Herbalife - FTC Discussions

Hi, everyone out there. Kevin thompson here, Mlm Attorney and co founder of thomson burton. I hope you all are doing well. It's been a long time since I've done one of these videos. I feel there's going to be a resolution soon in the herbalife case. And when I say resolution, Herbalife has disclosed. And I'm going to say it could go litigation or settlement. But bottom line is the end of that whole deal near? And I have some opinions, But I'm going to try to keep those to myself, really. There's a lot of questions. And so what I'm going to do is I'm going to spot the issues. And sort of explain the choices that the ftc has. And the choices that herbalife has. And let you go from there and reach your own conclusions. So, herbalife disclosed today that sales are doing fine. Unlike what bill ackman has been saying for years, the business is deteriorating. And even if it doesn't get shut down, it's going to end soon. Etc, Etc. Etc. He's been saying that for years. Their sales are fine. But they disclosed today that the settlement discussions with the ftc. Are in the advanced stages. Meaning close to being wrapped up. Now, a settlement is better than a lawsuit, or is it right? It's one of those things that. It depends. Here's what I think is happening. And, you know, we're in territory right now. Where every single analyst, Every wall street analyst, including myself, has been wrong on a number of issues, right? With me, I thought this would have been wrapped up by now, and it hasn't been. And including Mr. Ackman. There was a number of points in this thing. Where he says, there's no way they're going to get an audit. And they did. He says, there's no way they're gonna do xyz. And it happens. And so even bill ackman is in uncharted territories here right now. What we've got is a standoff between two bowls. We've got the ftc with their arguments and their mission. And we've got herbalife. And there's a standoff. And here's what's happening. Here's the source of it. I think based on what I'm hearing out there. And part of what I'm hearing could be what ackman is circulating out there in the media. And it trickles back to me that the ftc, their vision for a settlement, Is this what I'm calling a vemma overlay. So, to summarize, what happened in the vemma Case, you know, the ftc, they went in there and they sucker punched them like they do. They got an injunction. There's no hearing. You know, vemma wasn't there. And then vemma had to defend itself from that position. I'm not going to get into the details whether I think the ftc was justified or not to shut them down. But it happened. Now vemma got some relief, and they're still in business. Provided that they honor an injunction. They have to agree to what's called this, what I'm calling the vemma overlay. But Basically, it's a 50% rule, meaning a distributor cannot qualify for commissions unless 50% of the downline volume. Forget your personal volume. We're talking downline volume. 50% of the downline volume has to move to registered customers. If 49% moves to registered customers, you get $0. And so Vemma is having a hard time, because it's, at least in the past, it was free to join. So there was this. The database was a little bit muddied between customers and distributors. And why were people buying while they were affiliates and all that stuff? They've got some issues to sort out. But that's the vemma overlay. It's a 50% restriction. Plus, personal purchases don't qualify you for bonuses. It's all driven on external retail sales. And so my instincts is that that is sort of the reality that the ftc wants herbalife to live under. Can't confirm it. I have no inside information on the matter. But that's what I think is happening. I think there's a standoff. And herbalife is saying, this is what they're saying. This is my opinion, my instincts. What they're probably saying, or have been saying over the past several months is, well, that's them. We're different. And you said FTC in your 2004 staff advisory letter. The amount of internal consumption doesn't really matter. And you said that, you know, when you go after these enforcement cases, they don't generally represent the state of the law. Because remember, 2004 staff advisory letter, the DSA asks the FTC, hey, you know, you're really taking some aggressive stances with these companies. Do you expect everybody to do that? And the ftc says, no, we go after bad people and we put them down. We take aggressive positions, and we put them down. I'm guessing herbalife is possibly taking that kind of position. Here's what makes this interesting. You know, pre vemma, I had a lot more confidence. Now, I tell you, it's close. What nobody talks about when you're. When you're watching the media, people talking about this herbalife ackman deal. What I've assumed this whole time Is that the ftc is going to live within the confines of the law. And right now, the law is not on their side. I still believe that burn lounge is there. Internal consumption is fine. Commissions generated via internal consumption is fine. As far as what is an appropriate amount of retail sales. That is undefined at this time. Does a company need to have 50% of its revenue from retail sales? And can a distributor consuming products solely for discount, can that count as a retail sale? And the answer is, yes, it does. And so the ftc, in my opinion, doesn't have the high ground when it comes to the law. But what has gone sort of undiscussed. Is the ftc's ability to say, to hell with it. We'll just do what we want to do. And that's a pretty powerful gun. I mean, even. Even a lawsuit, Whether the ftc wins or loses, long term, regardless of whether herbalife wins long term, the ftc can inflict a lot of damage Just by nature of the lawsuit itself. Again, regardless if they're able to win Just by filing the thing, they can inflict a lot of damage. And that plays a factor into herbalife's decision. Right. Do we take this pill, what I'm calling the vemma overlay? Again, that's sort of my instinct. That's a guess. Do we take this vemma overlay, do we swallow the pill and just hang on domestically? I think domestically, it's 12% of their revenue. We hang on domestically, and everything's predictable. Right. By the way, publicly traded companies, they prefer settlement because they prefer certainty. So maybe they swallow the pill. They'd rather the certainty of taking that pill, as opposed to the uncertainty of not taking it. Even though herbalife has some very powerful arguments to counter the ftc, There's a lot of uncertainty with not taking it and going into litigation. And I'll tell you what's happened with me over the past few months, Watching the federal trade commission, Particularly after the vemma case, Is that they will do what they want to do. It's not about really right or wrong. It's about winning. And, you know, we saw this in the burn lounge case. Right? Right. Got argued all the way to the ninth circuit. And right there at the. At the appellate hearing, the ftc was saying Commissions generated via internal consumption is inappropriate. They actually put it in their brief. Commissions generated via internal Consumption are inappropriate. Well, wait a second. They're taking that argument in burn lounge. But in 2004, they said the exact opposite. So they tried to sneak that in there. The judge pushed back, and the 9th Circuit Burn Lounge order said, no, we don't agree with that ftc. They specifically said that. And actually, if you read the burn lounge order, they shoved the 2004 staff advisory memo, they put that in the order, Basically shoving it down the ftc's throat, sort of as a slap on the wrist, I think my opinion. So you have that example of the FTC just doing what it wants to do. In vemma, there was no proof of inventory loading. And the ftc at the ex parte hearing, the moment in time when vemma wasn't there, the ftc says, we're going to show you, judge, that the majority of revenue comes from starter packs. Well, they get in there and they seize everything and they realize, crap, it's less than 10%. Didn't knock the ftc off its track. They just, they plowed through. And I think they took some unusual arguments. The Vemma, 25% of its revenue came from registered customers. And keep in mind, it was free to join vemma. So it's an unusual case. But I'm bringing that up because the ftc is prone, at least this current leadership setup, they're prone to doing what they want to do. So you have herbalife seeing all this. You have the ftc and its negotiations, and it's one hell of a standoff. And also the macro here is, culturally, we're at a moment in time where, in my opinion, it's a very anti competitive environment. Hold on, darling. Thank you. That's my daughter. She's got back from the dentist. We're at a moment in time where it's very anti competitive. College universities are being sued, Law schools are being sued. It seems like anybody offering a business opportunity where the majority of people don't make it, it's a criminal enterprise. It's a terrible, terrible thing. So you have that in the background. We're in this sort of phase in time. And it's fascinating. You also have something in the back of the ftc's mind. Are they really going to sue and reward a wall street short seller? Because I'll tell you, there will be some tremendous, tremendous political backlash if that were to happen. The optic is absolutely horrible. So it's in everybody's interest to settle. The question is, you know, what is in that pill that herbalife is willing to take? So that's it? A lot of questions. What do you think is going to happen? Herbalife can dig in their heels and say, guys, long term, we've got superior legal arguments. Come, bring it. They can say that and the ftc can sue, potentially. And herbalife disclosed that as a possibility. And they also said that they could pay fines up to $200 million. So that's a pretty serious fine. If there's a settlement and herbalife swallows the vemma pill. This whole vemma overlay, will it impact sales long term? I'm not sure. I think herbalife can possibly pivot. The US Market is a very small percentage of sales. At a minimum, the stock goes through the roof. I'm not an analyst. I'm not in the stock, don't own it. I think you guys are all crazy. That do play that game. I'm a pansy index investor. But I think the stock goes up because it's a perceived victory for herbalife to settle the case. Does that recover? I don't know. So, like I said, a lot of questions there, Not a whole lot of answers. But I think I framed the discussion for you all to give you an update. We're going to have an end to this, I think, within the next month. So take care.