For a few years, a war has been raging on Wall Street between Herbalife Ltd., and Bill Ackman, a very wealthy hedge fund honcho. Herbalife is a multi-level marketing (MLM) company. For those of you who don’t know what that means, it’s a marketing strategy in which the sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit.
Personally, I have never understood the difference between an MLM and a pyramid scheme. In this particular instance, it is Ackman’s contention that Herbalife is a pyramid scheme and that it should be shut down by the government, but it’s not that simple. Years ago, Ackman made an investment of a billion dollars where he sold short on Herbalife stock, meaning that he gambled that the price of a share of Herbalife would go down, so he has a vested interest in whether or not Herbalife is a legitimate business.
“Betting on Zero”, which debuted at the Tribeca Film Festival, examines the ongoing battle between Ackman and Herbalife and the director, Ted Braun, claims he has no dog in this fight. Some who are in the Herbalife camp claim otherwise. We can’t be certain either way, so we can only focus on what Braun puts on the screen and what he puts on the screen makes Herbalife out to be a total scam.
The first third or so of the film is straightforward and not particularly scintillating. All that changes when Carl Icahn enters the fray. Icahn has riches that dwarf the riches of Ackman, if that’s possible. Icahn and Ackman hate each other. Why is not entirely clear. When Icahn takes the opposite investment in Herbalife, the war is on.
Herbalife peddles “nutritious” foods, drinks, vitamins and supplements, but they make their money by getting their employees to recruit more employees under them. As more continue to join and buy their initial products to sell, those above them get a cut. Unfortunately, those who think they will get rich by joining up, never seem to even break even. Over and over, people sign up and eventually leave, usually with a loss of a couple thousand of dollars. The Hispanic community has been particularly hard hit and they have apparently been targeted by Herbalife.
Braun focuses extensively on one group of Hispanics that are attempting to fight back by suing. Herbalife has offered a class-action settlement that works out to be about ten dollars per person. On the advice of their lawyer, they reject the offer. We watch the results unfold, or at least some of them. Other issues remain unresolved by the end of the documentary.
It’s difficult for me to understand how a company like Herbalife can exist legally, but I am far from an expert on high finance matters. I’m not that skilled at even low finance matters. For now, the central dispute remains unresolved and there is more than a hint that government wants no part of this for political and monetary reasons that point at far greater corruption. Ackman has bet on Herbalife going zero. Icahn has bet on the opposite. My bet is that the game is rigged.
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