 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.

• 20:52Speaker 01

  You worked on that transition for so long.

• 20:55Speaker 00

  I did not. It's not even written in my notes.

• 20:58Speaker 01

  If, if every FDA complaint gets five more FDA complaints.

• 21:03Speaker 00

  All the FDA complaints in the world.

• 21:06Speaker 01

  Yes.

• 21:07Speaker 00

  Within just one year of the company's founding, the FDA starts getting consumer complaints about Herbalife products.

• 21:13Speaker 01

  Perfection.

• 21:14Speaker 00

  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.

• 21:28Speaker 01

  Ooh, yeah. I mean, when you think about it, pooping is getting toxins out of your body.

• 21:32Speaker 00

  Sure, sure.

• 21:33Speaker 01

  They're not incorrect.

• 21:34Speaker 00

  The toxins are just Herbalife products.

• 21:37Speaker 01

  There's this thing that your body does where it creates waste, and then you have to get rid of the waste.

• 21:41Speaker 00

  So the FDA focused on Herbalife's Slim and Trim Formula 2.

• 21:47Speaker 01

  Okay.

• 21:48Speaker 00

  Which Herbalife said could, quote, "cleanse the digestive system and curb the appetite."

• 21:53Speaker 01

  Sure.

• 21:54Speaker 00

  As it turned out, Slim and Trim Formula 2 contained mandrake and poke root.

• 22:01Speaker 01

  What the fuck?

• 22:02Speaker 00

  Mandrake is a hallucinogen that is famously toxic and can cause asphyxiation.

• 22:06Speaker 01

  That is an enemy in Dragon Quest. You are incorrect.

• 22:09Speaker 00

  And every part of poke weed can be toxic, but none more than the root, and that is what they use.

• 22:16Speaker 01

  They're just like, why would they even do this? They're just putting random shit in there?

• 22:20Speaker 00

  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.

• 22:36Speaker 01

  Okay.

• 22:37Speaker 00

  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?

• 22:45Speaker 01

  Although it is interesting, because it does indicate, like, some level of good faith, that, like, 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.

• 23:00Speaker 00

  Listeners, mark this moment down where Mike says he doesn't know it's a scam.

• 23:05Speaker 01

  Foreshadowing as a narrative device.

• 23:07Speaker 00

  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. The Career Book said that Formula 2 can also help with, quote, "venereal disease, arteriosclerosis, tumors, bad breath, and bedwetting."

• 23:28Speaker 01

  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.

• 23:38Speaker 00

  It also claimed that a product called Cellulos

• 23:44Speaker 01

  Oh.

• 23:44Speaker 00

  was a natural cellulite eliminator. And they were like, no.

• 23:48Speaker 01

  God, you don't hear that much about cellulite anymore. There were so many products for cellulite back in the day.

• 23:53Speaker 00

  You know what you hear about now is creepy skin.

• 23:56Speaker 01

  I am absolutely creepy skin years old.

• 23:58Speaker 00

  Are you really?

• 24:00Speaker 01

  I am a food truck outside of the Louvre. I am all crepe.

• 24:03Speaker 00

  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.

• 24:19Speaker 01

  Nice.

• 24:20Speaker 00

  The company just pleaded guilty to the Canadian charges and paid $8,000 in fines and kept on truckin'.

• 24:25Speaker 01

  Oh my god. You could pay that a day and it wouldn't meaningfully cut into your revenues.

• 24:29Speaker 00

  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.

• 24:49Speaker 01

  Okay.

• 24:50Speaker 00

  When an LA Times reporter pressed him on it, he admitted that he had never gone, nor had he been trained in any kind of herbalism.

• 24:57Speaker 01

  No way. What, so he was just lying about that?

• 25:00Speaker 00

  It's a symposium. It's not a degree.

• 25:03Speaker 01

  Yeah, it's not even like, cool, you did this.

• 25:05Speaker 00

  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, never mind.

• 25:13Speaker 01

  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.

• 25:20Speaker 00

  Did you, did you not see Shakira?

• 25:22Speaker 01

  No, I'm kidding, I'm kidding. I did actually see Shakira.

• 25:24Speaker 00

  I was about to be heartbroken.

• 25:26Speaker 01

  The thing is, it would, it would be a really funny thing to lie about, because it's not impressive. It's like, yeah, okay. A person exists.

• 25:33Speaker 00

  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? Yeah, get, just get, you already know where it's going.

• 26:05Speaker 01

  Again, context clues.

• 26:06Speaker 00

  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, really?

• 26:15Speaker 01

  Yeah, they're putting poison mushrooms in the fucking smoothies, of course.

• 26:18Speaker 00

  Here is a quote from the LA Times.

• 26:23Speaker 01

  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 as 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.

• 27:03Speaker 00

  I don't know why it makes it worse that the correspondence school is based in Huntington Beach, but it really does.

• 27:10Speaker 01

  He has a doctorate from the outdoor gym where buff guys go to do pull-ups.

• 27:14Speaker 00

  This is so close to the Simpsons, like, Dr. Nick went to Hollywood upstairs medical school joke.

• 27:22Speaker 00

  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 laws against essentially pyramid schemes and that they lied about the caffeine content in their products.

• 27:41Speaker 01

  Oh, that's dangerous.

• 27:42Speaker 00

  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.

• 28:00Speaker 01

  I mean, that's also kind of sad because you should be doing bigger settlements than that. And also, they should be admitting wrongdoing.

• 28:05Speaker 00

  That same year, a US 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.

• 28:27Speaker 03

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

• 28:37Speaker 02

  And 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.

• 28:52Speaker 00

  We're gonna cut it there.

• 28:54Speaker 01

  He seems nice.

• 28:55Speaker 00

  What a blast!

• 28:56Speaker 01

  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.

• 29:00Speaker 00

  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.

• 29:07Speaker 01

  Also, why the fuck is this documentary being like, he never stopped chasing his dream or whatever?

• 29:13Speaker 00

  Oh, honey, this is Herbalife shit.

• 29:15Speaker 01

  Oh, this is like Herbalife propaganda?

• 29:17Speaker 00

  Yes! This is them being like, look how good he did.

• 29:20Speaker 01

  Wait, they chose this clip to fucking show? They're like, nailed it, Mark. Nailed it. Get those fat doctors.

• 29:28Speaker 00

  My notes just say nightmare blunt rotation.

• 29:32Speaker 00

  Hearing, they also discussed an internal study conducted by Herbalife, based on a sample of 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.

• 30:08Speaker 01

  When 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.

• 30:16Speaker 00

  Well, Michael, I've got both a product and a business opportunity for you.

• 30:23Speaker 01

  That's how you recruit people? Have you thought about being jittery and pooping?

• 30:26Speaker 00

  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, having to pay these fines. But its sales remain in the hundreds of millions, right? 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.

• 31:07Speaker 00

  By 1996, the company was operating in 32 countries.

• 31:13Speaker 01

  Why, why let a little lying get in the way of growth?

• 31:16Speaker 00

  That's right.

• 31:18Speaker 01

  Hey, gang, editing Mike here. We recorded this episode in a couple of 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.

• 31:44Speaker 00

  So Herbalife keeps facing scrutiny and also keeps expanding in a pretty uninterrupted way until 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.

• 32:26Speaker 00

  Doxepin 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 his death.

• 33:00Speaker 01

  Oh, wow.

• 33:01Speaker 00

  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.

• 33:09Speaker 01

  Also, it was well-known enough within the company that there was like plans and strategies and stuff. So it really, it must have been like quite bad.

• 33:15Speaker 00

  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 in keeping it 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.

• 33:53Speaker 00

  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, another 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?

• 34:26Speaker 01

  Yeah.

• 34:26Speaker 00

  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. I 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.

• 34:51Speaker 01

  Oh.

• 34:51Speaker 00

  In 2007, a Swiss study found a link between consuming Herbalife products and contracting hepatitis.

• 35:01Speaker 01

  Oh, my God.

• 35:02Speaker 00

  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 on 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.

• 35:24Speaker 01

  Great sign, great sign.

• 35:25Speaker 00

  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. 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. So 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.

• 35:52Speaker 01

  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.

• 35:59Speaker 00

  Yeah, nutraceuticals.

• 36:01Speaker 01

  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.

• 36:12Speaker 00

  Okay, but counterpoint, what if there was no regulation for anyone?

• 36:16Speaker 01

  Yeah, what if?

• 36:17Speaker 00

  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?

• 36:35Speaker 01

  Right.

• 36:35Speaker 00

  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. So they're getting regulated and then it's getting overturned.

• 36:51Speaker 01

  We're not a pyramid scheme, you assholes. We're pyramid scheme adjacent. We're an MLM.

• 36:57Speaker 00

  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.

• 37:18Speaker 01

  Yele, yele, yele. Is it her?

• 37:20Speaker 00

  It's Shakira. It's your old pal Shakira.

• 37:24Speaker 01

  My close friend Shakira.

• 37:25Speaker 00

  They get celebrity endorsements from a number of huge deal soccer players. Cristiano Ronaldo does a bunch of endorsed content for them.

• 37:36Speaker 01

  Et tu Cristiano Ronaldo.

• 37:39Speaker 00

  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 written across his chest.

• 37:56Speaker 01

  Nice, okay.

• 37:57Speaker 00

  According to the LA Times, that was the result of a 10-year, $44 million sponsorship.

• 38:04Speaker 01

  I like how we've also named literally the only three soccer players I could name. Gun to my head. Yeah, 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.

• 38:18Speaker 00

  So, Michael, you're probably thinking, we're talking about all these soccer players. There's one big name missing. We're gonna watch an additional celebrity endorsement. I thought I could keep this secret from you. I can't, so I'm gonna just send you the link now.

• 38:32Speaker 01

  Wait, what?

• 38:35Speaker 01

  You're fucking kidding me. She's barely even a celebrity.

• 38:40Speaker 00

  Bullshit, she's barely a celebrity. Tell the people who we're talking about.

• 38:43Speaker 01

  Okay, you just sent me a link called Madeleine Albright and Herbalife.

• 38:50Speaker 01

  In a million years, I never would have guessed this.

• 38:53Speaker 00

  Former Secretary of State Madeleine Albright.

• 38:58Speaker 04

  I think that women are a huge undervalued resource in every country. And I have believed that when women are politically and economically empowered.

• 39:08Speaker 01

  Oh, no.

• 39:08Speaker 04

  Societies are more stable.

• 39:10Speaker 01

  Oh, my God.

• 39:10Speaker 04

  And the part that I like about what you do with Herbalife is women are very good at interpersonal relations and are really. Developing a relationship with the person that they're dealing with. And I think that the kind of sales operation that Herbalife has is the one that really allows women to shine.

• 39:33Speaker 01

  Oh, my God.

• 39:35Speaker 04

  In terms of explaining or 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.

• 39:47Speaker 01

  Women are really good at being scammed and scamming others. There you go. I mean, not that I'm like so fucking disappointed in Madeleine Albright.

• 39:54Speaker 00

  I know.

• 39:55Speaker 01

  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.

• 40:10Speaker 00

  According to a new book that was released this year about multi-level marketing called Little Bosses Everywhere, Madeleine Albright's firm was reportedly paid $10 million for its work with Herbalife.

• 40:24Speaker 01

  Yes, they underpaid for Beckham and they overpaid for Madeleine.

• 40:27Speaker 00

  Their wildest endorser was someone named Louis Ignarro. Ignarro is really worth talking about because he won the Nobel Prize for Medicine in 1998.

• 40:43Speaker 01

  Okay.

• 40:43Speaker 00

  For his work. Work focusing on cardiovascular health, particularly the function of nitric oxide.

• 40:49Speaker 01

  Okay.

• 40:50Speaker 00

  Ignaro endorsed Herbalife's heart supplement.

• 40:53Speaker 01

  Oh my god.

• 40:54Speaker 00

  Which sold for ninety dollars a bottle for a month's supply.

• 40:57Speaker 01

  For a month? Three dollars a day?

• 41:00Speaker 00

  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 one million dollars from Herbalife sales in just over one year.

• 41:17Speaker 01

  Dude.

• 41:17Speaker 00

  Some of his work for them appears to have been publishing studies in academic journals.

• 41:25Speaker 01

  Oh my god.

• 41:26Speaker 00

  So first he published two mice studies about vitamin C, vitamin E, and arginine, which is an amino acid. Those are all advertised active ingredients in a specific supplement from Herbalife.

• 41:44Speaker 01

  Dude, what if we had, what if we enter a world where winners of the Nobel Prize like come out to receive it also wearing branded jerseys? They're like Vodafone.

• 41:53Speaker 00

  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. I'm presuming that's because he didn't disclose it to them.

• 42:12Speaker 01

  Yeah.

• 42:12Speaker 00

  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."

• 42:29Speaker 01

  Oh, as science tells us.

• 42:31Speaker 00

  Nom nom nom, eat some cheese, go live in the walls.

• 42:34Speaker 01

  It's funny that like of these celebrity endorsements, like David Beckham is kind of like the most honest one. You 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.

• 42:54Speaker 00

  I don't know, man. I heard Dale Earnhardt Jr. really likes Palmolive.

• 42:59Speaker 01

  What fucking cares? It's so much worse.

• 43:03Speaker 00

  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.

• 43:15Speaker 01

  Okay.

• 43:16Speaker 00

  That 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, five 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.

• 43:46Speaker 01

  Oh.

• 43:46Speaker 00

  Do you want to say?

• 43:48Speaker 01

  This 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.

• 44:04Speaker 00

  I'm going to send you another quote from little bosses everywhere.

• 44:10Speaker 01

  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 negating one of the very reasons multi-level 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. Distributors could not post prices or quote unquote, "sell" their products.

• 44:52Speaker 01

  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.

• 45:03Speaker 00

  It's so bad.

• 45:04Speaker 01

  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. It's like, just sell me a thing if it has inherent worth. You should just sell it to me normally.

• 45:24Speaker 00

  I watched a documentary at one point about someone who had rented a storefront and signed a lease for his Herbalife Nutrition Club. And he was like, I didn't realize that I was getting in at sort of the end of that trend.

• 45:37Speaker 01

  Yeah.

• 45:38Speaker 00

  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. And he was like, I didn't feel great about that.

• 45:56Speaker 01

  Yeah.

• 45:56Speaker 00

  So I just moved on to another business and now he sells vapes.

• 46:00Speaker 01

  Okay, fair enough. At least it's like a real business, selling a real product.

• 46:04Speaker 00

  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.

• 46:20Speaker 01

  More vapes.

• 46:21Speaker 00

  You did it, thank you sir.

• 46:23Speaker 01

  Yeah.

• 46:23Speaker 00

  So the Nutrition Club initiative is especially concentrated in Latino communities in the US.

• 46:31Speaker 01

  Uh, yeah.

• 46:32Speaker 00

  Including among immigrants and monolingual Spanish speakers.

• 46:37Speaker 01

  Yeah, I was gonna 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 exploiting these like personal connections between people.

• 46:52Speaker 00

  The last of their marketing tactics that we're gonna talk about is arguably their most creative. Some of their distributors start buying up TV advertising time.

• 47:05Speaker 01

  Okay.

• 47:05Speaker 00

  And advertising Herbalife as a get rich quick scheme.

• 47:10Speaker 01

  Oh.

• 47:11Speaker 00

  So I'm gonna send you a little video clip.

• 47:13Speaker 01

  Dude, this is gonna bum me out so much.

• 47:16Speaker 05

  One of the talk shows, they was advertising this in home business. It sounded pretty good.

• 47:22Speaker 06

  Listeners just like you are discovering how to earn, quit your job type money right from their kitchen table. The secret, incomeathome.com.

• 47:29Speaker 07

  Oh, of course. I thought this would be a good opportunity. It was being endorsed by Sean Hannity.

• 47:33Speaker 04

  I believe it was Sean Hannity's program.

• 47:35Speaker 07

  Sweetie. I thought there was some validity to it.

• 47:38Speaker 06

  You know, listeners just like you are discovering how to earn, quit your job type of money right from their kitchen table. We've been telling you about incomeathome.com.

• 47:46Speaker 07

  When I watched the video, that was the first time I heard Herbalife.

• 47:49Speaker 03

  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.

• 48:02Speaker 00

  We're gonna stop it there on a title card that says, in 2011, Johnson was the highest paid chief executive in the US, and that's attributed to Forbes.

• 48:13Speaker 01

  Think about his downline. His downline is like thousands of people.

• 48:16Speaker 00

  It's an astonishing downline.

• 48:17Speaker 01

  We haven't even covered the sort of the adjacency of right wing politics to grifts.

• 48:23Speaker 00

  Yep.

• 48:23Speaker 01

  It's wild. If you watch like Fox News, they're selling them fucking gold and shit.

• 48:26Speaker 00

  So like, this is straightforwardly wildly unethical.

• 48:31Speaker 01

  Yes.

• 48:31Speaker 00

  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.

• 48:39Speaker 01

  Fuck, no.

• 48:39Speaker 00

  And frankly, at this point in the company's development, it's too far developed for anyone to 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.

• 48:54Speaker 01

  Right. If they're advertising on TV, you're not one of the first in the fucking door. Yeah.

• 48:57Speaker 00

  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.

• 49:16Speaker 00

  All detailing why Herbalife is a bad investment and why he believes they're in violation of the law.

• 49:23Speaker 01

  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.

• 49:31Speaker 00

  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.

• 49:41Speaker 01

  He was like, I think this company is fake and it's going to like crater into oblivion.

• 49:45Speaker 00

  Right. That's why I'm trying to short sell it.

• 49:47Speaker 01

  Yeah.

• 49:48Speaker 00

  For folks who are unfamiliar, essentially in a short sale, if Herbalife's stock price dropped, Ackman would have made money.

• 49:57Speaker 01

  Buy high, sell low.

• 49:58Speaker 00

  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?

• 50:22Speaker 01

  In the same way, there's like a pump and dump scheme where you promote a stock and raise its price. This is like a, like a biflassiding and dump scheme where it's like, if you crater a stock, you can make money on cratering the stock.

• 50:35Speaker 00

  Biflassiding is just a terrible word.

• 50:37Speaker 01

  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?

• 50:45Speaker 00

  Uh, the stock price took a hit, but again, like the company just kept profiting.

• 50:48Speaker 01

  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.

• 50:55Speaker 00

  And I'm proud to be an American. The short answer here is that Ackman's attempted short sale doesn't pay off for him, but it does lead to a new wave of scrutiny around the company.

• 51:11Speaker 01

  Yeah. This is what I heard about. I had never heard of Herbalife before this. I was like, why is everybody talking about this?

• 51:16Speaker 00

  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 US. That's according to ABC News. In 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.

• 51:58Speaker 01

  I love that we've managed to find a weight loss company that's like actually scammy than all the other weight loss companies.

• 52:03Speaker 00

  In 2014, the FTC launched an investigation into Herbalife. And by 2016, they announce a settlement for $200 million.

• 52:17Speaker 01

  Okay.

• 52:17Speaker 00

  But again, Herbalife admits no wrongdoing.

• 52:20Speaker 01

  Right. And they continue operating.

• 52:22Speaker 00

  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 distributors' sales to make sure that they're rewarding actual external sales rather than just distributors buying inventory.

• 52:44Speaker 01

  Right.

• 52:45Speaker 00

  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."

• 53:02Speaker 01

  It's so funny to be like, by decree of the government of the United States, you have to run a real business.

• 53:08Speaker 00

  You have to sell a real fucking thing to real fucking people.

• 53:12Speaker 01

  You have to sell a good or a service to actual customers.

• 53:16Speaker 00

  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. 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.

• 53:46Speaker 01

  I was not wondering that at all. Okay. 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?

• 54:08Speaker 00

  Correct.

• 54:09Speaker 01

  China accounted for 19% of Herbalife's $4.49 billion in net sales in 2016, up from 7% in 2006 regulatory filings 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.

• 54:33Speaker 00

  They were ordered to pay $123 million as a result of this one, but their annual revenue at this point is still in the low billions.

• 54:43Speaker 01

  Yeah, God.

• 54:44Speaker 00

  Right? So it's certainly a big price tag, but it's far from what would be needed to just deal a death blow to the company. They can afford it. They pay it and they keep trucking along, right?

• 54:55Speaker 01

  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.

• 55:05Speaker 00

  I tend to go pretty hard on regulation of diet and wellness companies as being like 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.

• 55:17Speaker 01

  Yeah, just failed to achieve anything good, yeah.

• 55:19Speaker 00

  Right? Because 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.

• 55:32Speaker 01

  Yeah.

• 55:33Speaker 00

  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.

• 55:49Speaker 01

  Right.

• 55:49Speaker 00

  They'll still absolutely like make all kinds of noise about how terrible it is to be regulated. But ultimately, this is a real case of like, you know, cockroach survives the apocalypse kind of shit.

• 56:01Speaker 01

  We're now at the culmination of like 40 fucking years of complaints and from day one.

• 56:06Speaker 00

  Within the first year.

• 56:08Speaker 01

  Yeah.

• 56:08Speaker 00

  Before they even made it into the wig factory.

• 56:12Speaker 01

  Yeah.

• 56:13Speaker 00

  They were already getting FTC complaints.

• 56:16Speaker 01

  Right. What we're getting is miniscule fines and what we need is the government treating this company the way that me and my brother treated a blueberry bush.