JLF Piedmont Triad Blog

Herbalife: Pyramid scheme?

Following the big announcement that Herbalife will locate a manufacturing and distribution hub in Winston-Salem come allegations the company is ‘nothing more than a pyramid scheme’:

Hedge fund titan Bill Ackman accused Herbalife of paying its sales staff far more money to recruit new distributors than to actually sell its products.

That results in the roughly 2.6 million distributors at the bottom of the sales pyramid making little or no income, while a handful at the top hauls in millions, he said.

“This is the best-managed pyramid scheme in the history of the world,” Ackman said.

The market has not reacted favorably to Ackman’s allegations; Herbalife’s shares have fallen 21 percent in the last two days. Winston-Salem Mayor Allen Joines says “(w)e had the state attorney general look into its business practices before we moved forward with the project.”

Herbalife is receiving $10 million in state and local incentives to come to Winston-Salem.

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