All Nicole Lopez wanted was a crack at the American dream and a chance to work at home closer to her kids. Instead, she got a nightmare, losing thousands of dollars after trying to sell Herbalifewhich makes weight-loss shakes and nutritional supplements.

Herbalife has since reimbursed part of Lopez's losses and called her situation a result of "bad mentoring. After a month investigation into so-called multi-level marketing, CNBC found dozens of people with similar stories.

Multi-level marketers sell products through a network of distributors, many of whom work at home and get paid by selling products, as well as recruiting other distributors. Many of the people interviewed discovered that selling the products was harder than they thought.

After hitting up family and friends to buy products, sellers often resorted to spending hundreds and even thousands of dollars buying sales leads, which sometimes led nowhere. The real money, they found, is in recruiting others to sell the product, creating what's known as a "down-line" of distributors.

Herbalife boasts big rewards for sellers but is it a pyramid scheme? - Telegraph

The more distributors they recruit, the more money they are likely to make, based in part on a combination of bonuses and commissions. And the higher a distributor is in the pecking order, based on his or her purchases, the more likely he or she is to get a share of the profits.

That has sparked a growing debate over whether Herbalife and other multi-level marketing companies, are essentially pyramid schemes. That's when distributors make more money recruiting other sellers, rather than selling the products themselves, with profits flowing to the very top at the expense of those at the bottom.

Can You Make Money With Herbalife — The Finance Guy

The debate has garnered the attention of Wall Street, with hedge fund titans now battling over Herbalife's stock. On Wednesday, a regulatory filed showed that Third Point's Dan Loeb had taken an eight percent stake in the company, pitting him again another hedge fund manager, Bill Ackman, who has shorted more than 20 million shares of Herbalife, roughly a quarter of the shares outstanding — a bet that the stock will fall.

Ackman has publicly called Herbalife a pyramid scheme, a position the company strongly denies. Herbalife has scheduled a presentation on Thursday to rebut Ackman's charges in detail. Herbalife Disputes Ackman's Claim of 'Pyramid Scheme'.

In the meantime, industry critics think regulatory scrutiny of the multi-level marketing industry is long overdue. Like many who enter multi-level marketing, Perez is convinced if she works hard she can become a success.

Herbalife wouldn't allow attendance at other recruitment events, so CNBC took undercover cameras to a recruiting event near LaGuardia Airport in New York, run by a Long Island couple that has been selling Herbalife for more than 20 years. CNBC journalists used their real names and said they were considering joining.

The meeting, in a hotel ballroom, was sparsely attended, with what appeared to be more existing distributors than recruits, and with the blaring, upbeat music, the clapping, and the "Herbalife" cheers by current distributors filling the room. After an introductory disclosure that the company can't make product claims, distributor after distributor — including one high school student — took the stage to give testimonials about how Herbalife had changed their lives.

They talked about the weight they lost, the falling blood pressure, the energy boost — and how much money they were making.

One featured speaker, Olga Valencia, a successful distributor, recalled how "my first car was a Mercedes that I bought with Herbalife. Companies like Herbalife claim they have strict sets of rules, but it's clear from CNBC's investigation that it can be tough to police the activities of millions of distributors around the world. For example, distributors are required to certify that a certain amount of product is sold to genuine customers outside of the distribution network. But in a regulatory filing, K, Herbalife said, "We rely on certifications from the selling distributors as to the amount and source of product sales to other distributors which are not directly verifiable by us.

Why Spotting a Pyramid Scheme Isn't So Easy. Inalong with Federal Trade Commission economist Peter Vander Nat, Keep co-authored what is now widely regarded as the landmark paper on how to distinguish a pyramid scheme from a legitimate multi-level marketer. Click here to read more. While many critics believe federal regulators aren't likely to do anything, there are signs that multi-level marketing is hitting the radar of politicians. The Washington newsletter TJ Strategieswhich focuses on consumer issues, recently wrote that there appears to be growing interest in Washington of multi-level marketing.

Adding to their likely interest, the newsletter said, is the popularity of multi-level marketers in the Hispanic community. Herbalife, for example, says that the Latin market generated Six Questions to Ask. Overriding all of this moneymaker pumps concerns about a high annual turnover rate, which industry critic Robert Fitzpatrick of the Pyramic Scheme Alert estimates is 99 percent. His estimate is can you still buy fannie mae stock on his analysis of publicly available numbers.

Most multi-level marketers say that by its nature, direct selling has high turnover, as people try the business and then decide it's not for them. Herbalife hasn't disclosed its turnover rate sincewhen it said that "more than 90 percent of our distributors who are merrill lynch home depot stock options supervisors turned over.

Beware 'Main Street Bubble'. Herbalife strongly rejects criticism that the company is a pyramid scheme. These are immature questions. Johnson stock broker sugar land tx Herbalife to his prior job as an executive at the Walt Disney. He explained how he moved up the organization. Is that a pyramid? Is that any different than what failure rate we're doing earn extra cash in brisbane Johnson said that many of the criticisms of Herbalife fall "into this kind of Herbalife of a while ago.

Not that there were bad things in that company.

It's just different today. As part of its investigation, several CNBC journalists went undercover with hidden cameras at Herbalife nutrition clubs as potential customers. Started in in Mexico by a distributor, these clubs are now Herbalife's growth engine and an effort to veer from the past of knocking on doors and cold-calling to recruit. Most are unmarked storefronts with no signs — only a green work from home wapka of some kind in Herbalife's green color —as a place to embark on a daily weight-loss program.

The clubs visited by CNBC in largely Hispanic New York neighborhoods had few customers — a sharp contrast to the club maltese puppies for sale in va Inglewood, Calif. Run by Angel Perez, whose father is also a distributor — and was Herbalife's first employee — the club was bustling the morning CNBC visited.

That includes a small down-line ticker tape rally stock market game from other "supervisor" level distributors she has recruited. Joe Mariano, president of the Direct Selling Association, an industry trade group, said the difference between a pyramid scheme and legitimate multi-level marketing is fairly straightforward. How Multi-Level Marketers Dodged a Bullet. Nashville multi-level marketing attorney Kevin Thompson, however, says the regulations are "ambiguous" — and he blames the Federal Trade Commission.

How much are you focused on retailing, how much are you focused on recruiting, and honestly Regulators intentionally avoided creating a definition of pyramid scheme when they were drafting the recently revised Business Opportunity Rule, geared to work-at-home and how do herbalife distributors make money sales so-called "business opportunities.

Historically, regulation of multi-level marketing has been the domain of FTC.

But TJ Strategies says the Securities and Exchange Commission and the recently created Consumer Financial Protection Bureau could also show interest. Notably, it says, the CFPB "has recently prioritized several investigations" in industries that have targeted "at-risk consumers.

It's the FTC that has the most authority. But, according to critics, it has shown the least amount of teeth for going after large multi-level marketers, especially over the past decade.

One reason, according to David Vladeck, who until recently was director of the agency's Bureau of Consumer Protection, is that there are few complaints. Trouble is, many tell us they were simply embarrassed to step forward, instead blaming themselves — people like Nicole Lopez and Sharon Shea, former Herbalife distributors. Shea, who had used Herbalife products decades ago to lose weight, thought she would try again after her husband died.

She said she was swiftly recruited with high pressure sales tactics in Lopez, who was also convinced to sign up early on as a supervisor, also paid with her debit card. Lopez said she told recruiters that she didn't know much about business and was told not to worry — Herbalife uses a "proven" plan that anybody can use to become successful. And she believed it. Shea said she was told that she could use the Internet to sell and recruit. But both realized this involved buying sales leads.

After CNBC contacted Herbalife detailing what happened to Shea and Lopez, Herbalife reimbursed them for some of their losses, blaming their failures on "bad mentoring. Their opportunity was not realized. While that may take away some of the sting, the wounds were still evident when CNBC visited with Lopez last summer.

And that's not the case. All the people down-line for them are paying for their lifestyle. And to me, that's fraudulent. Subscribe to Herb at http: Write to HerbOnTheStreet cnbc.

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From High Energy Clubs to Dashed Dreams: Herbalife Tales Herb Greenberg herbgreenberg. Selling the American Dream: Where are the Regulators? Wednesday, 9 Jan 1: Fitzpatrick likes to call this the "Main Street Bubble. The tricky part is how much recruiting-based compensation is too much. Tiffany Rose WireImage Getty Images.

Lopez started selling Herbalife in after inquiring about it on the Internet. Herb Greenberg Partner, Pacific Square Research. To view this site, you need to have JavaScript enabled in your browser, and either the Flash Plugin or an HTML5-Video enabled browser. Download the latest Flash player and try again. YOUR BROWSER IS NOT SUPPORTED. Please upgrade to watch video. The requested video is unable to play.

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