This little gem is courtesy of Shortzilla, a Seeking Alpha contributor. In a 1986 Final Judgment and Permanent Injunction against Herbalife in California, the company agreed to the following:
B. defendants shall be in compliance with this Section 5, as long as a verification or documentation system they implement allows them, at any given point in time, to verify or: document to plaintiffs that any and all participants who receive commissions, bonuses, overrides and/or advancement from defendants in defendants marketing program, after entry of this judgment, are based on retail sales made by or through such participant(s) or others introduced directly or indirectly under participant(s). Plaintiffs shall not seek such verification or documentation prior to 90 days after entry of this judgment., and defendants shall be in compliance with this verification or documentation requirement it their records are current and accurate to a point in time which does not precede plaintiffs’ request for verification or documentation by more than 90 days. Plaintiffs’ request for verification or documentation of retail sales shall be made to defendants counsel of record.
So where is this system or documentation that verifies that distributors are making retail sales?
It doesn’t exist. In a May 1, 2012 conference call, the following went down:
David Einhorn: So what is the percentage that is actually sold to consumers that are not distributors?
Desmond Walsh – President: So we don’t have an exact percentage, David, because we don’t have visibility to that level of detail.
The company does not track actual retail sales and says they cannot track actual retail sales. Hmmmm… what did that permanent injunction say about retail sales?