Maintenance Phase

Herbalife

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[Maintenance Phase theme]


Aubrey: Wait, can I tell you my one piece of, like, fun and exciting news? 


Michael: Yeah, yeah. 


Aubrey: So, you know, I moved recently and made a selection of where to live in the fall/winter. It's now spring, and all of the plants in the yard have started blooming. 


Michael: Ooh. 


Aubrey: And I'll tell you what's fucking fun, Michael. As it turns out, I have two blueberry bushes, a cherry tree, and an apricot tree.


Michael: Fruit for days. No more ultra-processed foods. 


Aubrey: Only homegrown Flamin' Hot Cheetos. 


Michael: Flamin Hot Cheetos. 


Aubrey: Yeah. 


Michael: When I was growing up, we also had a blueberry bush in the backyard. It's like a cherished memory from my childhood, eating these homegrown blueberries. And then one day when me and my brother were like, I think 5 and 7 or something, we beat it with sticks. And then it never gave blueberries again. 


[laughter] 


Aubrey: I was about to be like, “Oh, my God. We also had blueberry bushes in the backyard. It was also a cherished childhood memory of mine. But then you really lost me at beat it with sticks and somehow killed a blueberry bush.” 


Michael: But you were not a boy. A little boy who was like, “I need to inflict violence on this beautiful thing for no reason.” [laughs]


Aubrey: I was a little girl who was drinking pond water and calling it magic potion. 


Michael: [laughs] This explains so much about us. [Aubrey laughs] There's no point in saying our names at the beginning of the show anymore. So, we can just say, “I'm someone who beat a blueberry bush with sticks.”


[laughter] 


I'm someone who drank pond water.


Aubrey: Absolutely. 


Michael: Okay, so I. I have a tagline. 


Aubrey: Oh, it's not about pond water and blueberry bushes. 


Michael: Well, it's potentially libelous, depending on which we decide in this episode. 


Aubrey: Can't wait. 


Michael: Welcome to Maintenance Phase, the podcast that wants you to recruit two of your own podcasters. And then if they recruit two podcasters and they recruit two podcasters. You see where I'm going with this?


Aubrey: If you'd like to support the show, you can do that through Patreon at patreon.com/maintenancephase. You can also subscribe through Apple Podcast Premium. It's the same audio content.


Michael:  Same stuff. 


Aubrey: Michael.


Michael: Aubrey.


Aubrey: We are talking about a company that makes its own magic potions out of pond water.


Michael: Ooh.


Aubrey: Herbalife. Mike, do you know anything about Herbalife? Are you familiar? 


Michael: The thing is, I'm only familiar with this vaguely through. I guess it was like financial media. There was a whole thing with short selling this stock, and the whole debate hinged on, like, “Is this a real business or is this an MLM? 


Aubrey: Yes, that was a big part of it. Absolutely. And I think you're right that the way that the story gets told is like superinvestor v. superinvestor. 


Michael: Yes. 


Aubrey: And that's the primary way that the story of Herbalife has been told. But they are a weight loss and wellness company. 


Michael: Yeah, this is—okay, this is what I could never actually figure out is what does this company do? Which is also one of my telltale signs of an MLM. When you go on their website and you're like, “Sorry, what are you selling?” 


Aubrey: One of the other telltale signs of an MLM is they don't tell you the prices of their products on their website. [Michael laughs] And if there's not like a Buy Now button, there's just a like, Find a Local Distributor. Like, you know you're donezo.


Michael: Yeah. Not something businesses typically do. 


Aubrey: So, Herbalife sells supplements, shake mixes, protein bars, vitamins, energy drinks, sort of the whole shebang. 


Michael: Okay. 


Aubrey: They are, as you noted, a multilevel marketing company. Sometimes people describe them as a pyramid scheme in different countries. There is a distinction there between multilevel marketing and a pyramid scheme. Pyramid schemes are illegal and multilevel marketing is not. 


Michael: Wait, what's the fucking difference between-- MLM is a pyramid scheme? 


Aubrey: I would agree with you colloquially, right, that I'm like, whatever fucking same difference. There are distinctions in the definitions. And I think the tipping point in a number of those is that a pyramid scheme is where you get officially that your money is coming from recruiting other people way the fuck more than it's coming from actually selling the product. 


Michael: It's all bad. But fair enough. There's a difference. 


Aubrey: Okay, so their products-- for folks who are unfamiliar with multilevel marketing, their products are sold by independent distributors who also recruit other independent distributors. This is like Amway. This is like Plexus. This is like Optavia. If one of the sister wives is selling you a shake on Instagram. Yeah, just steer clear, buddy. 


Michael: Go to the store and buy normal products when you need a product. 


Aubrey: I should say they're all ex-sister wives now. 


Michael: Okay.


Aubrey: There's only one wife left. And now they are like-- [crosstalk]


Michael: Oh, really? 


Aubrey: “I always knew he was a monogamist.” And I'm like, “This is very funny.” 


Michael: Is that show called Sister Wife now [crosstalk]? 


[laughter] 


Aubrey: So, in multilevel marketing, when you recruit someone else to become a salesperson, they become part of what's considered to be your downline. That's the term that they use. And when you have a downline, you get a commission off of their sales. 


Michael: Okay. 


Aubrey: So, the famous thing about multilevel marketing is that there are people who get super rich. It's just like the first 10 people. 


Michael: Yeah, yeah, yeah, yeah. 


Aubrey: And almost everybody after that gets a much shorter end of the stick than that. 


Michael: Because you're being promised that you're going to recruit a bunch of people. But these things always top out. Because there just aren't that many people who want to do this. 


Aubrey: I don't want to hide the ball around 90% of Herbalife distributors make little or no income, which the company itself stipulated in 2013, according to the LA Times, right? So, everyone here agrees. The company agrees, distributors agree, more than 90% of people are making little or no money off of this. And are actually in the hole because they had to buy some inventory to get themselves started. 


Michael: It's funny how I thought this was going to be like, is this a scam or is this not a scam? You're, like, “Stipulated, it's a scam, but--”


Aubrey: No, no, no. [Michael laughs]


Aubrey: We're just starting out with 90% of people making no money. I do not even want to leave any room for people being like, maybe it's really not okay. 


Michael: Yeah. 


Aubrey: The other thing to know about Herbalife is that they've been around for over 40 years. They're about the same age as Whole Foods. 


Michael: I didn't know that.


Aubrey: As a company, they're older than me. 


Michael: Look at her flexing. 


Aubrey: Look at her flexing. 


Michael: I'm young and spry. 


Aubrey: I'm as old as an MLM. [Michael laughs] Herbalife was founded by a guy named Mark Hughes, who was born on January 1, 1956, in La Mirada, California. Mark's parents divorced in 1970 when he was about 14, and his mom had sole custody after that. It is clear that Hughes life as a kid was not easy. By his own account, his mother had what he referred to as, “emotional problems.” And the family subsisted on public assistance programs. Hughes dropped out of high school as a freshman. So, at around 14 and described himself as, “A little delinquent who got in trouble with the law.” 


Michael: Okay. 


Aubrey: He said that he used drugs, predominantly amphetamines and barbiturates. So, by the time he was 16, he was sent to a troubled teens boarding school. 


Michael: Another episode we got to do “The troubled teen incorporated shit”. It is bleak.


Aubrey: So rough.


Michael: Yeah.


Aubrey: This one-- the one that he was sent to, is called CEDU. 


Michael: Like the jet skis. 


Aubrey: Like the jet skis. CEDU is a troubled teens boarding school in California that was run by Synanon. Mike, do you know anything about Synanon? 


Michael: Yeah, I used to go there in the mall all the time.


Aubrey: No, no, no.


Michael: You get like one of the-- You can get a prostate one. 


Aubrey: You get the center of the roll one. Huh-huh. That's the one to get. 


Michael: You asked me the little question because you knew I was going to make that terrible joke. 


[laughter] 


Oh, it's sin. Is it like Alcoholics Anonymous, but it's Synanonymous?


Aubrey: No, Synanon was an organization founded in the late 50s. Synanon was really unusual at the time. It focused on drug users helping other drug users move towards sobriety.


Michael: Interesting.


Aubrey: However, over time and like, not very much time, the organization really curdled and is now widely described as a cult. CEDU, the troubled teens sort of portion of it was famously absolutely no picnic. 


Michael: I can't believe being mean to teens is not a sustainable business model. [laughs] 


Aubrey: Yeah shocking. Unsurprisingly, there was a lot of abuse that happened at CEDU, right? By sort of all accounts of people who went there. This is actually the place that Paris Hilton went.


Michael: When she talks about the abuse that happened to her when she was a kid, holy shit. 


Aubrey: All that is to say, Mark Hughes as a teenager is in a rough place. So, one of the programs at CEDU required him to sell raffle tickets. [Michael laughs]


Michael: Okay. Also, so everything is so scam adjacent. 


Aubrey: Everything. And Hughes proudly told the press for pretty much his whole life that he was the school's highest grossing salesman. And I was like, “God damn it. If you ever catch me telling a reporter about how I was the best at something in high school, [Michael laughs] put me out of my misery,” you know what I mean? 


Michael: Were you voted anything in high school? 


Aubrey: Nothing. Not a goddamn thing. 


Michael: You didn't get most promising or anything? 


Aubrey: No, I was at a real overachiever school.


Michael: Oh, okay. 


Aubrey: And I was sort of like middle of the pack amongst kids giving themselves stress ulcers and that kind of thing.


Michael: I got most dramatic and most romantic.


Aubrey: Gayest and gayest.


Michael: Well, yeah, it basically meant that I was covering up my homosexual with misogyny, but doing it badly, those two things come together. 


[laughter]


Aubrey: So, Mark Hughes went door to door in LA for this CEDU program selling raffle tickets. He claims that he managed to get a $500 check from someone who was then the former California governor, but not yet President Ronald Reagan. 


Michael: Oh, I mean, okay, whatever.


Aubrey: It does tell you about that guy that he's like, “You'll never believe who I met” Reagan.


Michael: Yeah, look how cool I am.


Aubrey: Look how cool I am, Reagan, right?


Michael: Although I was once on a flight with Shakira and I do actually think that makes me cooler. 


Aubrey: What the fuck? Are you kidding me? 


Michael: I was mega late for a flight, and I don't know how it fucking works. But I think celebrities, they get everybody boarded, and then they whisk a celebrity on to first class. Because Shakira can't be sitting there as everybody's filing past, right? And getting their luggage in the bins. So, it's like everybody was boarded. And then as they're sneaking Shakira on, I, like, run up to the gate and I'm behind this giant starburst of hair in this very small human being. She's very short. And I was like, “What the fuck?” And then she turned around and looked, and I was like, “Oh, my God, you're Shakira.” But I didn't say anything. And then she got on and I got on my flight. But anyway, look how cool I do. You say your estimation of me has expanded?


Aubrey: I would say my estimation of Shakira has expanded. 


Michael: [laughs] That she flies commercial.


Aubrey: She understands the stakes of climate change. She walks among us. So, Mark really seems to find meaning and success in this raffle ticket sales business and gets really into it. When he is 19, he's still out at CEDU. And his mother passed away. She died in her apartment. And her toxicology report showed that she had Darvon or Darvocet in her system. Her doctor acknowledged that she frequently abused prescription drugs and was engaged in some doctor shopping.


Michael: Oh, man.


Aubrey: But also, this is happening in the 70s when there's just way less literacy on substance use disorders in general, right? 


Michael: And doctors are like, have you tried speed? 


Aubrey: Totally.


Michael: You're trying to lose three pounds, why don't you try meth?


Aubrey: So, Hughes had just completed this troubled teens program after being a pretty heavy drug user himself, and then his mom dies of what appears from the autopsy to be an overdose. Trauma wise, especially for a 19-year-old, this is like an earthquake, right? 


Michael: Yeah, yeah. 


Aubrey: His mom passes away when he's 19. The very next year, he started selling diet drugs professionally. 


Michael: Okay.


Aubrey: So, in 1976, he started selling something called Slender Now for Safework Laboratories, and then moved on to selling diet products for a place called Golden Youth. 


Michael: Okay.


Aubrey: Both of those were MLMs. 


Michael: Nice. 


Aubrey: Both of those went out of business. 


Michael: Nice. 


Aubrey: And that gave Mark an idea. [Michael laughs] What if he started his own cursed weight loss company, right? 


Michael: This is something me and Peter find in these grifty self-help books all the time and like, financial scam books. It's like, oftentimes the people giving grifty advice are victims of grifty advice. 


Aubrey: Yeah, yeah, yeah, yeah. Absolutely. In 1980, Mark is 24 years old. And that is when he founds Herbalife. He talks about starting the company, “Out of the trunk of his car”. And then they pretty quickly get production space set up in an old wig factory in Beverly Hills. And when they said an old wig factory in Beverly Hills, I was like, “We've been here in this era before early 80s Beverly Hills wig factory.” I hope that it is wigs today. The establishment where [Michael laughs] Richard Simmons made friends with the proprietor of the wig shop. 


Michael: Is that true? 


Aubrey: Not to my knowledge. Wigs today kept operating. But I like thinking that this place maybe had supplied wigs to wigs today. I don't know. I got really excited about it and then it wasn't anything.


Michael:  Also, what are they selling right now? It is pills. 


Aubrey: They are selling at this point their main thing essentially just like a powdered shake mix. So, this is another challenge of Herbalife. But honestly, a lot of MLMs is that they're selling like a shake mix. And their shake mix is not like, proprietary. It's not super different than other shake mixes on the market. But It'll be like $40 for a canister of shake mix. When you can go to the store and get like a giant canister of slim fast mix for 10 bucks or something. So, that's part of the uphill battle here is that they're selling stuff that's like. You can also go get a lot of these things at the store. So, you have to believe that there's like some magic beans in the Herbalife stuff or something, right? 


Michael: Right. 


Aubrey: At the time, his first wife, says that she was a cofounder of the company. But when they split up, she was scrubbed from the company's materials.


Michael: Okay. 


Aubrey: Later, when journalists ask Hughes about her role, he says that she was actually just the first employee. And acted as, “My first secretary.” To which I say, “Get fucked, asshole.” [Michael laughs] Again, this is all just five years after leaving CEDU and after his mom's death. And by this point, he has started talking about his mom's death a little more publicly. And he using it essentially as an origin story for himself. So, I am going to send you a clip. 


Michael: Oh, okay.


[video clip starts]


Mark: Now I'm very excited about talking about Herbalife because Herbalife has been something that I wanted to do for a long time, but it's something that's very, very important for me. Just about everybody in my family's had a weight control problem, especially, my mother as I was growing up, she was always trying to diet and trying some goofy type of diets and so on. And eventually, she went to doctors to try to get it cleaned up. And they prescribed to her a product called Dexamyl. And for those of you who are not familiar with Dexamyl, it's a speed, it's a narcotic. It makes you not be able to eat. It makes you not be able to sleep. 


And from several years of using this particular drug, she ended up having to use sleeping pills to be able to go to sleep at night. And from several years of doing that, she secretly behind doctors back, started getting her prescriptions filled. And she started seeing three and four and five doctors to keep her habit up. And when I was 18 years old, she died from an overdose. And it seemed to me at that time that there was a lot better things that people could go out and do to themselves and just destroying their lives to try to lose weight. Because I've seen, literally, people do everything to themselves to try to lose a little bit of weight. 


[video clip ends]


Michael: People are even joining MLMs to lose weight. It's funny, I thought he was leading up to, like, she started on this drug, and then she started taking this other drug. And that's what we're selling at Herbalife. This is her. She lost 30 pounds. [laughs]


Aubrey: His father later told the LA Times that he was like, I don't know what this guy's talking about. His mom was not fat. She overdosed on painkillers. Like, it's pretty straightforwardly just like a drug dependency story.


Michael: That's actually really dark. 


Aubrey: Both versions are extremely dark, right? Either it's my mom overdosed on drugs, and I'm going to figure out how to spin that up to sell weight loss supplements to people or its weight loss drugs are responsible for my mom's death. So that's the business I'm going into. Either one is, like, great news, right?


Michael: As if the solution to his mom's alleged problem is like, “Well, there's a better weight loss method.” [laughs]


Aubrey: Absolutely. Like, that's not the issue here. Regardless of all of that, Herbalife very quickly takes off. They very quickly build their ranks of distributors and their ranks quickly build their downlines. By 1985, Inc. Magazine was reporting that the company's growth from $36,000 in sales in 1980 to $423 million-


Michael: Oh, wow. 


Aubrey: -in 1985. 


Michael: Wait, really? That's insane. 


Aubrey: You have become a billion-dollar company by today's dollars, right?


Michael: Right. 


Aubrey: By the end of those same five years, Herbalife is reporting that they had more than 700,000 distributors. 


Michael: Wow. 


Aubrey: Distributors were encouraged to share their own personal stories of using Herbalife. If they don't have a personal story, they are instructed to “Get one from a friend. Which I think is very funny.”


Michael: Nice. I'm crowdsourcing my memoir anecdotes. 


Aubrey: Great job, everyone. There's a little bit of reporting from the LA Times in 1985. This is a long-time distributor whose last name is Delacey. And I just sent it to you. 


Michael: Showing that she has learned her lessons well, Delacy hiked up her white Herbalife sweatshirt to display the scar that runs the length of her chest and abdomen from a 1977 heart bypass surgery. I was on eight medications for my heart. I take no more drugs now. I take Herbalife. I've never felt happier and healthier in my whole adult life. Delacey quickly added, Herbalife cures nothing. Wait, wait, wait. Delacey quickly added, “Herbalife cures nothing. We can't make medical claims, you know,” that's a funny thing to include. 


[laughter]


Aubrey: It's so funny that she's doing the thing and then it really seems like something popped up in her brain and was like, “Don't forget, reporter.” And she was like, “Ohhhh.”


Michael: Do you ever find yourself talking to someone you don't know that well, and then you say something and you realize as you're saying it that it's not true. [Aubrey laughs] She's like, “Oh, my God. I'm like, totally fix. This is great.” “It's not great. I'm not allowed to say this.” [laughs]


Aubrey: Okay, so we've been talking about this exponential growth that Herbalife has been going through in these first few years of its inception. What we haven't talked about is the other thing that starts growing exponentially in that time. And that is FDA consumer complaints about Herbalife.


Michael: You worked in that transition for so long. 


Aubrey: I did not.


Michael: I am so proud of you, I am so proud of you.


Aubrey: It's not even written in my notes. [Michael laughs]


Michael: If every FDA complaint gets five more FDA complaints. 


Aubrey: All the FDA complaints in the world. 


Michael: Yes. [laughs]


Aubrey: Within just one year of the company's founding, the FDA starts getting consumer complaints about Herbalife products.


Michael: Perfection. 


Aubrey: Customers complained of taking Herbalife products and then experiencing nausea, diarrhea, headaches, and constipation. Distributors were reportedly instructed to tell people that that was all part of getting toxins out of your body. 


Michael: Ooh. Yeah. I mean, when you think about it, pooping is getting toxins out of your body. So, like, they're not. They're not incorrect. 


Aubrey: [laughs] Toxins are just Herbalife products.


Michael: There's this thing that your body does where it creates waste. Then you have to get rid of the waste.


Aubrey: So, the FDA focused on Herbalife's Slim and Trim Formula 2, which Herbalife said could “Cleanse the digestive system. And curb the appetite.”


Michael: Sure. 


Aubrey: As it turned out, Slim and Trim Formula 2 contained mandrake and pokeroot. 


Michael: What the fuck? 


Aubrey: Mandrake is a hallucinogen that is famously toxic and can cause asphyxiation.


Michael: That is an enemy in dragon quest. You are incorrect.


Aubrey: And every part of pokeweed can be toxic, but none more than the root and that is what they use. 


Michael: They're just like, why would they even do this? There's pretty random shit in there.


Aubrey: Right. They're sort of doing a thing part of the origin story of the company is that Mark Hughes went to this herbalism seminar led by a group of Chinese nationals. And I'm just like, “Sure, man.” This is such deep, early 80s shit. Where it's like, “I met a person from China once and they taught me about herbs, and now I'm teaching you about herbs.” 


Michael: Although it is interesting because it does indicate some level of good faith. That, he probably thought these were healthy. And he put them in his product without really looking into it. It's not like he's selling sawdust. It's sort of like he doesn't know it's a scam, necessarily. He thinks that these are actually beneficial.


Aubrey: Listeners mark this moment down where Mike says he doesn't know it's a scam. 


Michael: Foreshadowing as a narrative device. 


Aubrey: Much of the notice of adverse findings from the FDA focused on what was called Herbalife's Career book, which was its product guide for distributors to help them pitch products to customers. The Career book said that Formula 2 can also help with venereal disease, arteriosclerosis, tumors, bad breath, and bedwetting.”


Michael: I love. This is another thing we see all the time where it's like, “Oh, this cures acne and HIV,” even if there's no biological mechanism by which that would happen.


Aubrey: It also claimed that a product called cellulose was a natural cellulite eliminator. And they were like, “No.” 


Michael: God, you don't hear that much about cellulite anymore. There were for cellulite back in the day. 


Aubrey: You know, what you hear about now is crepey skin. 


Michael: I am absolutely crepey skin years old. 


Aubrey: [laughs] Are you ready? 


Michael: I am a food truck outside of the louvre. I am all crepes.


Aubrey: So, the FDA issues its notice of adverse findings in 1982. By 1984, Canada's Department of justice filed charges for false medical claims and misleading advertising practices. 


Michael: Nice. 


Aubrey: The company just pleaded guilty to the Canadian charges and paid $8,000 in fines and kept on trucking. 


Michael: Oh, my God. You could pay that a day and it wouldn't meaningfully cut into your revenue. 


Aubrey: Around this time, the company starts facing some questions and criticisms around its claims of expertise. So, I mentioned earlier, Mark Hughes had an official bio with the company which said that he had learned about herbs at a symposium hosted by a trade delegation from China. 


Michael: Okay. 


Aubrey: When an LA times reporter pressed him on it, he admitted that he had never gone, nor had he been trained in any kind opf herbalism.


Michael: No way. What? So, he was just lying about that? 


Aubrey: It's a symposium. It's not a degree. 


Michael: Yeah, it's not even like, “Cool you did this.”


Aubrey: Right? 


Michael: [crosstalk]


Aubrey: It's like I spent an afternoon doing a thing is what they're lying about. And then as soon as he gets questioned about it, he's like, “Whoops, never mind.” 


Michael: That's like. I recently heard of a podcaster who lied about seeing Shakira on a plane [Aubrey laughs] just to seem cool. I know where I heard that.


Aubrey: Did you not see Shakira? 


Michael: No, I'm kidding. I am kidding. I did actually see Shakira on a plane. 


Aubrey: I was about to be heartbroken. 


Michael: The thing is, it would be a really funny thing to lie about because it's not impressive. It's like, “Yeah, okay, a person exists.” [laughs]


Aubrey: So, in addition to Mark Hughes credentials coming under fire, so did the credentials of one of his colleagues. Richard Marconi was Huges right hand man at Herbalife and managed manufacturing of Herbalife's products. He also acted as the science guy to sort of justify the company's products from a scientific perspective. And was frequently referred to as Dr. Marconi. [Michael laughs] Yeah. Just get. Yeah, you already know where it's going again. 


Michael: Again, context clues. 


Aubrey: Honestly, even his role as science guy seemed to amount to a lot of hand waving at the time. Where he'd be like, “Herbs, nutrition, science.” 


Michael: Yeah, they're putting poison mushrooms in the fucking smoothies, of course. 


Aubrey: Here is a quote from the LA Times. 


Michael: Businessman Richard Marconi, manufacturer of Herbalife food supplements, and the man Hughes turns to for scientific backup, has represented himself in Nutrition publications since 1983 as a doctor of nutrition. But Marconi, who operates out of two Orange County plants, got a mail order doctorate in 1984 from Donsbach University School of Nutrition, an unaccredited correspondence course in Huntington Beach. I've been calling him doctor ever since we got started, Hughes said, adding, “I got more credibility, and so does Dick, than anybody else in the weight loss business.” That is true, but also bad because of our results. So, I don't care about his degree. I don't care about anybody else's degrees. Great sign. 


Aubrey: I don't know why it makes it worse that the correspondence school is based in Huntington Beach, but it really does. 


Michael: He has a doctorate from the outdoor gym where buff got go to do pull ups. 


Aubrey: This is so close to The Simpsons. Like Dr. Nick went to Hollywood upstairs medical school joke. [Michael laughs] The company's regulatory issues and legal issues just keep getting worse from here. In 1985, California's Attorney General filed suit against Herbalife, saying that they violated laws against essentially pyramid schemes and that they lied about the caffeine content in their products.


Michael: Oh, that's dangerous. 


Aubrey: The company, once again, ultimately settled for $850,000 without admitting any wrongdoing. According to California's AG, that was the largest settlement with a diet or wellness company to date in the state's history.


Michael: I mean, that's also kind of sad, because you should be doing bigger settlements than that and also they should be admitting wrongdoing. 


Aubrey: That same year, a US Senate subcommittee called Mark Hughes to testify about Herbalife. And for context, we're going to watch a clip, a panel of medical experts had testified the day before. And then Mark Hughes comes up to testify.


[video clip starts]


Male Speaker: During six days of grueling televised hearings in which Herbalife was the main focus. Mark's confidence in his products and his dream never wavered. 


Mark Huges: And they should have been brought to this hearing instead of the so-called expert weight loss people that were here yesterday. I think if they're so expert in weight loss, why were they so fat yesterday? It seems to me and I'm not trying to make any jokes, but I do think that they ought to use our product. 


[video clip ends]


Aubrey: We're going to cut it there. [laughs] 


Michael: He seems nice. 


Aubrey: What a blast. 


Michael: I'm doing-- I run a weight loss company because I hate fat people. [Aubrey laughs] You're like a huge piece of shit if you're fat. 


Aubrey: Including fat. I hate fat people and I hate doctors. And there's no one I hate more than doctors who I perceive as being fat. 


Michael: Also, why the fuck is this documentary being like, he never stopped chasing his dream or whatever? 


Aubrey: Oh, honey, this is Herbalife shit. 


Michael: Oh, this is Herbalife propaganda?


Aubrey: Yes.


Michael: Dude.


Aubrey: This is them being like, look how good he did. 


Michael: Wait, they chose this clip to fucking show. They're like, “Nailed it, Mark. Nailed it. Get those fat doctors.”


Aubrey: My notes just say nightmare blunt rotation. 


Michael: [laughs] Yeah. 


Aubrey: In the hearing, they also discussed an internal study conducted by Herbalife based on a sample of 428 Herbalife users. That study allegedly found that 40% of users had experienced significant symptoms as a result of using Herbalife products. Nausea, diarrhea, heart palpitations, headaches all kinds of stuff, right. I will say those side effects didn't surprise experts who were familiar with the products. A number of Herbalife weight loss ingredients were just super strong laxatives and high doses of caffeine. 


Michael: When I think of my weight loss journey, I think of how I want to be jittery and pooping all the time. [Aubrey laughs] That's the life that awaits me. 


Aubrey: Well, Michael, I've got both a product and a business opportunity for you. 


[laughter]


Michael: That's how you recruit people. Have you thought about being jittery and pooping? 


Aubrey: So, even amidst all of these charges and investigations from multiple jurisdictions and multiple nations, Herbalife just sort of soldiers on for years. It certainly takes some hits, both in its public perception on some level and in its having to pay these fines. But its sales remain in the hundreds of millions. In that same time, when they're facing all of these charges from all of these different countries, they expand into Japan, Spain, New Zealand, Israel, and Mexico-


Michael: Amazing. 


Aubrey: -on top of their existing presences in the UK, the US, Canada, and Australia. By 1996, the company was operating in 32 countries. 


Michael: Why let a little lying get in the way of growth?


Aubrey: That's right. 


Michael: Hey, gang. Editing Mike here. We recorded this episode in a couple different sessions. Because we were having some lawnmower issues over at Aubrey's house. And when she came back for the third little session, her mic input got switched from the microphone to the laptop. So that is why she is going to sound a little bit different for the rest of the episode. Just wanted to let you know and thank you for bearing with us. 


Aubrey: So, Herbalife keeps facing scrutiny and also keeps expanding in a pretty uninterrupted way until the summer of 2000. On May 21st, 2000, Mark Hughes died in his home in Malibu. He was 44 and was survived by his nine-year-old son which is just a real painful echo of the stuff with him and his mom. 


Michael: Yeah. 


Aubrey: So, initially, they say it's natural causes, but when the coroner's office released its autopsy results, they attributed his death to alcohol, doxepin intoxication. Doxepin was prescribed to Hughes as antidepressant. But after his death, people in the company start telling a really different story about him and his health. A few of his colleagues told reporters after his death that they had hatched a plan that never got executed to take Mark Hughes to a Swiss treatment center for alcohol abuse. Also, as it turned out, he had been arrested twice for drunk driving in the few years before his death. 


Michael: Oh, wow. 


Aubrey: So, this was a known thing about this guy. And the company had done a really effective job of keeping the lid on it. 


Michael: Also, it was well known enough within the company that there was plans and strategies and stuff. So, it must have been quite bad. 


Aubrey: His colleagues actually say this to reporters, that they're like, “We really knew that if news of his drinking got out, that that would be bad news for all of our jobs and for the company. So, they're also invested in a pretty direct, self-interest kind of way, and keeping it concealed.


Michael: Right. 


Aubrey: So, you would think that this event would be a real hit to the company. But the company continues to soldier on, even after the loss of its founder. And throughout the 2000s, they just keep getting sued and sanctioned. Interestingly, the lawsuits aren't from customers. They're from former distributors. So, one class action lawsuit is filed in 2002. Another is filed in West Virginia in 2003. They had a class action settlement in 2004 with 8,700 distributors who accused the company of running a pyramid scheme again. They settled for $6 million, they admit no wrongdoing, and they move on. This is their whole thing, right?


Michael: Yeah. 


Aubrey: In 2005, there's a California class action lawsuit around Herbalife's marketing practices. They get sued around using auto dialers that violated The Telephone Consumer Protection Act. It's just like one after the next. In 2004, Israel's health minister investigated Herbalife and found that there was a causal relationship between Herbalife's products and liver damage.


Michael: Oh. 


Aubrey: In 2007, a Swiss study found a link between consuming Herbalife products and contracting hepatitis. 


Michael: Oh, my God. 


Aubrey: Part of the reason I don't have more detail here is that there are a handful of studies on Herbalife products in particular. But there are some real challenges to getting good data on them. One is that the company is not disclosing what it considers to be proprietary blends of whatever. So, it's not telling people all of what is in their products. 


Michael: Great sign, great sign. 


Aubrey: But also, a bunch of people who come in with this liver damage. With all of this stuff that is allegedly attached to Herbalife product. When doctors say, “Hey, what are you taking?” They don't actually volunteer the Herbalife stuff. Because they're like, “It's not a prescription medication, and it's just good for me.” So, there's nothing why would I tell you about that? So, it's really hard to nail down from a research perspective.


Michael: To remind everyone this is the sector that people like RFK Jr., want to have way more power. Because he's like, anti-Big Pharma. 


Aubrey: Yeah, nutraceuticals. 


Michael: Say what you want about Big Pharma, but at least there's actual regulation of what the fuck they're selling to you and products have to be tested. That can also better. But this sector is they can just say anything and sell you fucking anything.


Aubrey: Okay, but counterpoint, what if there was no regulation for anyone? 


Michael: Yeah, what if? [laughs] 


Aubrey: Wouldn't that better? So, there's fast fallout from all of this. Spain's health minister issues a public caution against using Herbalife products. But after investigation, they retract that statement for the same sorts of reasons. It's just really hard to prove in a causal way. In 2011, courts in Belgium ruled that Herbalife was in violation of the law by operating a pyramid scheme. But Herbalife then appealed that and won. So, they're getting regulated, and then it's getting overturned.


Michael: We're not a pyramid scheme, you assholes. We're pyramid scheme adjacent. We're an MLM.


Aubrey: After Mark Hughes’ untimely death, Herbalife starts bouncing back with some new marketing tactics and a number of these will be how many of our listeners will know Herbalife to begin with? One of its more conventional moves in the marketing world was that it goes really big on celebrity endorsements.


Michael: Yellay, yellay, yellay. Is it her?


Aubrey: Shakira. It's your old pal Shakira. 


Michael: My close friend Shakira. 


Aubrey: They get celebrity endorsements from a number of huge deal soccer players. Cristiano Ronaldo does a bunch of endorsed content for them.


Michael: At 2, Cristiano Ronaldo. [laughs] 


Aubrey: Messi does a bunch. And they sponsor the LA Galaxy. So, every time David Beckham plays at the club level, he steps out onto the pitch with Herbalife written across his chest. 


Michael: Nice. Okay.


Aubrey: According to the LA Times, that was the result of a 10-year, $44 million sponsorship. 


Michael: I like how we've also named literally the only three soccer players I could name. Gun to my head.


[laughter] 


Yeah, that's the only one. And he hasn't played soccer in four decades. It's like those three people are the only soccer people I know. [Aubrey laughs]


Aubrey: So, Michael, you're probably thinking. We're talking about all these soccer players. There's one big name missing. We're going to watch an additional celebrity endorsement. I thought I could keep this secret from you. I can't. So, I'm going to just send you the link now. 


Michael: Wait, what? [Aubrey laughs] You're fucking kidding me. This isn’t like barely even a celebrity. 


Aubrey: Bullshit. She's barely a celebrity. Tell the people who we're talking about. 


Michael: Okay, you just sent me a link called Madeleine Albright and Herbalife. 


[laughter] 


In a million years. I never would have guessed this. 


Aubrey: Former Secretary of State, Madeleine Albright. 


[video clip starts]


Madeleine:  I think that women are a huge undervalued resource in every country. And I have believed that when women are politically and economically empowered, societies are more stable. And the part that I like about what you do with Herbalife is women are very good at interpersonal relations-- [crosstalk]


Michael: Madeleine.


Madeleine: Developing a relationship with the person that they're dealing with. And I think that the sales operation that Herbalife has is the one that really allows women to shine in terms of good about family, health and nutrition that's kind of what women do on a daily basis and so-- [crosstalk]


Michael: Madeleine no.


Madeleine: I think there are very natural salesforce for you. 


[Video clip ends]


Michael: Women are really good at being scammed and scamming others. 


Aubrey: There you go. 


Michael: I mean, not that I'm so fucking disappointed in Madeleine Albright. 


Aubrey: I know. 


Michael: But like to use this women's empowerment language to defend a scammy business that is selling scam product. It's not like they're selling like bananas or like something useful. They're selling fucking scam products for weight loss. 


Aubrey: According to a new book that was released this year about multilevel marketing. called Little Bosses Everywhere, Madeleine Albright’s firm was reportedly paid $10 million for its work with Herbalife. 


Michael: Yes, they underpaid for Beckham and they overpaid for Madeleine. 


Aubrey: Their wildest endorser was someone named Louis Ignarro. Ignarro is really worth talking about because he won the Nobel Prize for Medicine in 1998-


Michael: [laughs] Okay. 


Aubrey: -for his work focusing on cardiovascular health, particularly the function of nitric oxide. Ignarro endorsed Herbalife's heart supplement, which sold for $90 a bottle for a month's supply.


Michael: For a month, $3 a day. 


Aubrey: They used his signature on the bottle. And the bottle also noted that he was a Nobel laureate. According to SEC filings, Ignarro's company received at least $1 million from Herbalife sales in just over one year. 


Michael: Dude. 


Aubrey: Some of his work for them appears to have been publishing studies in academic journals. 


Michael: Oh, my God. 


Aubrey: So, first, he published two mice studies about vitamin C, vitamin E, and arginine, which is an amino acid. Those are all advertised active ingredients in a specific supplement from Herbalife.


Michael: Dude, what if we enter a world where winners of the Nobel Prize come out to receive it also wearing branded jerseys? They're like Vodafone.


Aubrey: He published those papers without disclosing his existing financial relationship with Herbalife. [Michael laughs] He was a professor at UCLA. At the time UCLA also issued a press release that didn't acknowledge the relationship. I'm presuming that's because he didn't disclose it to them.


Michael: Yeah. 


Aubrey: The press release from UCLA did include an absolutely incredible quote from Ignarro, who said that the research “Shows that supplements work well even in the absence of exercise. What's good for mice is good for humans.” 


Michael: Oh, as science tells us.


Aubrey:  Omm, nom, nomm. Eat some cheese, go live in the walls. 


Michael: It's funny that, of these celebrity endorsements, David Beckham is the most honest one. You know when David Beckham wears a shirt, you're not like, he takes Herbalife. You're like, “No, they paid him money.” But this is so much more insidious, because especially with the researcher, it's like, when you speak as a Nobel Prize winner about cardiovascular health, people assume you're speaking from science, not from your fucking wallet. 


Aubrey: I don't know, man. I heard Dale Earnhardt Jr. really likes Palmolive. 


Michael: [laughs] No one fucking cares. It's so much worse. 


Aubrey: So, according to Fortune Magazine, this is around the time in the mid 2000s, when Herbalife first starts taking on what it calls nutrition clubs. 


Michael: Okay.


Aubrey: That was a concept that first started in Mexico with Mexican distributors over Herbalife. The idea is that an Herbalife distributor rents a storefront. They charge a small admission fee, $5 or $10, which gets you in the door and once you're in the door, you get some drinks and snacks and Herbalife shakes and Herbalife products. The reason that they structure it that way. Do you want to say.


Michael: This is how they used to do raves is because you can't sell alcohol without a license. You sell the map to the rave for $20 and then when you get there, you get free alcohol. If you're not technically selling it, you're not in violation of the licensing. 


Aubrey: I'm going to send you another quote from Little Bosses Everywhere. 


Michael: The clubs were not stores, however, legally, they couldn't be operating as retail stores or shake shops would invite a whole host of regulations. Negating one of the very reasons multilevel marketing to avoid labor laws. So, the company developed a slate of counterintuitive rules for distributors operating nutrition clubs in commercial spaces. They were not allowed to post signage anywhere that said Herbalife or call themselves a shake or smoothie shop. They couldn't have an open or closed sign. The only clue a storefront was an Herbalife operation was often its trim or facade painted in lime green the company's signature color. They weren't even allowed to have windows or if they did, they had to be covered. Distributors could not post prices or “sell their products.” They were allowed to sell low cost daily memberships for which customers got a shake or drink. 


Dude, if you're selling products in this way, you're not a real company this is so fucking weird. 


Aubrey: It's so bad. 


Michael: If your products work and they're these miracle cures that you say they are, then just fucking sell them normally. [laughs] The fact that you have to like go talk to a person and go through all this weird fucking rigmarole, this is how timeshares get you too. It's like you shouldn't have to sit through a fucking seminar to buy something. It's like, just sell me a thing. If it has inherent worth, you should just sell it to me normally.


Aubrey: I watched a documentary at one point about someone who had rented a storefront and signed a lease for his Herbalife Nutrition Club. And he was like, “I didn't realize that I was getting in at the end of that trend.” 


Michael: Yeah. 


Aubrey: So, he was like, I had two options. I could either move into another kind of business that used that same storefront or I could find essentially a rube to sort of pawn it off on. And he was like, “I didn't feel great about that. So, I just moved on to another business.” And now he sells vapes. 


Michael: Okay, fair enough. [laughs] This is like a real business selling a real product. 


Aubrey: Right. A real business with a real product where you do actually have to tell people that there are health risks instead of just health benefits-- [crosstalk] 


Michael: It is like regulated.


Aubrey: Yeah, totally. 


Michael: So, I'm like, I honestly see how he got there. 


Aubrey: And it's a weird position to be in where we're cheering for someone moving into vape sales.


Michael: No, more vapes. 


Aubrey: You did it. Thank you, sir. 


Michael: Yeah. 


Aubrey: So, the nutrition club initiative is especially concentrated in Latino communities in the US including among immigrants and monolingual Spanish speakers. 


Michael: Yeah. I was going to say this earlier. These things oftentimes prey on existing close networks, religious networks or like ethnic networks. And that's another element of the predatory nature of them is they're exploiting these personal connections between people. 


Aubrey: The last of their marketing tactics that we're going to talk about is arguably their most creative. Some of their distributors start buying up TV advertising time and advertising Herbalife as a get rich quick scheme.


Michael: Oh. 


Aubrey: So, I'm going to send you a little video clip. 


Michael: Dude, this is going to bum me out so much. 


[video clip starts]


Male Speaker 1: One of the talk shows, they were advertising this in home business that sound pretty good. 


Male Speaker 2: Listeners just like you are discovering how to earn quit-your-job type money right from their kitchen table the secret incomeathome.com. 


Male Speaker 1: Of course.


Female Speaker: I thought this would be a good opportunity. It was being endorsed by Sean Hannity. I believe it was Sean Hannity's program. I thought there was some validity to it.


Male Speaker 2: You know, listeners, just like you are discovering how to earn quit-your-job type of money right from the kitchen table. We've been telling you about incomeathome.com. 


Female Speaker 1: When I watched the video, that was the first time I heard Herbalife. 


Male Speaker 2: This is a great business opportunity. You have the opportunity for financial independence and freedom. You can do it with helping people change their lives by getting them in a better nutritional mode, by getting them healthier.


[video clip ends]


Aubrey: We're going to stop it there on a title card that says, “In 2011, Johnson was the highest paid Chief Executive in the US and that's attributed to Forbes.” 


Michael: Think about his downline. His downline is like thousands of people. 


Aubrey: It's an astonishing downline.


Michael: We haven't even covered the adjacency of right-wing politics to grifts. It's wild. If you watch like Fox News, they're selling them fucking gold and shit. 


Aubrey: So, this is straightforwardly, wildly unethical to just be like, here's a TV ad if you do this thing, you will be able to quit your job is one of the things. 


Michael: Yeah. Quit your job money [crosstalk]. Fuck, no. 


Aubrey: And frankly, at this point in the company's development, it's too far developed for anyone to make a real payday. Again, you really only get the big paydays in multilevel marketing if you're one of the first in the door. 


Michael: If they're advertising on TV, you're not one of the first in the fucking door. 


Aubrey: Yeah. So, in 2012, Bill Ackman of Pershing Square Capital Makes a public presentation that essentially makes the case against Herbalife. He makes a three-hour presentation that consists of over 330 slides, all detailing why Herbalife is a bad investment. And why he believes they're in violation of the law. 


Michael: My understanding is that Bill Ackman is a shithead as a person, but also, I love a petty grievance just like, brought to this level. 


Aubrey: In addition to this presentation, he does a ton of press around Herbalife. He goes on CNBC. He goes on CNN. He goes on C-SPAN.


Michael: He was like, I think this company is fake. And it's going to crater into oblivion. 


Aubrey: Right. That's why I'm trying to short sell it. For folks who are unfamiliar, essentially, in a short sale, if Herbalife stock price dropped, Ackman would have made money. 


Michael: Buy high, sell low?


Aubrey: Right. So, if this guy who is trying to ring the alarm about Herbalife is also going to make millions and millions and millions of dollars if they fail, it raises, I think, reasonable questions about to what degree he's raising the alarm for the greater good, and to what degree he's doing that for some form of market manipulation or personal profit.


Michael: In the same way, there's like a pump and dump scheme where you promote a stock and raise its price. This is like a be-flacciding in dump scheme, where it's like, “If you crater a stock, you can make money on cratering the stock.” 


Aubrey: Be-flacciding is just a terrible word. 


Michael: What? It's good. [Aubrey laughs] They give awards for podcast hosts. And then did this tank the stock price, or was it relatively consistent during this time.


Aubrey: The stock price took a hit, but again the company just kept profiting. 


Michael: It's like, this is America. Just because this company is a scam doesn't mean the stock price is going to fall or it's going to go away. 


Aubrey: And I'm proud to be American. [Michael laughs] The short answer here is that Ackman's attempted short sale doesn't pay off for him. But it does lead to a new wave of scrutiny around the company. 


Michael: Yeah, this is when I heard about. I had never heard of Herbalife before this. I was like, “Why is everybody talking about this?”


Aubrey: In 2013, the LA Times writes a piece called Latinos Crucial to Herbalife's Financial health. Herbalife acknowledged at the time that more than 60% of its product sales went to Latinos in the US that's according to ABC News. In 2014, the New York Times publishes a big piece about the Ackman thing. In 2015, Fortune Magazine publishes the Siege of Herbalife is the name of the story. And in 2016, Betting on Zero comes out and premieres at Tribeca. It is a documentary about Herbalife and Bill Ackman's fight to take it down. 


Michael: I love that we've managed to find a weight loss company that's actually scammier than all the other weight loss companies. 


Aubrey: In 2014, the FTC launched an investigation into Herbalife. And by 2016, they announce a settlement for $200 million, but again, Herbalife admits no wrongdoing. 


Michael: Right. And they continue operating. 


Aubrey: They continue operating. Although there are some conditions required by the FTC if they want to continue operating. One is that they have to overhaul Herbalife's compensation system for distributor sales to make sure that they're rewarding actual external sales, rather than just distributors buying inventory. The FTC's public statement on this said, “To make sure everyone at Herbalife is on board with the new setup, 80% of the company's net sales will have to be real sales to real buyers.” If that doesn't happen, the rewards that high level distributors pocket will be cut.


Michael: It's so funny to be like, by decree of the government of the United States, you have to run a real business. [laughs] 


Aubrey: You have to sell a real fucking thing to real fucking people. 


Michael: You have to sell a good or service to actual customers. 


Aubrey: So, that all happened in 2016 and 2017? In 2020, so they're still very much in the thick of that FTC settlement restructuring. They still have their auditor on staff. All of that is happening. Herbalife is hit with another penalty. This time from the DOJ. 


Michael: Oh my god.


Aubrey: Michael, you may be worrying what does the DOJ have to do with absolutely any of this? Well, here is a little recap from CNBC. 


Michael: I was not wondering that at all.


[laughter]


Okay. Authorities said “Herbalife schemed from 2007 to 2016 to bribe Chinese officials with cash, entertainment, meals and travel to obtain direct selling licenses, reduce government security and suppress negative coverage by state-controlled media.” Overseas corruption complaint. 


Aubrey: Correct. 


Michael: China accounted for 19% of Herbalife's $4.49 billion in net sales in 2016, up from 7% in 2006 regulatory filing show. Herbalife approved extensive and systematic corrupt payments to Chinese officials, while falsifying records to make the bribes appear as legitimate business expenses. Acting US attorney Audrey Strauss in Manhattan said in a statement. 


Aubrey: Dude, they were ordered to pay $123 million as a result of this one. But their annual revenue at this point is still in the low billion. 


Michael: Yeah. God. 


Aubrey: So, it's certainly a price tag, but it's far from what would be needed to just deal a death blow to the company. They can afford it, they pay it, and they keep trucking along. 


Michael: Also, if they've gone from 7% of their sales to 19% of their sales in China, that in itself probably swamps numerous times over the size of the settlement. So, ultimately, their investment paid off. 


Aubrey: I tend to go pretty hard on regulation of diet and wellness companies as being a thing that we need to do more of. And I do stand by this. But this is a story where regulation was pretty heavy. 


Michael: Yeah. Just failed to achieve anything good. Yeah. 


Aubrey: Right. Because their revenue is so great. Even when they take these kinds of hits in the public eye, even when they take these kinds of hits in the press or in their stock price, they are still making bank. 


Michael: Yeah. 


Aubrey: We now live in a world where other multi-level marketing companies have seen what is possible both from a profit perspective and from a regulation perspective. And has seen that regulation is not actually necessarily the end of your business. They'll still absolutely make all kinds of noise about how terrible it is to be regulated. But ultimately, this is a real case of cockroach survives the apocalypse kind of shit. 


Michael: We're now at the culmination of 40 fucking years of complaints and from day one.


Aubrey: Within the first year, before they even made it into the wig factory, 


[laughter] 


They were already getting FTC complaints. 


Michael: What we're getting is minuscule fines. And what we need is the government treating this company the way that me and my brother treated a blueberry bush. [Aubrey laughs]


[Transcript provided by SpeechDocs Podcast Transcription]

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Aubrey Gordon

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Michael Hobbes

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