Herbalife is providing further disclosure on its U.S. distributor earnings to offset accusations of illegitimate business practices. Bill Ackman, Founder of Pershing Square Capital Management, is shorting more than 20 million shares of Herbalife, alleging that the company operates an illegal pyramid scheme. The disclosure posted to Herbalife’s website on Wednesday provides a breakdown of the compensation structure for the company’s entire distributor network.
Herbalife counters Ackman’s claim of an “abnormally high failure rate” among Herbalife distributors by showing that approximately three-quarters of its distributor count represent individuals signing up to receive discounted products rather than failed business attempts. These inactive distributors make up most of the 88 percent of Herbalife distributors who received no payments in 2012. As DSN reported in its January 2013 cover story, “A Deeper Look at the Direct Seller,” there are many different reasons why men and women join direct selling companies.
Herbalife’s disclosure invites further scrutiny of Ackman’s pyramid accusations, including his claim that Herbalife distributors make 10 times as much from recruitment as they do from product sales.
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