In Hong Kong, Herbalife goes on, as US probes alleged pyramid scheme

PUBLISHED : Friday, 14 March, 2014, 4:32am
UPDATED : Friday, 14 March, 2014, 4:32am

It was business as usual yesterday at the Hong Kong branch of a global health-products firm under investigation in the United States for possible pyramid selling - as a barrister urged local police to crack down on such schemes.

The US Federal Trade Commission has launched a probe into Herbalife after repeated allegations by a hedge fund manager betting against its stock that its multi-level marketing is an illegal pyramid scheme.

But Herbalife International of Hong Kong, which has operated for almost two decades, said no local enforcers had contacted it and business was continuing normally. The company has an office in Tsim Sha Tsui.

Hong Kong's Pyramid Schemes Prohibition Ordinance, which came into effect in 2012, says a scheme is illegal when any reward is entirely or substantially based on the recruitment of new members while the product or service offered has little or no real value.

But multi-level selling of a legitimate product or service, such as insurance, is allowed.

Barrister Albert Luk Wai-hung said the ordinance offered a clear definition and it was time for police to be more active in ensuring multi-layer marketing activities did not cross the line.

"Many of these companies are involved in very complicated marketing activities," Luk said. "It may be difficult for the authorities to collect evidence to prove that a company is involved in a pyramid scheme, even if victims have come forward."

Luk said he could not determine whether Herbalife used illegal marketing.

But he added: "Local police should be more active in conducting undercover investigations and be better equipped with the knowledge of complicated commercial crime to deal with these activities effectively."

A spokeswoman for the police said they would not comment on individual cases. She added the police received two reports of pyramid schemes last year, two in 2012 and two in 2011.

The Herbalife chain sells nutritional shakes and health supplements through a network of millions of independent distributors in more than 80 countries.

Herbalife International of America confirmed yesterday that the commission was launching a civil investigation into its marketing practices.

"[We welcome] the inquiry, given the tremendous amount of misinformation in the marketplace, and will co-operate fully with the FTC. We are confident that Herbalife is in compliance with all applicable laws and regulations," the Los Angeles-based company said.

News of the probe came after Pershing Square hedge fund manager Bill Ackman, who has been accusing Herbalife for more than a year of being a pyramid scheme, laid out his allegations in a two-hour webcast on Tuesday.