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Reality CheckHerbalife Nutrition, Ltd.NYSE: HLFMay 29, 2018
AuthorsChristine Richard (Orion Research, LLC)Aaron GreenspanDisclosuresThink Computer Corporation was compensated to assist with some of the research in this report.Orion Research, LLC, provides research to clients for a fee. This report was not prepared on behalf of, commissioned by, or reviewed by any current or previous clients. Orion is contributing its research to this reportbecause we believe it is in the public interest for this information to be released.Legal NoticesCopyright 2018 Think Computer Corporation. All Rights Reserved.PlainSite is a registered trademark of Think Computer Corporation.Cover image copyright 2015 Crítica Diario Noticias.This report is not legal or investment advice. Trade at your own risk.About PlainSite PlainSite is a legal research initiative jointly run by Think Computer Corporation, a for-profit computer softwarecompany, and Think Computer Foundation, a 501(c)(3) non-profit organization. The PlainSite website athttps://www.plainsite.org hosts information regarding nearly ten million court dockets, as well as millions ofdocuments and government records from federal and state entities. Think Computer Foundation, which alsosponsors activities for individuals with disabilities in the Cleveland area, is funded in part by donations fromThink Computer Corporation.Visit the Herbalife Nutrition Ltd. PlainSite profile rition-ltd/.ContactFor PlainSite Pro Investor paid early access to future reports, questions, or comments, contact us by e-mail atrealitycheck@plainsite.org.
Executive SummaryHerbalife Nutrition Ltd., a Multi-Level Marketing (MLM) nutritional supplement company, has a long and highly publicized history of being accused of operating as apyramid scheme. Less well known is the extent toHLF Price Per Sharewhich its global reach has overlapped with moneylaundering and narcotrafficking channels. 60.00 50.00 40.00 30.00 20.00 10.00 0.002005200620072008Based on numerous interviews, Freedom of Information Act (FOIA) requests, legal documentsearches, and internal Herbalife materials, this report presents a history of Herbalife’s intersectionwith money laundering and the illicit drug trade,both directly and indirectly through its distributors.For decades, rather than address its entanglementwith money laundering in ways that would dissuade further criminal involvement, Herbalife has structured its business in such away that it remains vulnerable. Examples include:2009201020112012201320142015201620172018 Allowing its products to be moved through the so-called “gray market,” whereproducts in one country are illicitly transported across borders to another Relying on poorly disclosed or undisclosed third parties to operate the Herbalifebusiness in high-risk countries including Russia, Colombia, Panama and Mexico,creating blind spots throughout the company’s vast operational footprint Allowing high-ranking distributors at the top of the pyramid to make decisionsat Strategy and Planning Committee meetings that dictate the company’s globalexpansion plans, vendors, and policies, even though members have questionablehistories and, in at least one case, a narcotics trafficking conviction Building a complex business structure that permits the company and distributorsto move money across international borders with little to no regulatory oversightHerbalife’s business has been linked to at least two notorious drug cartels, as well asthe global bank HSBC, known for terrorist and narcotics financing. The company’sextensive track record of compliance failures, in direct violation of multiple federalAnti-Money Laundering (AML) statutes, leaves open the door to those who woulduse Herbalife to move illicit goods and funds around the world.Herbalife has carefully cultivated a public image as a purveyor of nutritional supplements that are designed to help its customers lose weight and stay fit. Thus far it hasbeen successful in convincing the marketplace that it is a legitimate business, albeitone with a few deficiencies like any large company. Considerable evidence supportsa different and darker view.iHerbalife Nutrition, Ltd.
Table of ContentsExecutive Summary.iIntroduction. 1Corporate History. 2The 1980s: Mark Hughes Creates a Money Machine. 2An Anonymous Tip. 3The Gray Market in Mexico. 3A Taxi Full of Cocaine. 5The 1990s: Herbalife Expands, Attracting Cartels. 9“Ask for Hector and Say It’s About Losing Weight”. 9Leaving the Door Wide Open.11The Russian Mafia.13Cali Cartel Redux: The Man of Many Names.1462,061 Ecuadoreans Registered as U.S. Distributors.16The 2000s: Death and Sub-Contractors.17A Drug Overdose.17A Murder in Mexico.18Undisclosed Third Parties.19Logicom Companies.19Filuet Group.21Cura Resource Group.21Rogue Distributors in Mexico.22Life, Death & Victory.23Herbalife Today.27Herbalife’s Network of Mexican Warehouses.27Hundreds of Shipments to Lebanon.28The “Immaterial” Indonesia Subsidiary.30The Venezuelan Money Transfer Scheme.31Drugs in Canisters and Nutrition Clubs.33Who’s In Charge?.36A Complex Corporate Structure.36Strategy and Planning Committees.37Stymying Internal Investigators.41Reality Checkii
Stashing The Money.42How Distributors Earn Commissions.42Paying Distributors Across Borders.42Shell Companies Everywhere.43Regulatory Risk.46Banks and Non-Banks.46Material Weaknesses in Herbalife’s Payment System.49Failure to Verify Distributor ID/Nationality.49Failure to Prevent “Stacking” of Phony Accounts.50Failure to Enforce Transaction Reporting Statutes.51Requiring Cash Transactions To Avoid Tax Authorities.51Suspicious Non-Profit Accounting.52Florida Real Estate Deals.53Why No One Noticed.54Regulatory Complexity and Corruption.54Paying Off Critics.55Lobbying and Spin.56Conclusion.57Appendix A: Moving The Money.58Anres Technology Corporation (First Federal Bank of California).58hyperWALLET Systems, Inc. (The Bancorp Bank/MetaBank).58PayNearMe.60JPMorgan Chase & Co.60ProPay (MetaBank).60EarthPort PLC.61HSBC.61iiiHerbalife Nutrition, Ltd.
IntroductionFounded in 1980, Herbalife sells protein powder, vitamins, and other nutritional supplements under brands such as “Formula 1.” Herbalife products are not available inretail outlets. Instead, Herbalife uses a Multi-Level Marketing (MLM) approach, inwhich the company’s independent distributors sell the products and recruit otherindividuals to serve in their downline organizations, who in turn recruit others.Key TermThose few who become wealthy do so by bringing in huge numbers of distributors,raising the question of whether Herbalife is simply a recruitment-driven pyramidscheme that compensates people for expandingthe network rather than selling products.Key TermSteps to Success5 StoneActive SupervisorActive SupervisorSupervisor10 Lines of ActiveSupervisorsSuccess Builder5 Lines of ActiveSupervisorsDistributor4,000 volume pointsin one month or2,500 in2 consecutivemonths1,000 volumepointsDate QualifiedDate Qualified20K President’sTeam15K President’sTeamGold & DiamondCufflinks &EarringsDate QualifiedPresident’sTeamMillionaire TeamGET Team10,000 RoyaltyOverride points in3 consecutivemonths4,000 royaltyWorld Team1,000 RoyaltyOverride points in3 consecutivemonthsFully QualifiedSupervisors whoachieve 2,500 volumepointsin each of 4 consecutivemonths AND 10,000volume points in 1month AND 500 RoyaltyOverride points in onemonth in the sameconsecutive 6-monthperiod2,500 volume pointsin each 4consecutive months or10,000 volume points at50% in 1 month or500 Royalty Overridepoints in 1 month4,000 RoyaltyOverride points in3 consecutive months40K President’sTeamHerbalife brandedMovado watchesDate QualifiedDate Qualified** 40,000 RoyaltyOverride points in3 consecutive monthsDate Qualified20,000 RoyaltyOverride points in3 consecutivemonths15,000 RoyaltyOverride points in3 consecutive months50K President’sTeam50,000 RoyaltyOve
rketing-operations Steps to Success * For complete qualification details refer to your IBO. ** Introduced effective January 2007. Distributor Date Success Builder 1,000 volume points Date Qualified Supervisor 4,000 volume points in one month or 2,500 in
