Chris Garcia: Is Herbalife the Next Bernie Madoff?

Herbalife has received glowing reviews from the financial community in their recent audit. Profits are up. Things are rosy. But, the question is, can we believe this?

Audits do not always tell us the full story. Just look at Bernie Madoff. Madoff also hired an auditor to certify his books, which came back glowing. Yet in 2009, Bernie Madoff was convicted of 11 counts of fraud and sentenced to the maximum 150-year sentence for operating the world’s largest pyramid scheme in U.S. history. The court estimated losses at $18 billion.

It’s time for our leaders not to be lured by yet another company’s appearances of financial success but to look beyond a simple document and closer at the lives of the people involved.

— Chris Garcia

Looks are deceiving.

As a leader in the Latino community, I encourage our government officials not to just look at the financial audits of Herbalife. The truth is that Herbalife is making its profits on the backs of Latinos. Sales within the Latino community are responsible for more than 60 percent of the company’s nationwide sales. Many insiders estimate the number to be closer to 80 percent.

These are hard-working people who have come to this country and are enticed by Herbalife with promises of fulfilling their American Dream but in reality it often becomes their nightmare. A 2011 Federal Trade Commission report finds that Latinos are 50 percent more likely to be victims of fraud, including illegal pyramid schemes. These victims rarely report abuses because of cultural and language barriers.

Pyramid scheme participants attempt to make money solely by recruiting new participants into the program, according to the U.S. Securities and Exchange Commission. And that is how Herbalife appears to operate, as its participant incentives are to recruit rather than to sell product, leaving those at the bottom with no way to succeed simply by selling the product.

Most of Herbalife’s members earn virtually nothing – despite how hard they work. While the Herbalife CEO made more than $10 million last year, the median income for sales leaders is roughly zero. In fact, over 99 percent of sales leaders who were lured into Herbalife’s model last year made less than a living wage (on average, about $20 a week) – that leaves the top one percent to earn the vast majority of rewards.

These are not just abstract facts. These are real people.

Meet Hector. Hector immigrated to this country and wanted to live the American Dream. He worked for Herbalife for four years and never made a single dollar despite recruiting new members and selling products. They only paid him with more product. He now left Herbalife, and is starting his own business in order to fulfill his dream.

Meet Liliana. She began selling Herbalife because she wanted to purchase a home and send her daughters to college. She had to pay $4,000 a month and recruit 5-10 people a day in order to get paid. She never received compensation for her investment or time. Herbalife convinced her to attend one more extravaganza in order to get paid, but on her way to the extravaganza, INS stopped the Herbalife bus and she was deported for being undocumented. She is now back in the U.S., documented, but had to go back to Herbalife to pay off the debt. All in all, she lost tens of thousands of dollars.

These practices are a core part of their company’s financial success. Should we just look the other way as people continue to lose thousands to this company so that their executives continue to get richer?

In California, I am a part of the Coalition to Stop Herbalife and we are asking Attorney General Kamala Harris to investigate these practices. In Nevada, Attorney General Catherine Cortez Masto is also being encouraged to look deeper into the company’s predatory practices, and most recently in Illinois, Latino leaders called on Attorney General Lisa Madigan to do the same.

It’s time for our leaders not to be lured by yet another company’s appearances of financial success but to look beyond a simple document and closer at the lives of the people involved. The last thing anyone needs is another Bernie Madoff and an $18 billion loss.