Betting on Zero Page #8

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I'm quite comfortable

the government

is gonna do its job.

Narrator:
With ackman

pressing regulators

to investigate,

Herbalife executives launched

a series of reforms.

Reducing shipping costs,

simplifying product returns,

And cracking down

on distributors

With questionable

side operations.

Richard:
They outlawed

this deceptive system

Which is referred to

as lead generation.

Distributors would run ads

in television, on radio.

"be your own boss,"

"make unlimited income,"

And no details.

I had about $200 to my name

And so I found

an ad that said,

"work from home,"

And I called on it

and it happened

to be herbalife.

But a big part of it was to

spam out your message.

That was the real income.

The big players

Knew how to send out

a million emails.

And they were doing that

once a month.

Somebody would be sitting

on their computer,

All of a sudden

something would pop up.

And it would say,

"lose 30 pounds,

30 days for $30.

"put in your credit

card number. Click here."

And the top

distributors would sell

These names and

numbers of people

To existing

herbalife distributors

For as much as $130 a name.

And they would be

brand new leads,

Someone clicked on this

five minutes ago,

And here's your information,

Call the person,

they're ready to go.

They pick up the phone.

"hi, mary, this is aaron.

"don't you want to earn

an extra $500 a month?"

Richard:

Distributors were told,

you gotta buy these leads.

You gotta keep buying them.

And at some point

you're gonna start

recruiting enough people,

Who will recruit

enough people

That you will make it to

the president's team.

These lead generation systems

Were so

financially devastating.

Because people would

not just have to

buy the products,

But they would buy,

in some cases,

Thousands of dollars

of leads a month.

So people lost

their retirements,

and they lost their savings

Following this system.

When herbalife shut this down,

Wall street said,

"too bad if

people lost that money.

"as long as they

clean it up,

"you know,

we're fine with it."

Johnson:
Build it better

every single day,

And building it

better means

Changing a few

philosophies in the company.

Get rich quick.

That's for someone else to do.

Get healthy now.

That's for us to do.

Kirby:
We opened five

nutrition clubs,

Kind of spread out

around northern oklahoma.

And when I achieved the g.E.T.

Team level,

Then the pres team

members start telling me

How the payout system

really works.

I'll never forget

we had a meeting

At tim files' nutrition club.

He's like the head honcho

here in oklahoma of herbalife.

He was actually my upline.

30k executive

president team member,

Tim files.

I'm telling you

every one of you guys

Have an opportunity to

live this kind of life.

Whatever you want,

just dream big...

Kirby:
Tim was saying

That we used to just

make commission

Off of our top three,

But now we're

also going to make it

Off our fourth,

fifth and sixth.

And once you got past

your sixth downline,

Once you got to your

seventh, eighth and ninth,

There was still a pay out,

it was like half a percent.

So, I mean, essentially,

what he told us was,

It never stops.

And this was his

little hand motion

he would do.

Because he says it

just keeps going down.

Because it goes

down on everybody.

No matter where it goes.

I mean,

I got a degree in business.

It's pretty obvious...

That's gonna keep going down.

That's a pyramid.

It's not sustainable.

Ackman:
The idea here is

you're gonna

build this business

Only recruiting six people

and each of them

recruiting six people.

But you're coming in at

nearly the bottom

of the pyramid.

And by the time

you get to level 13,

your prospects are pretty dim.

'cause you have to

recruit more than twice

the population of the world.

Kirby:
That's when I

started to learn more about

The different ways that

they use to recruit people.

Right before I got

into the company,

it was selling leads.

I'm like, "okay,

so I'm basically caught up

in a phase right now.

"I'm in the nutrition club

phase."

And I was like, "and I'm

on the tail end of it."

I'd made a mistake.

But I've signed

a three-year lease

for five clubs.

Most people will

recruit a new distributor,

And convince them to

actually take over the lease,

And then they'll skate off

and draw commission off

Of the person

they'd just scammed

into taking over their lease.

The kind of people

that can do that,

I mean, they're crooks.

When you know,

when you're trying

To get somebody

into a business

That you know they

are going to fail,

that is a crook.

I did have a close friend,

roommates through college,

And his

nutrition clubs failed.

We had a pretty much

complete falling out

Over the deal because

I'm the one that

introduced him to herbalife.

It was clearly

a pyramid scheme,

But when you're

that heavily invested,

It's kind of hard

six months in to say,

"oops, screwed up."

Keep:
Herbalife is

a company with a business

model in an industry

That has been subject

to criticism for years.

But even

the federal trade commission

doesn't know the difference

Between

an illegal pyramid scheme

And a legal multilevel

marketing company

Without having

a fact intensive inquiry.

Fitzpatrick:
They had

one court case against amway

That gave multilevel

marketing a loophole.

But far more important,

the government,

Starting with

the reagan administration,

Adopted a position

of deregulation

And the industry

started pouring millions

into our political system.

All with one goal.

The same goal

the cigarette industry had

Because like

the cigarette industry,

It had an existential need

to prevent regulation.

It has one advantage though,

That the cigarette

industry didn't have.

Until now,

there has really been

no voice of the victim.

Douglas brooks:

A lot of times, people think

the reason they fail

Is that they

didn't try hard enough,

Or that they weren't

suited to the recruiting

that you have to do.

But once they find

out that other people

are in the same situation,

Then they realize that

it wasn't their fault.

That there is a system here

that prevented them from

Having the kind of success

that was portrayed to them.

hi, mr. Brooks.

Ackman:
In an attempt to

recover their losses,

The herbalife

distributors from chicago

Retained

attorney douglas brooks

To represent them

in the class action lawsuit,

Bostick vs. Herbalife.

Instead of going to trial,

Lawyers for

herbalife and bostick

Had agreed to

a cash settlement

of $15 million.

On the eve of

the federal court's approval,

The chicago group

has come to california

To object to the settlement.

Fairly early on,

when I heard

about this settlement,

I realized that this

was a very bad deal.

How many of you

have ever played the lottery?

when you became

herbalife distributors,

You were buying

a lottery ticket

For a lottery that

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