Saturday, January 25, 2014

BREAKING NEWS: Herbalife may also be under investigation in China

When reports of NuSkin representative's alleged misconduct surfaced in Chinese media back in June and July 2013 in China it received little western media attention. However, when the Chinese Communist Party media People's Daily repeated the allegations, and called for local authorities to investigate and stamp out pyramid schemes and pyramid selling, western media noticed, and NuSkin stock took a dive, and Herbalife stock also took a dive because it's already under attack in the US. 

Turns out, Herbalife may be under more direct threat than people realized, as NYPost managed to find a report in August 2013 in First Financial Daily (of China) that Herbalife reps in China encouraged front-loading and thus is in violation of anti-pyramid-selling laws in China, among other potential law-breaking.  Quoting from the report... 
Recently, First Financial Daily discovered through private investigation that, while Herbalife is fast growing in the China market, its sales model is suspicious in five respects: collection of "recruitment fees" in disguised form, suspected exaggeration of  product effects, possible windfall profit derived from products, fast growing clubs absent of strict supervision and control, and product purchase overly dependent on sales representatives or potential sales representatives…… A series of issues have deviated the direct selling model of this company, and have contradicted with certain provisions in the "Regulations on the Prohibition of Pyramid Selling" promulgated and implemented by the State Council in 2005. As a result, suspicion has been brought up that Herbalife's sales model is a pyramid scheme. 
The specific offense mentioned first in the report is reps are required to buy $2000 USD worth of Herbalife products to join. They're told that 1) it's easy to sell, 2) it demonstrates that they are serious about this opportunity, and 3) there are plenty of people who want to join and only limited positions available.

There's a lot more.

This sort of "front-loading" is very much frowned upon int he US, and outright ILLEGAL and PROHIBITED in China, where "required purchases upon joining" is nothing more than a buying a position in a pyramid disguised as 'sales'. If the investigation results are accurate, Herbalife is a product-based pyramid scheme in China, at least partly.

Other offenses, such as "prescribing" nutritional supplements (Formula One is sort of pushed as a "cure-all", albeit rather circumspectly) is a lessor form of NuSkin problems (i.e. less egregious).

While there's no formal call by People's Daily to investigate Herbalife, one wonders if that is coming down the pipeline soon, and may depend on how NuSkin reacts to the call for investigation (other than freezing all recruitment meetings).

Stay tuned.

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1 comment:


    check that out!