Herbalife, the diet shake seller being probed over pyramid scheme accusations, is making another move to keep regulators at bay.
The Los Angeles company is banning independent web sites run by US distributors and migrating their businesses to a corporate-controlled hub (goherbalife.com).
The change, which goes into effect Nov. 15, is an attempt to exert more control over Herbalife’s sales force and follows some instances in which distributors were accused of making false health claims about the company’s products.
“The web sites are designed to be in compliance with applicable requirements about product claims and they provide a consistent brand image for Herbalife products,” the company said in its advisory, adding the goal is to “promote a level playing field for all members.”
The Federal Trade Commission opened an investigation into Herbalife after hedge fund activist Bill Ackman lobbied hard for a probe and placed a $1 billion short bet on the company.
Ackman, whose big Herbalife short is now closer to $2 billion, claims the company is a pyramid scheme in which distributors earn more money from recruiting other distributors than by selling products to the end user.
While Herbalife denies the allegations, it has taken steps to address some potential trouble spots, including a new “gold standard” return policy on unused products and a ban on sales of Internet leads.
The corralling of Internet sites follows other steps to head off critics and sway regulators. Last week, Herbalife hired its third Washington insider: former FTC Commissioner Pamela Jones Harbour, who is heading its compliance division.
Alan Hoffman, the former chief of staff to Vice President Joe Biden, also joined recently as the head of global corporate affairs.
Earlier this year, Sen. Harry Reid adviser Angela Arboleda became its liaison to the Hispanic community after some activists accused the company of preying on minorities. All three are newly created posts.
Critics remain skeptical of the changes, including the new ban on independent Web sites.
“There is nothing to this approach that safeguards against deceptive marketing in the selling or recruiting process,” said pyramid expert Bill Keep, dean of the College of New Jersey business school.
Originally reported by the NY Post
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