Herbalife: scheme or genuine business?

Francisco Mancebo of Rock Racing wore the yellow jersey in Stage 2 of the Tour of California 2009 but gave it up after placing 27th in Santa Cruz. He won King of the Mountain (Green Jersey and 2 smooches from the podium girls) and the Herbalife Spring Jersey (red jersey and two more smooches from the pretty girls). (Photo credit: Wikipedia)

Herbalife is a worldwide nutritional company whose products are solely marketed by independent distributors. Some people ask whether Herbalife is a genuine money making opportunity or a Ponzi scheme. The company clarifies that it is an authentic enterprise which reward its members for making sales. 

Independent distributors and members of the company buy its products to sell them to their customers. The higher the sale, the higher is the reward amount. Furthermore, the company gives bulk discount to sellers to make particular amount of sales. Members can recruit new members to expand their business and make more sales. Earnings are based on an individual's retail sales. When a particular member reaches a supervisor level, his earnings are based on sales of recruited members; this is a form of MLM or multilevel marketing. 

The members and distributors of the company are businessmen and not employees of the company. However, each and every member and distributor is responsible to abide by the Herbalife rules, and legal requirements of the country where its products are sold.

Mark Hughes, who later died in 2000 as a result of accidental overdose of alcohol, founded the company in 1980. The company has flourished and gained substantially from 1988 with zero value to over 4 billion dollars by the end of 2010. The company did endure some financial problems in 2009 as a result of economic downturn. 

Herbalife experienced high volatility at the stock market when it opened up higher by 4 percent and was reduced to 1 percent on the same afternoon, and finally reaching up 7 percent higher at the end of the day. This high volatility was due to investors perception about the company's repurchasing of stock.

The company re-audited its consolidated financial statements for fiscal years 2010, 2011, and 2012 through PricewaterhouseCoopers LLC, independent registered public accounting company. Additionally, the company also audited its performance over financial reporting. 

Unfortunately, Bill Ackman, one of Herbalife's critic released an extensive study on fake practices and recruitment on one of the biggest sellers of Herbalife products in Canada. Ackman, the owner of Perishing Square, added that he will continue to publish deceptive details about Herbalife. 

Despite the criticism of Ackman, Herbalife has managed to grow by leaps and bounds. Moreover, the company operates under fair practices and is 100 percent legal. The company states that it is certainly authentic and not a scam or scheme as out cried by its critics.