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As a retired state consumer fraud attorney, I've discussed my views and concerns about pyramid schemes in earlier Seeking Alpha articles.

I have no economic interest in Herbalife (NYSE:HLF) stock and I am not selling or writing a book. My concern, having litigated against pyramids over a 30-year period and witnessed the related personal and economic damage they caused, is for the victims. I mention this solely as an indication of my motivation for writing. Understandably, this is not a fundamental concern for investors. I have no problem with this market-based approach, however the legality of an offering such as Herbalife's does create significant uncertainty about the stock's future. Recent swings in the HLF stock price appear to support this contention.

Current comment and legal analysis of pyramids has focused on the existence of retail sales outside the distributor organization. While I have some problem with the 'retail sales' analysis from a legal perspective, expert testimony indicates it is unlikely that a company operating a pyramid can have a preponderance of authentic retail sales. A recent Seeking Alpha comment referenced a public release from William Ackman that indicates Herbalife requires its distributors to record every consummated retail transaction for the past two years. If this is in fact the case, it would seem the company has available to it, through contractual authority, the right to obtain a full and documented history of its retail sales and put to rest the uncertainties that have been the subject of much discussion on Seeking Alpha and elsewhere.

I agree with Ackman that the recently released Herbalife study as to retail sales is suspect in respect to its statistical and practical significance. It does indicate, however, that the company considers the element of retail sales as important to investors, the public in general, and the regulatory authorities here and in other countries in which it operates.

Whatever reasons Herbalife may have for not releasing the actual retail sales figures available to it, as a former enforcement official, I have difficulty in understanding why the Federal Trade Commission has not used its investigative authority to obtain this readily available data. It would provide valuable information, given Herbalife's predominance in the field, about the likely experiences of other companies using a similar marketing plan. It would also provide support, if warranted, for further formal enforcement inquiry into the issue of pyramid schemes and Multi-Level Marketing.

I noted in yesterday's New York Times business section that the FTC will be using subpoenas to obtain documentation from entities known as 'patent trolls' who buy large portfolios of patents in order to sue others who they claim are infringing. It is significant to me that the FTC is willing to use this authority in this area but not in the multi-billion dollar MLM industry, where information about underlying retail sales data and related public injury is sorely lacking.

Also significant is the fact that this investigative effort regarding 'patent trolls' is the direct result of President Obama's executive order to the FTC that it examine this area to "protect innovators from frivolous litigation." The question of the legality, and the underlying factual reality, of MLM type offerings has been in limbo for the past 30 years. Billions of dollars have changed hands, and yet there is no discernible legal standard or factual basis with which to judge their legality - other than publicly disclosed failure rates that have been documented by other critics. I strongly urge the President issue a similar executive order to the FTC to use its subpoena power to make initial inquiries of well known MLM corporations, such as Herbalife, about their actual retail sales experience. In this context, a company funded study should not be a substitute for hard data obtained by enforcement authorities.

It is time to deal with this matter seriously.

Source: Recent Information Indicates Herbalife Has Data Which Can Resolve Its Legal Problems