“WHO DOES HE THINK HE IS?”
The other major problem I had with Herbalife, and again like many other type of Diets similar, they are pyramid selling companies, you could be an office worker with no qualifications in Health, Nutrition or Fitness and become a distributor for Herbalife, then going to the public offering a diet with no qualifications to offer the advice, it is nothing but a pyramid selling company interested in profit. It is very well known that at the beginning of a diet or fast there may be some adverse side effects. Is it the best thing for me for quick results? My website is in the very same area of interest as yours and my visitors would definitely benefit from some of the information you present here. Are there any exceptions at all?
DISTRIBUTION CHANNEL … OR SCAM?
That meant curbing some practices while also embracing positive ideas being urged by other distributors, he says. At a videotaped global management retreat in June , viewed by Fortune , Johnson appeared to walk a tightrope, discussing the need for these changes while trying not to alienate powerful distributors.
It puts distributors in debt up to their ears. Johnson also wanted to embrace changes being urged by two top distributors, which were designed to reduce the high rates of turnover then being experienced among level-five distributors—those beginning to pursue the business. The company phased in changes. It rolled out its own online software tools, supplanting those sold by distributors.
Herbalife charged less and could exercise control over content. Over time, most top distributors exited that business. The rule changes easing the qualification hurdles for level-five distributors were introduced on a test basis in Russia in , and then globally in As a result, according to statistics provided by Walsh, the percentage of U. Purchasing patterns also changed, these statistics show.
Throughout the Johnson era, the size of the average purchase has been getting smaller, while the number of orders has been increasing. Though the impetus for the changes was apparently not regulatory, its impact could be. In an Herbalife distributor introduced nutrition clubs into the U.
The charge entitled the customer to consume on premises servings of three prepared Herbalife products: Herbalife CEO Johnson first heard about nutrition clubs three years earlier, he says, when certain distributors were complaining about them. Johnson and Walsh went to look at a club in Zacatecas, Mexico.
Today there are about 6, nutrition clubs in the U. Herbalife nutrition club owner Edgar Montalban, shown in June , prepares a meal-replacement shake in Queens, N. They became particularly popular in Spanish-speaking communities of the U.
As successful as the model was, not everyone was thrilled with it. Because the clubs let Herbalife sell its products and business opportunity to lower socioeconomic strata than had been previously possible—more vulnerable populations—a former financial journalist named Christine Richard found them to be diabolical.
By the summer of , indeed, Richard had concluded that a great deal was wrong with Herbalife. Above all, she thought, it was a pyramid scheme. Richard worked for the Indago Group, a research boutique that sold much of its work to short-sellers. When Richard first spoke to investors about shorting Herbalife, many were wary, she recounts in an interview. In , Ackman took a massive public short position predicated on the audacious theory that the then triple-A-rated bond insurer MBIA—whose guarantees were propping up the ratings of countless other financial obligations that Wall Street was flogging across the globe—was catastrophically overleveraged and destined to collapse.
She declined, and the call ended. At lunch afterward DeSimone went from table to table. At one, the woman next to him, who turned out to be Richard, started asking him similar questions. Einhorn is widely revered as perhaps the smartest investor on the Street. The company realized he might be preparing a public short. After its May 1 earnings announcement, Herbalife executives took questions by phone. If Einhorn was contemplating a public short, DeSimone says, he felt that was material information the public ought to have.
It was a variant of the same questions Richard and Schulman had been asking. Herbalife had no lawyer in the room. Live complex, just across from the Staples Center. They had allies inside the hall with open phone lines. But Einhorn was just messing with their heads. Which posed a quandary for Bill Ackman. Then Einhorn never surfaced.
Ackman deliberated for months whether to go public, he says, preparing possible presentations. And then in September, and then in November. Most of these put buyers were effectively betting that the stock would drop markedly sometime before Dec. He had simply borrowed common stock and sold it—the conventional short position. There was a lot about Herbalife that was suspicious.
How could that be? What the company really sold in all these countries, Ackman explained, was not Formula 1 but a fictitious business opportunity. Then he played a creepy, officially produced Herbalife video. Subsequently, however, CEO Johnson had started toning down such claims, voluntarily disclosing the average gross compensation the company paid its distributors and requiring that income testimonials include disclaimers at least in the U.
The FTC, for its part, does not require such disclosures, nor explain how comprehensive they must be, if provided. At the time of the presentation, Herbalife was already a well-known name on Wall Street. It had enjoyed 12 straight record quarters, and its stock had quadrupled in the previous two years. Then there was the issue of timing. Ackman presented just 11 days before the end of the year, when hedge fund positions are marked to market for the year.
Given the holiday season, there was no way Herbalife could respond that calendar year. In that context, the bit about Ackman foregoing personal profit struck some as disingenuous. He explained on his blog: As for the notion that Herbalife was desperately expanding into foreign countries because of market saturation, the company had a simple answer: Walsh then offered evidence of consumer demand while asserting the genuineness of the business opportunity.
After Einhorn asked his questions in May, the company had had a reputable corporate survey firm, Lieberman Research Worldwide, perform two 2,person surveys.
People who did pursue the business could really make it, Walsh insisted, though it did require very hard work. In it had made 46 of them in the U. In it would also begin paying return shipping costs. Herbalife may now have the most generous buyback policy in the MLM industry.
Yet the rate of buybacks was low and had steadily dropped throughout the Michael Johnson years. It fell from 2. We would like to speak to victims. So he began to look for victims. Later he gave additional moneys directly to local organizations for the same purpose.
He declines to estimate the total. At the same time he hired a raft of political consultants to find victims and to approach state attorneys general and other public officials in California, Connecticut, Illinois, Massachusetts, Nevada, New Mexico, and New York. He was like one of these little Jewish boys, crying that the world was taking advantage of him. Icahn was giving his version of a decade-old dispute that led to a nine-year litigation between Ackman and him.
This is a guy who takes advantage of little people. Three days after the spat, Icahn started buying more. All this [other] stuff is off-base and ridiculous. A short squeeze is a feedback loop that occurs when excess demand for a stock pushes the price up, pressuring short-sellers to cover their positions, which requires them to buy stock, which further pushes the price up, and so on.
As Icahn continued buying—today he owns At the time the other biggest buyer was the company itself, which had long been pursuing stock buybacks as a corporate policy. Then fate granted Ackman a weird reprieve. London was quickly arrested for insider trading: London pleaded guilty and, in April , was sentenced to 14 months. Herbalife hired PricewaterhouseCoopers and said it aimed to have the statements reapproved by the end of the year.
Ackman set out to block that from happening. In one of nine follow-up communications to the accountants, Ackman noted: He even offered to have Pershing Square foot the costs.
Investors were understandably skeptical of any company-ordered surveys. So several funds did their own. One longtime major investor told me he commissioned a blinded, high-datapoint, randomized survey asking a wide variety of questions. I asked Ackman this. The charge appears to have gone nowhere.
Fidelity and Vanguard retained most of their preexisting stakes now holding This effectively maintained the short bet but placed the fund at less risk if the stock kept rising. Herbalife suspected, once again, market manipulation. Herbalife complained to the SEC about these puts in March , but the charge has languished. When the Times tracked down the letter signers, some claimed not to remember having written them. In the context of a short-selling campaign, however, such conduct began to resemble securities fraud.
Herbalife shares were further pummeled in April when, in the space of six days, it was reported that the company was under investigation by both the U. Department of Justice and the Illinois attorney general. The bad news for longs got still worse in November, when Herbalife announced its third-quarter results.
After 19 straight positive quarters, the company missed on both earnings and volume guidance. Herbalife blamed the poor results on foreign currency fluctuations and the short-term impact of some new distributor rules. Ackman hailed the news as showing that Herbalife had exhausted its mature markets and that its modest efforts to curb fraud were crippling its ability to do business. In August it hired Alan Hoffman, a former deputy chief of staff to Vice President Joe Biden, as executive vice president for global corporate affairs.
Each hire represented a vote of confidence for the company, as had, in late , the additions of two eminent Hispanics to the board: In April , former comptroller of the U. Air Force Michael Montelongo also joined the board.
The year ended on an important up note for the company. In December a Los Angeles federal judge approved the settlement of a class action against Herbalife that had been brought on behalf of all 1. The dismal result underscored the recurring question: Where were the victims? A group of 18 objectors—16 of them supplied by a Waukegan, Ill.
After his original presentation, Ackman put on three more. In the second, in November , four victims were interviewed. But they all described being victimized by a lead-generation business. The outfit was run, however, by a distributor who had also headed Newest Way to Wealth a decade earlier.
At a minimum, it could be argued, the company should have been watching him like a hawk. Herbalife finally banned all lead selling or buying in June A tough slog, the presentation struck some as peripheral to the pyramid-scheme allegation. At the last event, in July , Christine Richard made a presentation on nutrition clubs. After visiting more than nutrition clubs in several countries, she said, she had concluded that naive, often undocumented immigrants were being defrauded into something resembling indentured servitude by predatory, distributor-led, company-countenanced training programs.
Trainees were allegedly being induced to generate artificial business for an existing nutrition club—dragging friends and family to show up, while shelling out money to pay for their shakes. Wiping away tears, he said: Michael Johnson is a predator, okay? This is a criminal enterprise, okay? As part of its response to the FTC inquiry, the company commissioned two documentary filmmakers to make a movie about nutrition clubs. The hour-long film, previously unreported, depicts owners and participants at nine clubs in Miami, New York, and Los Angeles.
Herbalife claims that it gave the documentarists a list of 30 clubs in each city and then let them proceed from there on their own. More than once, individuals thank Herbalife for saving their lives. The company resumed hitting its numbers in the first quarter of We certainly have never received any subpoenas, and the DOJ has not expressed any interest in interviewing any of us about any of that stuff.
Let me start by saying, I worked at two different locations each with different owners. I started as a receptionist and tester and worked my way up to Assistant Director. Everything from falsifying test scores to trying to make her employees claim they were independent contractors…. Standardized assessments like the initial and supplemental tests are not meant to be given more than once a year.
LearningRx gives them every months. This allows the student to get a higher than average score on the test…. If you are not familiar with the system, the entrance test and exit test is identical. LearningRX bases success on whether or not the person being trained moves beyond what they are initially able to complete on the test.
So, on paper and according to their guarantee, their program has worked. However, there was absolutely NO improvement in any of the areas that had been discussed during the initial visit! My daughter went through this program at the beginning of this year… now that she is in 8th grade everything has just gone downhill. She has worse grades than ever and has dozens of missing assignments. So I feel like I threw away 7, dollars on the product that has no true guarantee.
Are LearningRX trainers and testers under pressure to return positive results, even if it requires questionable tactics?
I read the article you referred to. The owners all live in very nice houses. Ken Gibson lives on a hill west of Colorado Springs in a mansion that overlooks the city. I think Kim Hanson was a school teacher.
I think she lives in Monument, Colorado. Tanya Mitchell is a liar. See her pretending to be someone else at the top of this thread. The fact that LRX LearningRx Learning RX did their own pre- and post-testing; that I personally saw cheating on these tests; that one of the people in my center saw cheating while visiting other centers; that the director of training in the corporate center in Colorado Springs told me that she plays tricks with final testing to get good results this is the center on Woodmen Rd in Colorado Springs, Colorado and is owned by the home office and was run by Tanya Michell at one point all point to this result.
I hope the franchisees bring a civil lawsuit and get some of their money back. It is terrible that nice people some are very nice are harmed in this. Most franchisees are completely unqualified to talk about the brain or brain research. There is a post online about a franchisee who was a former hairdresser. I tried to tone down the claims made at my center.
Then left after waiting too long. I told the director that before the program started, it sounded like this was all that was ever needed and the problem would be solved forever, but then at the end there would be a sell job about how customers needed more or needed to come back before the start of middle school or high school or college. I told him that the claims made in the literature could not be made based on the research that had been done.
LearningRx itself said that to do the research of in-center training would cost millions, so they created a digital product and tested that — probably still in progress. They can make no claims. I told the home office that I had seen cheating on testing. Now, I hope that the damage in my community can be undone.
Word needs to be spread. I will try to spread it. By the by, Lumosity also was making claims that had to be removed from their website. I still think brain exercise is a good thing. Lumosity is much less expensive. But as I said above, you can create your own brain exercises. The Learningrx family is repugnant and Machiavellian in associating their company religious values of wanting to help children because it requires you to rely on faith rather than science and it leads you to believe they are good people when they are simply predators pulling your emotional strings.
I think all prospective franchisees, prospective customers, and prospective business partners of LearningRx should read those comments thoroughly. Those comments are substantially and pervasively true. The FTC got it right in this case.
As a specific example, I was working on an advertising piece, when I asked the home office for citations to support the claims I had written into the piece. The claims were all copied from other LearningRx marketing materials, I found out that the claims were not at all supported by science. They could give me no references, no citations, nothing — not a single one. I killed the piece and THAT moment was the beginning of the end for me as a franchisee.
After that, I continued on as a franchisee, but the scales started to fall from my eyes and I saw the depth of the deceptions and the conflicts of interest built into the business. I believe LearningRx is full of good people doing bad things because of these built in conflicts of interest and well-meaning ignorance. I think the home office is more culpable than the franchisees themselves: These are the folks that created the business model; these are the folks that enforce it.
I think another perspective is important to capture — the perspective of the former franchisee as a franchisee — from franchisee training to opening the business to running the business. I am writing a document targeted at current and prospective franchisees.
Today is a big day. We are posting the final drafts of each of the sections of the document referred to in the previous post. These will be posted one after another, then consolidated into one longer document to be posted together. We warn you in advance that there will be a lot of posts. If you are considering becoming a LearningRx Learning RX franchisee, this material will help you with your due diligence. If you are a past, present, or future customer of LearningRx, this material will help you understand the LearningRx business and product.
It will also help you understand the conflicts that affect you as a customer. If you are a competing product or service, some of these conflicts may apply to your business also. As a former franchisee, we are creating this document to help current and future franchisees understand the inherent conflicts in the LearningRx Business Model. Conflicts of interests abound within this business model and these conflicts explain much of what franchisees do within this system. We wish we had been told these things before we wasted good time and money inside this business.
By the by, these materials are written and edited by one of us and reviewed and edited by the other. One of the things I am struggling with is mixing first person singular I and first person plural we as I write.
The previous post mixed these. It should be plural we. I suspect, there will be times when we will intentionally use first personal singular I because only one of us observed or experienced that particular item.
Imagine you are starting LearningRx Franchisee Training today. You arrived in Colorado Springs last night. You have two weeks ahead of you. As you walk across from the Marriott Hotel on Centennial Drive to the LearningRx home office, you turn around and notice how tall and beautiful Pikes Peak is in the morning sunlight — so beautiful!
There is a bounce in your step as you walk in the front door, rise up the stairs and walk straight into the training room. As we help you imagine opening and running your business, we are going to refer back to these two weeks of training frequently. During the flight home, you will daydream about all the children — all the moms — all the families — you are going to help.
You know how much work you have ahead of you, but you also know it will be worth it. Your heart is so full of passion and expectation for this business that you cannot wait to start helping others. Before you know it, the business is ready, the doors are open, the marketing mailers are hitting mailboxes, and you are trying not to watch the phone as you wait for it to ring off the hook. Then it happens, the phone rings! It is a potential customer! As you can tell, these materials are written from your perspective as a new franchisee.
You imagine and feel the weight of the conflicts of interest that you will face as a new franchisee as they arise in your own franchise business. We can write these things because these were our collective experience. You remember from training that Kim Hanson daughter of the founder told you how to answer the phones.
These are the rules:. It will tell you why Sarah is struggling. The assessment takes about one hour. Your goal is simple though not as easy as it sounds sometimes , avoid answering questions such as cost and program duration or how the program works by taking control of the conversation.
Your goal is to get the parent to schedule an assessment. As a parent, you want to call LearningRx to get a no-hassle answer to your quick questions so that you can decide whether you are interested. As a franchisee, you want to postpone answers about cost, program duration, or how the program works until the consultation because you are much more likely to have the interaction result in a sale. As a potential franchisee, you should read from beginning to end as part of your due diligence.
You want to deliver on that promise and get your first customer. But are even qualified to administer a cognitive skills assessment? At Franchisee Training, three or six months ago now, Dean Tenpas son-in-law of the founder gave you less than a day of training on how to do Woodcock-Johnson assessments. Each test was explained briefly, demonstrated, and then you got a bit of time to practice. At the end of the training session, you were told that to finish your certification to become an assessor that you must administer three additional assessments on your own without any oversight or correction just to get practice.
By personality, I am organized, methodical, diligent, and persistent; I wanted to do assessments perfectly. Many, many, many of the assessments we did had unintential errors in the administering and scoring of the test. She told me that the standards to become certified at the university were significantly higher than those at LearningRx. The university required more training, more practice, and more oversight to ensuring that the assessment practices were consistent with all testing norms.
She said that despite all of my efforts, she still found errors in how the test was administered and scored in my center. As a parent, you are entrusting your child to be assessed by a certified professional assessor because you want the test results to be valid.
As a franchisee, you are not qualified to do assessments with so little training and so little oversight. You are even less qualified to teach and oversee others as you delegate these responsibilities within your business. The assessor must never want the assessment instrument to show any particular result — whether good or bad. Yet every employee in your LearningRx center knows that a low initial assessment score is more likely to result in a parent signing up for brain training.
Thus, there is an inherent bias toward a child performing poorly on the initial assessment in every LearningRx center. Keep reading to learn that the attitude of the franchisee, trainers, and assessors all LearningRx employees is very different when it comes to final assessments.
This difference is explicit, noticeable, and substantial. As a parent, you are entrusting your child to be assessed by an unbiased certified professional assessor. You expect the assessor to be completely objective and the results to be as accurate and reliable as possible. As a franchisee, you know you are more likely to get a client if the scores are low. Thus, by definition, you are biased in that you want the test to lead to a customer as often as possible.
When you were at Franchisee Training, Ken Gibson himself the company founder came in to show you how to recommend brain training programs based on the intake form and assessment results.
The process as taught is really quite simple: These programs can typically be increased in increments of four weeks. In Franchisee Training, every single example client result resulted in a recommendation.
This was presented as a goal for all of us franchisees — sign almost everyone up for a program. However, this is not a burger franchise.
This is a business where you are offering a professional service based on your supposed expertise. What does an hour or two of Franchisee training do to make you an expert in assessing Sarah? The sad answer to these questions is that you are an not an expert in any of these. Jodi Jedlicka — franchisee in Wisconsin — might be able to say she has some of these qualifications. With few exceptions, franchisees are pretenders. They are told to speak with confidence in areas where they lack even basic training, knowledge, and skills.
As a franchisee, you present yourself as an expert with the qualifications to advise parents. Franchisee training leaves you unqualified in at least these ways relative to advising clients:. I rewrote the previous two sections as I wrote subsequent sections. Here is a better version of each. Franchisee training is two weeks long. If all of these two weeks were completely devoted to understanding brain science, understanding cognitive skills, and interpeting assessment results, you would still be unqualified to advise parents on these matters.
No time will be spent in franchise training on brain science, whether anatomical or functional. Very little time will be spent understanding what science can tell us about cognitive skills such as memory, working memory, long-term memory, attention skills, processing speed, auditory processing, visual processing, and logic. Very little time will be spent understanding how to interpret assessment results which involves linking assessment results to the real-life struggles of children.
As a franchisee, you present yourself as an expert with the qualifications to advise parents when you lack these credentials. It is ironic but true. Without knowing anything else about Sarah or her mom or dad , let me answer this question for her: Ken Gibson the founder of LearningRx taught you how to recommend programs during Franchisee Training. The process is really quite simple:. The intake form and by talking to them in the consultation to be discussed in a later section.
In Franchisee Training, every single example client result discussed resulted in a recommendation. In this she said that Sarah struggles were related to attention and memory. Thus, she needs at least 12 weeks of the ThinkRx program. Thus, Amit needs at least 24 weeks of the ReadRx program. Johan needs at least 36 weeks of the MathRx and ReadRx programs.
Are there any exceptions at all? The exceptions are those who are unable to receive brain training:. As a franchisee, you believe that everyone — no matter the struggle — no matter the skill level — needs your service. Thus, you will almost always recommend a program. And you must do this with confidence. Thus, LearningRx teaches you a simplistic understanding of the linkages between assessment results and real-life struggles. This is necessary so that a brain training franchisee can be a former hair dresser advising people about remediating cognitive deficiencies.
However, even if the assessment scores are both above the 50th percentile, if the parent says reading is a struggle, you will recommend ReadRx. This means that even if the child is over 50th percentile in these scores, the franchisee will figure out some other sensible-sounding reason that underlying cognitive skills are causing the struggles with attention skills.
However, even if the assessment scores are both above the 50th percentile, if the parent says attention skills are a struggle, you will recommend a LearningRx training program. The linkage in this case is supposedly that the child is not good at making good, reasoned choices and is choosing not to pay attention. This is sometimes very difficult because the scores are too good , but you will usually have a couple days to figure out something that sounds plausible.
The assessment does not measure morality. And, worse, an immoral person with an improved logic and reasoning score may do more harm in the world rather than less.
At Franchisee Training, you received a full day of training on how to lead a successful consultation. The home office defines a successful consultation as one that results in a new client.
This is very important to the business health of every LearningRx center because this is when a prospective client becomes an actual client. The consultation starts with information gathering and discussion.
The franchisee asks questions, listens, takes notes, and expresses empathy. You might wonder why this would be the case when you as a franchisee already have the intake form and assessment results. The reason is that parents express emotions when they share these things about their children. It is one thing to write on a form that Sarah struggles to pay attention, but to tell this to someone else often results in mom feeling anguish, desperation, or sadness.
As a franchisee, you want to hear the following from mom:. To illustrate this point and to drive home the point that this is taught by the home office, one of us had a home office representative come to our center soon after opening our doors. The representative did a consultation with me present and observing. During the process, a probing question was asked in the right way and mom started to cry.
After the consultation, it was pointed out that I was more likely to get a sale if I could learn to ask probing questions that lead mom to cry.
As Mom is wiping away her tears is a good time to make your professional recommendation. Present the program and pricing with confidence.