Herbalife Under Fire for Alleged Pyramid Schemes in NYC
Literature distributed at Senator Klein's press conference, encouraging Spanish-speakers to be wary of where they invest their money.
Over the past year, Herbalife has faced allegations in the business world of being a pyramid scheme. But in New York City, State Senator Jeff Klein is accusing the company of ripping off Hispanic communities specifically.
Defined as "multi-level marketing," Herbalife's business model is based upon selling protein shakes and other health supplements to customers, who attempt to resell these products to new members. New members will then try to recruit even more new members. With every resale is the commission customers hope to recieve from Herbalife. Additionally, Herbalife products often promise weight loss and fitness gains, and members gather in so-called "nutritional clubs".
In a nutritional club meeting is where Brooklyn resident Gildardo Barrios says he first found out about Herbalife. Soon after learning about profits he could make from reselling Herbalife products, he began to purchase a lot of them and even recruited his two brothers to help him sell. He says recruiters told him he would make extraordinary profits. "They told me I would get $10,000 a month selling products, but that didn't happen. I lost my money. I couldn't get my money back. I had a lot of products at home. A lot of it expired and I had to throw it in the garbage," lamented Barrios.
Barrios lives in Cypress Hills, Brooklyn--a predominantly Hispanic community. He says as an immigrant, he bought into Herbalife's promises that through business and initiative he could make a lot of money. "They tell you something is new, you can achieve the American dream: you can have a mansion, you can have a lot of money. But I was there for 10 years and that never happened," said Barrios.
Stories like Barrios' brought Herbalife's practices to State Senator Jeff Klein's attention. According to the State Senator, 60 of the recruitment centers in New York City alone are based in Hispanic commuities, using bilingual distributers and similar persuasion tactics across the board. "They're clearly targeting the latino community. The people who market this stuff use the same sales pitch: you can get rich by putting very little of your money down. And unfortunately what happens is before people know it, they buy more and more of the product, they can't sell the product, and they end up losing their life savings."
The State Senator today introduced legislation regulating companies like Herbalife--requiring more transparency and, more specifically, a financial disclosure statement to all future customers. This document would detail costs and benefits to the consumer involving real data.
The legislation will go to the floor in June 2016.