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Title Herbalife - Email from Robert Fitzpatrick
Description Dear Colleagues,
I have just written a Blog analyzing a Belgian court's recent ruling that Herbalife is an illegal pyramid scheme. Because Herbalife is a representative company, the ruling indicts the entire "multi-level marketing" industry. If Herbalife is a fraud, as the Belgian court decided, it is one of vast proportions, affecting millions of people worldwide, year after year. Herbalife has 1.2 million distributors in 74 countries. Each year it enrolls hundreds of thousands more to replace the huge numbers who lose money and quit.

The full decision of the Belgian court is available at the Pyramid Scheme Alert website.

The ruling addresses the most obvious and fundamental of all the deceptions regarding "business opportunity" frauds. This deception isthe scheme's disguise of "direct selling." Most of the evaluations and defenses of such schemes concern "front-loading" and "product return" policies, the size of the sign-up fees, and the commissions to recruiters based on "product sales" (to salespeople) rather than fromentry fees.

In fact, those are only incidental factors, and they distract from the most basic of all questions that determine legality and legitimacy: Where are the scheme's retail customers? Where does the money for rewards to recruiters (ultimately) come from? Retail sales or from the investments of the salespeople?

The court largely based its conclusion on the assessment that Herbalife could not show it had a retail customer base. The court rejected Herbalife's claim that its salespeople (distributors) serve as "end-users." The Belgian court's conclusion was that Herbalife is not a direct selling company, as it claims to be, but a pyramid recruiting scheme that offers much more reward for recruiting than for retailing. The court also cited the huge dropout and loss rates among Herbalife distributors.

If the Belgian court's ruling reflects the truth, then Herbalife's claims to shareholders and the SEC are false. In its filings to the SEC, Herbalife claims, without verification, there are billions in "retail sales" of its products.

I will be interested in your thoughts.

Robert L. FitzPatrick, Pres.
1800 Camden Rd. Ste. 107 #101
Charlotte, NC 28203