Today the New York Post reported that Herbalife (HLF) is under investigation by the Federal Trade Commission (FTC), and that has sent the stock price down more than 10%. The newspaper bases this story on a Freedom of Information request done by the newspaper. It says, regarding consumer complaints received by the FTC:

The FTC redacted some sections, saying it didn’t have to divulge “information obtained by the commission in a law enforcement investigation, whether through compulsory process, or voluntarily …”

With yesterday’s shutdown of Fortune Hi Tech Marketing, consumers have been asking if Herbalife is a similar operation. Last year Herbalife’s business model was called into question by David Einhorn, and then the company was accused of being a pyramid scheme by Bill Ackman.

Naturally, Herbalife denied being a pyramid scheme. Management has repeatedly said that Herbalife is all about selling products, and that the products are indeed selling, so it couldn’t possibly be a pyramid scheme. But according to this (start at 2:00 mark), no one really knows how much product is being sold to actual consumers. To be clear: Herbalife does not track retail sales.

I previously compared Herbalife and BurnLounge, a company shut down by FTC because it was a pyramid scheme. (BurnLounge is currently appealing, but that is a story for another day.) Today we compare Herbalife and FHTM:

Fortune Hi Tech Marketing (FHTM), a multi-level marketing company I’ve reported on previously (and was interviewed about) was shut down today by the Federal Trade Commission. It is being reported that federal agents raided the company’s Lexington, Kentucky office.

Law enforcement says that 100,000 people across the country were recruited into FHTM, each paying $100 to $300 per year for the right to receive recruiting and sales commissions. A complaint was filed against Fortune HiTech Marketing on Thursday, and the judge issued a temporary restraining order to shut the company down.

Steve Baker, the head of the FTC’s midwest office said “..the plan was set up so that 96% of people lose money.”  He also said:

Kevin Trudeau is a charlatan with a colorful history of interaction with the authorities. Over and over, he has been found misleading consumers via infomercials (his main method of self-promotion), but now he would have you believe that he’s just a victim of the man who is trying to take away his First Amendment right to free speech.

In the early 1990s, Trudeau pleaded guilty to larceny and did time for stealing money via consumers’ credit cards. In 1996, Trudeau had legal troubles relating to his participation in Nutrition For Life, a multi-level marketing company that was accused of being a pyramid scheme.

I thought it might be some fun to do a little research on Gerald Nehra, the attorney for Shop To Earn, who likes to intimidate bloggers who write negative reviews of MLMs. I found this item from Nehra, in response to the FTC’s proposed Business Opportunity Rule.

The rule is unlikely to be enacted in any form that will do something to stop the abuses by multi-level marketing companies. Nonetheless, these comments are fun to read. Nehra’s biggest complaint in this note? The fact that it will take time to comply with the rules! Heavens, no!