In a Twisted Turn of Events, Herbalife Retains Anti-MLM Firm, Boies Schiller

Humor me for a second. Suppose prominent law firm, Dewey Cheatham & Howe, initiates a class action lawsuit against cigarette maker, Marlboro. DCH alleges that Marlboro sells cancer sticks. DCH achieves a windfall settlement from Marlboro i.e. $20,000,000! Now suppose a doctor accuses Marlboro’s competitor, Winston, of also selling cancer sticks. And when it comes time to choosing a law firm, Winston chooses……Dewey Cheatham & Howe.

Do you see the problem?

Herbalife has retained mega firm Boies, Schiller and Flexner

Before discussing Herbalife’s decision, it’s important to provide a little background. Bill Ackman, hedge fund manager and founder of Pershing Square Capital Management, dropped the proverbial hammer on Herbalife. In what has been referred to as “dizzying takedown” of Herbalife, Ackman gave a 330+ slide presentation at the Ira Sohn conference in New York, arguing that Herbalife is an illegal pyramid scheme on the verge of collapse. When choosing his tools for the Herbalife autopsy, Ackman skipped right over the scalpel and went straight for the sledge-hammer.

Herbalife’s decision to retain Boies Schiller came to light in the Wall Street Journal’s story titled “Herbalife Goes on Offensive.” Out of all of the law firms in America, it’s extremely confusing to me why Herbalife would retain Boies Schiller (assuming the report is true). Currently, it’s unclear what exactly Boies Schiller will be doing for Herbalife. Given the timing, I suspect they’re being asked to help Herbalife deal with Ackman i.e. suing Ackman. If this is the case, hell has truly frozen over.

Boies Schiller recently received a settlement from Amway, resulting in legal fees “up to $20,000,000!” I’m not making this up. In late 2006, Boies Schiller initiated a class action lawsuit against Amway. In the lawsuit, they made most of the same arguments used by Ackman in his presentation i.e. there are minimal retail sales, the products lack quality, the buyback policy is ineffective, internal consumption is bad, etc. Their anti-MLM sentiment is made obvious in the first paragraph of the lawsuit against Amway (included below, written and filed by Boies Schiller!):

This pyramid scheme [Amway] is fraudulent because it induces individuals to invest in products and marketing tools and to recruit new victims into the scheme with the false promise of enormous profits. . . Because [Amway] distributors most often do not sell products to consumers who are not also distributors, they can obtain a return on their investment in the [Amway] program only by recruiting new distributors who will then buy products and recruit more distributors who will buy products.

And this firm has been asked to protect Herbalife.

Soon, I’ll be providing a more detailed analysis of Ackman’s position against Herbalife. In summary, the MLM industry is about to change, for better or worse. There’s no doubt about it. While there have been plenty of attempts in the past by lawyers and disgruntled distributors to air the dirty laundry of companies, there has never been anything like Ackman. Not even close. He’s all over the news, seemingly rubbing the FTC’s nose in a pile of poop. He’s creating the impression that the FTC has fallen asleep at the wheel. Whether that’s true or not is a topic for another post.

How can Boies Schiller effectively represent Herbalife? And really, they’re not only being asked to protect Herbalife, they’re indirectly being asked to protect the legitimacy of the entire industry. It seems bizarre for a firm to profiteer on two sides of the same issue….especially when those sides are on polar opposites.

In this fight with Ackman, Herbalife needs to restore confidence in its business model. Retaining Boies Schiller is a huge step in the wrong direction.

See below for the class action lawsuit filed by Boies Schiller against Amway

See below for Ackman’s presentation about Herbalife

There are a lot of similarities in Ackman’s arguments and those used by Boies Schiller against Amway.

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  • Scott Johnson

    Another example is when Amway hired Charles Bundren to sue me, because I was telling Amway IBOs (distributors) they were being ripped off via the Amway Tool Scam and they were breaking Amway’s own rules by advertising on Craigslist. Bundren also represented TEAM after they got kicked out of Amway (Quixtar at the time), so this isn’t the first example of this situation.

    By the way, the Pokorny lawsuit is currently being held up by my wife’s complaint. I noticed there were 18 complaints included in the settlement, but her complaint wasn’t one of them. The excuse offered was her complaint was “overlooked” (all 100+ pages!) and didn’t get forwarded to Boies Schiller (BS). Then, BS submitted it after she complained, and told the judge the complaint was like the other 18, which is a bald faced LIE. The judge hasn’t answered the complaint, but Amway recently submitted a “come on judge, finalize your decision” submittal to the court.