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A $1 Billion Dollar Bet Against A Well Known Home Business Opportunity

Herbalife Ltd, one of the world's largest distributors of weight loss and nutritional products, is facing an unusual financial challenge.  Hedge fund mogul Bill Ackman says the company is a pyramid scheme and has taken a short position of $1 billion dollars.  A short position allows Ackman's hedge fund to profit if the stock of Herbalife goes down in value.  Ackman sold the company's stock short on Dec 19, 2012.  Since the Ackman short, the stock has lost about 30% of its value but has slowly recovered its loss and is nearly back to its prior levels.

Herbalife has been a darling of other investment gurus such as Jim Cramer, who touted the stock on his 'Mad Money Show;' see video below.


 Bill Ackman says Herbalife goes after the poor.  See video below.


Herbalife advertisements do include very optimistic testimonials of individuals claiming substantial monthly earnings. The ads do not directly promote Herbalife but rather a website known as 'Income At'  If you look around on the website you will eventually find some details about the earnings of Herbalife distributors (Herbalife Income Disclosure).  Honestly, we found these figures very difficult to bottom line. It appears, however, that the median earnings of a sales rep (that qualifed as a 'leader') in 2011 appear to have been $741. This would be only about $62 per month.  The following line is also added to the earnings disclosure - "The amounts above are in addition to and do not include profits earned on the resale of products to consumers or other Distributors."  

Ackman's position is that a very tiny percentage of the company's sales reps are making money and he seems very confident in his assertions. has also found quite a lot of additional negative reviews of the company on YouTube, as well.


To be fair, Herbalife has been around since 1980 and has endured countless inquiries from state and federal regulators. I have seen so many of these kinds of business opportunities come and go over the years, and yet Herbalife is still standing.  The major problem for Herbalife, in the end, may be with regulators.  In recent years, the Federal Trade Commission and state regulators have been targeting business opportunities that make income claims that do not fairly represent average results. By so heavily highlighting income claims into their marketing, Herbalife may have opened the door to serious scrutiny of their advertising. The company does have an A+ rating with the Better Business Bureau and does offer a 90 day money back guarantee on its starter kit.

My advice; be very careful when evaluating home based business opportunities. It appears, based on Herbalife's own figures, most people are not earning anywhere near the level of those they are featuring in their advertisements.  On a side note, the IRS is offering a new easy method of claiming expenses for a home office.  The streamlined deduction provides a flat $5 per square foot up to 300 square feet.  Of course, one of the big benefits of starting a home based business are the tax deductions you become entitled to.

James L. Paris
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