Herbalife (NYSE:HLF) seems to be a popular topic on SA. There are certainly two camps. Whenever someone writes an article, scores of commentators come out, almost like it's a sports event. Each respective team is trying to score points, pump up their side and, unfortunately, trash talk the other side.
The issues surrounding Herbalife should be more than just a back and forth exchange of gunfire. Whether Herbalife is ultimately ruled a Pyramid Scheme, or not, will affect millions of people and billions of dollars. Anyone considering investing in Herbalife, either on the long or short side, would be wise to take an objective view and make a reasoned determination of the issues and their potential consequences.
The "elephant in the room" is whether or not Herbalife is a Pyramid Scheme. There are other issues, such as exaggerated claims of income opportunities or product results. However, the "other issues" are not a determinant of whether or not Herbalife is a Pyramid. These "other issues" may be how a Pyramid can be propagated, but they do not define a Pyramid.
Since the "other issues" usually appear as separate counts in a trial, I'm not going to discuss them and instead concentrate on the "elephant in the room".
Let's start off with what should be an easy task... but one that is often muddled.... What, exactly, is a Pyramid?
There are many different explanations and different definitions. Most are very similar, with some small verbiage differences.
We could spend a lifetime debating this question, so let's just look at the definitions that are most likely applicable to situations such as Herbalife.
Let's look at what the FTC advisory says....
..." The critical question for the FTC is whether the revenues that PRIMARILY (emphasis added) support the commissions paid to all participants are generated from purchases
