LA Mayor joins Herbalife, Wall Street battles over possible pyramid scheme

Recently Herbalife has been in the spotlight on claims that it’s running a pyramid scheme and taking advantage of the Hispanic community. The claim is not new but it has resurfaced in light of its new hired advisor and former Los Angeles mayor Antonio Villaraigosa. All this happening while wall street investors battle over the company’s financial future.

My personal take

After reviewing their website, they sure give the impression of a pyramid scheme. There are no prices on any of their products and if I want to buy anything I need to submit my contact information and have a representative contact me. You would think that a company would make it easy to buy their products online instead of having to wait to wait for a representative to contact me.

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I’m just surprised that they are a publicly traded company.

LA Mayor joins Herbalife

There are enough articles out there about the former mayor joining Herbalife and therefore I won’t go into the details. I will say that Antonio had a strong influence on the latino community in Los Angeles as mayor and given his current role responsible for “strategic business development and global community outreach,” I suspect he wasn’t hired for his knowledge in nutritional supplements. Having said that, the bigger issue I believe is the company’s long term strategy to target hispanics. Antonio is one move of more to come.

Wall Street in battle for Herbalife

Last December a large wall street investor, Bill Ackman took a short position (betting against the stock) on the company’s stock. He went public stating the company was a “pyramid scheme” which quickly lead Herbal Life’s CEO to appear on CNBC and counter the claim.

You can watch Herbal Life’s CEO here:

Unfortunately for Mr. Ackman the stock has risen over 50% since then. Several high profile investors including Carl Icahn, George Soros and most recently William Stiritz (largest individual shareholder) have bought stock in the company.

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Conclusion

You have to look at this case in two perspectives, a moral and financial one. Herbalife might be a pyramid scheme and likely targeting the Hispanic community but for investors it has been a great investment. The responsibility lies not only on the company but in this case anyone involved. This includes the representatives working for Herbalife and the customers buying the products as well as the investors. Any avid investor will tell you investing in a stock is not necessarily investing in a company. Yet because I don’t believe in the company’s practices I have to side with staying away from this stock.

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