The pyramid scheme Herbalife targets Latinos and minorities

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Lozano of Centro Sin Fronteras describes how the company has defrauded many in the Latino community

What’s the catch?

[dropcap]I[/dropcap]n the fall of 2008, Miguel Calderon, 68, a resident of Waukegan, got involved with Herbalife due to a persuasion tactic from a friend who was involved with the business.

“He was talking nice about the business and earnings and by the way he was talking, one becomes pensive about the situation and one thinks they really can sell,” said Calderon.

Calderon was unemployed at the time and had recently undergone a heart operation and felt that this was an easy way for him to gain income. However, he never expected himself to lose an extremely large amount of money.

“They are there telling you how everything is going to happen in a high level and one feels enthusiastic. The first thing you have to do is take out money, and that’s how one falls into it. Let’s call it a trap, and one can’t really get out of it,” said Calderon. “I lost around $22,000.”

“I found out it was a trap when all of us, me and my three friends who were also selling the product, had a small warehouse and it was full, and the products were not selling like they had told us,” said Calderon.

Calderon was in the Herbalife business venture for about a year, 2008-2009, and he was frustrated with the situation and decided to seek advice from Julie Contreras, president of the Waukegan chapter of the League of United Latin American Citizens (LULAC).

Contreras assisted Calderon in filing an official consumer fraud complaint with Illinois Attorney General Lisa Madigan in Dec. 2013, which is still processing. EXTRA attempted to reach Madigan’s office but they never got back with an official response.

Six individuals, including Calderon, have filed official complaints through LULAC with the Illinois Attorney General’s Office, claiming losses between $10,000 and $30,000. Another seven claimants are working with LULAC to gather the paperwork necessary to file a claim, including membership contracts, and solicits for distribution and financial records.

“Herbalife comes in like a thief in the night with a false promise, a false sense of security,” said Contreras.

In Oct. 2013, LULAC National sent a letter to Herbalife and its independent distributors detailing the organization’s concerns, including calls that Herbalife “report the average net income of Herbalife distributors and stop featuring highly unlikely ‘rags to riches’ success stories.” Contreras states that there has been no official response from Herbalife.

According to Herbalife’s 2012 Statement of Average Gross Compensation, 88 percent of Herbalife distributors received no payments from Herbalife in 2012, meaning that distributors had to rely solely on selling the products they had purchased.

In Dec. 2013, LULAC of Waukegan partnered with other local Hispanic groups including Illinois Hispanic Chamber of Commerce, the Little Village Community Council and Centro sin Fronteras to call upon Madigan to open a formal investigation into Herbalife as “a pyramid scheme that is unfairly targeting Hispanics.”
“Pyramid schemes like Herbalife engage in deceptive business practices and take the hard earned and limited financial resources from inexperienced minority businesspeople,” said Omar Duque, CEO of the Illinois Hispanic Chamber of Commerce.

“Herbalife is actively recruiting and misleading Latinos through a false get-rich-quick scheme which leaves these individuals with no income after investing hundreds and thousands of dollars,” said Contreras.

“There’s conformity in [the business]. We as Hispanics like to see work, move in any way possible, but in some cases we take a path that isn’t real or perfect, and that’s how we make mistakes in this situation,” stated Calderon.

According to a meeting held in April 2012 at Barclays Capital Retail and Restaurants Conference, Herbalife does have the capacity to drill down into specific markets and target specific demographics.

At the Barclay’s event, Ibi Fleming, Herbalife SVP and managing director of North America, describes a program called “Geoscape,” and how it could benefit a distributor looking to relocate to the Miami, Fla. market. “So it tells us the Latino population. It actually breaks it down into Cuban, Mexican and Puerto Rican, and then also layers it by the distributors.”

In a 2010 report, Des Walsch, Herbalife president, told investors during a second quarter earning call that the Hispanic market “represented 65 percent of the United States’ net sales and volume points.”

In 2005, the Hispanic market represented roughly 35 percent of Herbalife’s business.  Walsch attributed the growth to the “Nutrition Club” model that developed in Mexico and rapidly spread to the United States through the Latino community.

The local organizations calling for an investigation claim that this expansion within the Hispanic community is filled with abuse and exploitation.

“[Herbalife] needs to treat the humanity of people with much frequency to make them do this business because the people will always be at a loss since there is no will for them to have money like they mentioned it,” said Calderon.

The organizations have set up a toll free number, 855 -701-5437, that Illinois residents can call to share Herbalife experiences.

“We are planning to be in D.C. in February to bring this to the attention of Congress and the Senate. This scam is occurring across our nation and it must be shut down for the good of our communities,” said Contreras.

Last week, the New York Times reported that Sen. Edward J. Markey of Massachusetts asked the Securities and Exchange Commission and the Federal Trade Commission to investigate Herbalife.

EXTRA attempted to reach Herbalife representatives on several occasions, but no phone calls were returned.

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