bill ackman herbalife presentation - the big lie

The Big Lie

July 22, 2014

The Big Lie

July 22, 2014

Pershing Square Capital Management, L.P.

Disclaimer

This disclaimer is issued in connection with this document and the oral presentation by Pershing Square Capital Management, L.P. (Pershing Square) on Herbalife Nutrition Clubs (collectively, the Presentation). Pershing Square is an investment adviser to funds that are in the business of actively buying and selling securities and other financial instruments.

Pershing Square currently maintains a substantial short position in the common stock of Herbalife Ltd. (Herbalife) and derivatives related to its common stock. Pershing Square will profit if the trading price declines for common shares of Herbalife and will lose money if the trading price increases for common shares of Herbalife.

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party of any such changes.

The information and opinions contained in the Presentation are based on publicly available information about Herbalife and other companies and persons. Pershing Square

recognizes that there may be non-public information in the possession of Herbalife or others that could lead Herbalife or others to disagree with Pershing Squares analyses and conclusions.

The Presentation includes forward-looking statements, estimates, projections and opinions prepared with respect to, among other things, certain legal and regulatory issues

Herbalife faces and the potential impact of those issues on its future business, financial condition and results of operations, as well as, more generally, Herbalifes anticipated operating performance, access to capital markets, market conditions, assets and liabilities. Such statements, estimates, projections and opinions may prove to be

substantially inaccurate and are inherently subject to significant risks and uncertainties beyond Pershing Squares control.

Although Pershing Square believes the statements it makes in the Presentation are substantially accurate in all material respects and do not omit to state material facts

necessary to make those statements not misleading, Pershing Square makes no representation or warranty, express or implied, as to the accuracy or completeness of those

statements or any other written or oral communication it makes with respect to Herbalife and any other companies or persons mentioned, and Pershing Square expressly

disclaims any liability relating to those statements or communications (or any inaccuracies or omissions therein). Thus, shareholders and others should conduct their own

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As used herein, except to the extent the context otherwise requires, Pershing Square includes its affiliates and funds it manages or advises and their respective partners,

directors, officers and employees.

3

All Pyramids Eventually Collapse

Every pyramid or Ponzi scheme collapses because it cannot expand beyond the size of the earth's population. When the scheme collapses, most investors find themselves at the bottom, unable to recoup their losses.

http://www.ftc.gov/public-statements/1998/05/pyramid-schemes

Why Do Pyramid Schemes Always Fail? Since there are only a limited number of people in a given community, all

pyramid schemes will ultimately collapse. The only people who make money are those few who are on the top of the pyramid.

http://www.ag.ny.gov/consumer-frauds/pyramid-schemes

From the Securities and Exchange Commission:

From the New York Attorney General:

From the Federal Trade Commission:

The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. . . . But eventually the pyramid will collapse. http://www.sec.gov/answers/pyramid.htm

4

All Pyramids Eventually Collapse

We went into India ten years ago. And we went in and it was a big it's called pop and drop. You go in. A lot of distributors come in. They recruit and you get a lot of volume. Those distributors leave the country and you get a big drop. John DeSimone, Herbalife CFO, 3/10/10

China is 1.3 billion people, you can recruit for a long time there before we had what was called the classic pop-and-drop in that marketplace. Michael Johnson, Herbalife CEO, 8/6/08

Source: Herbalife Q208 earnings call (8-6-08).

In Herbalifes Own Words The Classic Pop-and-Drop

5

CEO Michael Johnson:

The Classic Pop-and-Drop

Japan Israel Spain

France Germany Russia

Herbalife Stopped Disclosing These Figures in 2002 6

$140

$92

$75 $69

$45 $42

$0

$20

$40

$60

$80

$100

$120

$140

$160

1986 1987 1988 1989 1990 1991

(70%)

Herbalife U.S. Retail Sales ($mm)

Retail Sales Declined Significantly

After the 1986 Injunction in California

Source: Herbalife public filings.

Herbalifes U.S. Retail Sales declined 70% cumulatively for the five year period following the 1986 injunction

7

$42

$86

$247

$295

$334

$280 $299

$365

$416

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

1991 1992 1993 1994 1995 1996 1997 1998 1999

Retail Sales Significantly Increased

After 1992 Infinity Bonus

890%

Herbalife U.S. Retail Sales ($mm)


Herbalifes U.S. Retail Sales increased 890% cumulatively for the seven years following the introduction of the Production Bonus (also known as infinity bonus)

8

Retail Sales Grew Rapidly After Michael Johnson

Became CEO

Herbalife Total Retail Sales ($bn)

$1.8 $1.8 $1.7 $1.8 $1.9 $2.1

$2.6 $3.1

$3.5 $3.8 $3.7

$4.3

$5.4

$6.4

$7.5

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Mark

Hughes

dies 5/21/00

Michael

Johnson

becomes

CEO 4/3/03

Source: Herbalife public filings. Note: Herbalife total retail sales used because the company no longer disclosed U.S. retail sales after 2000.

Herbalifes Retail Sales decreased after the death of founder Mark Hughes in 2000, but have grown rapidly since the company hired

Michael Johnson as CEO in 2003

9

Portfolio Manager John Hempton:

Herbalife is the Stock Markets Scumbags

Source: http://video.cnbc.com/gallery/?video=3000139284 11

Hemptons Firm Bronte Capital is Long HLF & Believes in Michael Johnsons Leadership

Expanded Disneys business from 34 markets to 80 markets

Created Disney subsidiaries in Europe, Asia, Africa, Latin America and the Middle East

Michael Johnsons Resume Fits Herbalifes Strategy

Univision Network is the most watched broadcast network and reaches 98% of U.S. Hispanic households

The Latino community has become Herbalifes largest affinity group

Source: Herbalife International Appoints Michael O. Johnson as Chief Executive Officer , 4/3/03 and Univision Communications Appoints Michael O. Johnson to Board of Directors, 6/5/05

Two years after becoming CEO of Herbalife, Johnson joined the board of

directors of Univision, which provided him deep exposure to the Latino

community

Prior to becoming CEO of Herbalife, Johnson was the President of

Disney International, which provided him with the experience of

expanding into new markets

12

Herbalifes Answer to The Classic Pop-and-Drop

Under CEO Michael Johnson, Herbalifes strategies to address the Classic Pop-and-Drop include:

1. Expand globally, including in the worlds poorest countries 2. Exploit the Internet and Lead Generation 3. Target Latinos and low-income populations in the U.S. 4. Propagate Nutrition Clubs 5. Support Training Programs within Nutrition Clubs

Targeting the Bottom of the Pyramid in Herbalifes Own Words . . .

13

SHUTDOWN

See Deceptive Practices Supporting the Herbalife Pyramid Scheme: Lead Generation (issued 2.4.14) http://www.herbalifepyramidscheme.com/deceptive-practices-supporting-herbalife-pyramid-scheme-lead-generation

From an Herbalife Internal Strategy Document

14


15


16

Herbalife Targets Those in Extreme Poverty

More than 4 billion people live at the

Bottom of the Pyramid (BOP) on less than $2 per day

Poor represents resilient

entrepreneurs and valueconscious

From Herbalifes Internal Strategy Document:

Emphasis in original 17

Herbalife Targets Those in Extreme Poverty

How to Target the Poorest of the Poor

18


1. Expand globally, including into the worlds poorest countries

19

Number of Countries in which Herbalife Operates

1 1 2 3 4 4 4 45

9 11 1115 16

24

32 3436

4246 49

52 5558 59 60

62 6570 72

7479

88 91

0

10

20

30

40

50

60

70

80

90

100

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80

19

81

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82

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84

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85

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87

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88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Michael

Johnson

becomes

CEO 4/3/03

Herbalife Needs More Countries to Exploit


Herbalife currently operates in 91 countries, up from 49 countries in

2000, 11 countries in 1990, and only 1 country in 1980

20

Country Year Entered GDP per Capita

Georgia 2011 $3,602

Belarus 2011 $7,575

Lebanon 2011 $9,928

Mongolia 2011 $4,056

Ghana 2011 $1,850

Trinidad & Tobago 2012 $18,373

Uruguay 2012 $16,351

Slovenia 2012 $22,059

Serbia 2012 $5,935

Macedonia 2012 $4,851

Armenia 2012 $3,505

Kazakhstan 2012 $13,172

Bosnia and Herzegovina 2012 $4,656

Moldova 2012 $2,230

Cambodia 2013 $1,008

Kyrgyzstan 2013 $1,263

Azerbaijan 2013 $7,812

Median $4,851

Herbalife Is Expanding into the

Lowest-Income Countries

Herbalife recently registered a domain in Burundi Myherbalife.bi a country with a GDP per capita of $267

Herbalife

does not

discount

products

in new

markets.

$5 for a

shake?

Source: Herbalife public filings and WorldBank.

In the last three years, Herbalife has entered 17 new countries.

The median GDP per capita of these countries is less than $5,000

21

Herbalife Seeks to Exploit the Extremely Poor

in New & Existing Markets

What we're seeing more and more is that that leadership group is starting to train more on these new innovative methods to drive deeper penetration in the markets.

Michael O. Johnson, Herbalife CEO, May 5, 2009

CEO Michael Johnson: Drive Deeper

Source: HLF Q1-2009 Conference Call 22



This is the number one strategy of the company. If you take nothing

else away from this presentation, it's that our growth opportunity is

from going deeper into the marketplace through a new distribution

method that our distributors have employed. They have had success

in one market. They are learning how to replicate that success in

multiple markets, and that's the future.

John De Simone, Herbalife CFO, Dec. 9, 2009

CFO John De Simone: Going Deeper

Source: Wedbush California Dreamin Conference 23



The main driver of Mexico's success has been a highly unified

distributor leadership group and the adoption of the innovative

Nutrition Club DMO, which has enabled our distributors to increase

penetration in the lower social economic segments of the Mexican

market.

Greg Probert, Herbalife COO, Feb. 27, 2007

Former Pres. Greg Probert: Increase Penetration in the lower social economic segments of the Mexican market

Source: Q4 2006 Earnings Conference Call 25


See Deceptive Practices Supporting the Herbalife Pyramid Scheme: Lead Generation (issued 2.4.14) http://www.herbalifepyramidscheme.com/deceptive-practices-supporting-herbalife-pyramid-scheme-lead-generation

2. Exploit the Internet and Lead Generation

26

SHUTDOWN


3. Target Latinos and Low-income Populations in the U.S.

30

Herbalife: Going Deeper

Pursuing its Going Deeper strategy, Herbalife has targeted Latinos, African-Americans, Korean-Americans, Generation H and other affinity groups

Today Herbalife denies it targets ethnic, racial and other affinity groups, but the evidence demonstrates that Herbalife explicitly targets vulnerable groups

31

I find the targeting of Distributors by ethnicity offensive on many levels

Michael Johnson, CEO October 2013

In Herbalifes Own Words . . .

32

33

From a 2008 Herbalife Internal Strategy Document

Herbalife Exported Nutrition Clubs From Mexico to the U.S.

34

When the new management team came in, they asked what's the

phenomenon going on in Mexico? Why is Mexico is very consistently growing

the business? We went down into Mexico and found that these nutrition

clubs were really the vibrant aspect of that business versus the traditional

retailing-oriented component. In early 2004, we validated the nutrition club

concept. And you can see that point of inflection where once that was

validated and we started to communicate that, put that message on stage,

if you will, and create a lot of visibility around the success distributors were

having, it really escalated the Mexican business. Similarly, that concept

started to migrate into the US in late 2004.

Rich Goudis, CFO, Dec. 19, 2008

Source: Wedbush Conference

Source: DSA

35


36


37


38


Herbalife Targets the Unbanked Poor

39

40



Projections

for Spanish

& Non-

Spanish

Markets

41

Herbalife Has Targeted Affinity Groups During

Johnsons Tenure As CEO

Source: Herbalife 2010 Investor Presentation. 42



Source: Herbalife Today 43



I get a call from a distributor, for example, who lives let's say in Southern

California and wants to move to Miami. So we have a program called

Geoscape that we can basically look up not only the -- let's say that they only

interested in working in the Latino market, okay. So it tells us what's the

Latino population, it actually breaks it down by the Cuban, Mexican, Puerto

Rican, and then also layers it by the distributors. So within that zip code

area, how many distributors do we have and what level are they. And this is

how they also have taken on that city-by-city concept, because they don't

want -- only want to just started working in their own backyard, they want to

start working in the different states.

Ibi Fleming, Herbalife SVP North America, Apr 24, 2012

Source: Barclays Retail & Restaurants Conference

From John Tartol, Member of the Chairmans Club & Herbalife Board of Directors:

Latino Business is a Hot Commodity

Source: https://vimeo.com/84320070 password tartol 46

Why Herbalife? Why Now? (2008)

Source: https://www.youtube.com/watch?v=qcZQF8sm4nQ 48

Herbalife Targets Affinity Groups &

Low-Income Populations

Ideal Targets for Business Opportunity Schemes:

People in Need: Low-Income and Financially Insecure Populations

Who are Aspirational, Yearning to Build a Better Life

Who are Hardworking & Teachable (a favorite HLF term)

From Close-knit communities based on affinity

People unlikely to complain culturally or because of legal risk (e.g., undocumented residents)

49

Research into Nutrition Clubs & Training Programs

The next sections of this presentation are based upon on-the-ground research over the past two years in:

Including Nutrition Club visits, Interviews, Audio/Video Taping, Enrolling in Training Programs and Undercover Investigators

50

The U.S.

Puerto Rico

Canada

Mexico

Argentina

Brazil

Venezuela

Colombia


4. Propagating Nutrition Clubs one way for Herbalife to reach Latino and low-income populations

51

Nutrition Clubs Are Critical to Herbalifes Revenue Growth

The fundamental change in our business began 10 years ago with

the development of Nutrition Clubs in Mexico. This increased our

addressable audience by making our products more affordable to

more consumers.

Michael Johnson, CEO, Oct. 30, 2012

To reach new target populations, Herbalife adopted Nutrition Clubs and Training Programs

Source: HLF Q3 2012 Earnings Call 52

Nutrition Clubs are Critical to Herbalifes Revenue Growth

Units in Mexico 37,000

449 397 403

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1,249

Source: Herbalife Q4 13 earnings conference call and public filings for quick service restaurants Note: For Herbalife, units represents nutrition clubs. For quick service restaurants, units represents total number of owned and franchised units.

Herbalife currently has 37,000 nutrition clubs in Mexico, which is 30x

the combined total of Burger King, McDonalds, and Starbucks restaurant units

53

In 2010, Herbalife stated that Nutrition Clubs accounted for

nearly 70% of its business in Mexico. We believe Nutrition

Clubs are now an even more significant portion of Mexicos business

54

Source: Bloomberg

Mexico Derives Substantially all Revenue

from Nutrition Clubs

Today, in some markets, in Mexico, for example, which is the most advanced in terms of nutrition clubs and where they originated seven or eight years ago, we estimate that as much as perhaps 70% of our business is done through the clubs.

Des Walsh, President, Q2 10 Earnings Call

Shake Herbal Tea Aloe Water Total

Drinks per Day in Nutrition Clubs (1) 700,000 700,000 700,000 2,100,000

Days per Year 365 365 365 365

Drinks per Year in Nutrition Clubs 255,500,000 255,500,000 255,500,000 766,500,000

Estimated Herbalife Net Sales per Drink (2) $0.74 $0.39 $0.49 $0.54

Estimated Herbalife Net Sales in Nutrition Clubs $189,070,000 $99,645,000 $125,195,000 $413,910,000

Reported '13 Net Sales in Mexico $562,400,000

Estimated Nutrition Club Sales as % of Reported '13 Net Sales in Mexico 74%

Estimated Contribution of Nutrition Clubs to Herbalifes Net Sales in Mexico

Source: Company filings, conference call transcripts and Pershing estimates (1) Based on Q3 13 earnings conference call for 700,000 shakes. Since members are entitled to one shake, one herbal tea, and one aloe water with their daily membership, we assume members consume one of each drink per day. (2) Pershing estimate based on Formula 1, aloe water and herbal tea purchased price at a 50% discount to retail price and including 7% surcharge and 4% shipping. Serving amount per drink based on Herbalife recommended recipes

Herbalife claims to serve 700,000 shakes per day in nutrition clubs in

Mexico. Based on this assertion, we estimate that nutrition clubs may

represent nearly 75% of Herbalifes reported net sales in Mexico

55

Mexico Derives Substantially all Revenue

from Nutrition Clubs (Cont.)

We have always talked about how long it took for the nutrition

clubs to ramp up. Its exponential. So youre probably talking 18-24 months out into the future til you see maybe the explicit exponential growth.

Michael Johnson, CEO, May 2, 2007

So once they get to the point where, maybe over 1,000 to 2,000

Clubs, you really start to see exponential growth, so I think thats one thing really driving the Hispanic side of the business.

Greg Probert, then-President and COO, Nov. 7, 2006

Nutrition Clubs Fuel Exponential Growth

Michael Johnson: Its exponential.

Source: Herbalife Q1 2007 Earnings Call; Herbalife Q3 2006 Earnings Call 56

Nutrition Clubs: A Tough Sell

But Opening a Nutrition Club Presents Nearly Impossible Obstacles to Success for the Target Recruits

57

So it depends on the marketplace, but the clubs can vary from

$5,000, $6,000 to open to something greater than that.

John DeSimone, Herbalife CFO, Nov. 16, 2011

Nutrition Clubs: A Tough Sell

Nutrition Clubs Require Significant Start-up Capital

Source: Nov. 16, 2011, Morgan Stanley Global Consumer & Retail Conference. 58

Herbalifes Nutrition Club Rules:

No displays of Herbalife name or logo or the words Nutrition Club or

shakes or any implication of being an Herbalife business (Rules 4-F; 5-B;

5-C; 5-E)

No advertising or promotion (Rule 4-D)

Must cover windows; no product visible from outside (Rule 3-G, 5-D)

No Open / Closed sign; signage may not imply or suggest that retail

products are for sale (Rule 5-C)

Not allowed to attract customers or walk-ins (Rules 4-D; 5-C)

May not post, list or charge individual prices for products (Rule 3-B)

Customers not allowed to carry out food unless a registered Club

attendee and only in an unmarked single-serving container (Rule 3-C)

Nutrition Clubs: Onerous Restrictions

Preclude Retail Sales and Advertising

Source: Herbalife Nutrition Club Rules, Herbalife Sales & Marketing Plan, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Marketing-Plan-and-Business-Rules-2012.pdf. Compare these restrictions on Nutrition Clubs with HLFs constant promotion of its name and logo in other contexts.

59

So the clubs first and foremost can't be retail establishments.

They can't be Herbalife signed stores. Okay? . . . The consumer

cannot know it is a club until they have come inside.

They can't know it has anything to do with Herbalife. So the

windows are blocked . . . you can have no reference where

somebody walking by will know it is Herbalife.

John DeSimone, Herbalife CFO, Nov. 16, 2011



At Nutrition Clubs: The public cant know it has anything to do with Herbalife.

Source: Nov. 16, 2011 Morgan Stanley Global Consumer & Retail Conference, available at http://factsaboutherbalife.com/wp-content/uploads/2012/06/111116-HLF-Morgan-Stanley-Global-Consumer-Conference.pdf.

60



We want the confidence of our distributors to be the passionate

expression of this product in the marketplace. And the way we do

that confidence and the way we build that confidence is to put our

name on these jerseys to have the world respond to us and see the

Beckhams of the world, and see the Messis of the world with

Herbalife on them and create an opportunity around our 8 Herbalife

24 product line to build off authenticity around those athletes

Michael Johnson, Herbalife CEO, Mar. 23, 2012

CEO Michael Johnson praises putting Herbalifes name on jerseys, but Nutrition Club operators are prohibited from using the Herbalife brand

Source: Herbalife Analyst Day 61



Herbalife boasts that it sponsors over 45 teams and sporting groups and 86 individual athletes, but Herbalife forbids Nutrition Clubs from using its name or logo

Source: http://sports.herbalife.com 62

Nutrition Clubs Lose Money on a Retail Basis

Daily traffic trends (based on two days of observation)

Breakdown of distributor vs. member traffic

Approximate rent per sq. ft.

Approximate size (sq. ft.)

Days open per week

Approximate utility costs

Start-up costs per club

Inventory costs per serving

Source: Photos Taken by Pershing Square

We studied the economics of 10 Nutrition Clubs in Queens, N.Y.

64

Look

Commun. Arcoiris Good

Juven. Salud Amigos Weight A New Herba- Feel 2135 Health Healthy

Y Vida Es Vida Felices Loss Hope Life Great 2nd Ave It Up Keepers Average

Membership fee $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00

Daily paying members (1) 21 52 27 23 14 14 12 20 6 51 24

Days open per year 344 292 292 292 292 292 292 292 344 292 302

Membership Revenue $36,765 $75,555 $38,873 $33,398 $19,710 $19,710 $18,068 $28,470 $9,675 $74,460 $35,468

Less: Rent (2) (23,142) (15,685) (16,655) (21,428) (19,170) (22,984) (31,668) (36,447) (14,694) (27,464) (22,934)

Less: Utilities (3) (2,100) (1,750) (2,800) (1,983) (2,362) (2,100) (2,450) (2,800) (1,837) (2,644) (2,283)

Less: Insurance (3) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000) (4,000)

Less: Inventory (4) (16,989) (34,913) (17,963) (15,433) (9,108) (9,108) (8,349) (13,156) (4,471) (34,407) (16,389)

Less: Depreciation (5) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000) (2,000)

Operating Income ($11,466) $17,207 ($4,545) ($11,446) ($16,929) ($20,482) ($30,399) ($29,933) ($17,326) $3,944 ($12,137)

Nutrition Clubs Lose Money

(1) Daily traffic based on average of the two days of traffic observed by Pershing Square. Assumes 75% of daily traffic are paying members. (2) Based on analysis of recorded rents for comparable local retail properties performed by New York City real estate consultant (3) New York City real estate consultant and Pershing Square estimates (4) Based on estimated traffic for total servings and average cost per serving assuming a purchase price at a 50% discount to retail price. Amount per serving based on Herbalife recommended recipes. Assumes each member consumes one Formula 1 shake, one herbal tea, and one aloe water per visit, as they are entitled to under their membership fee. (5) Assumes a three year amortization period for the $6,000 nutrition club start up costs as reported by Herbalife

We estimate that the average Nutrition Club loses more than $12,000

per year before accounting for the additional opportunity cost of the

operators time

65

Market Saturation

66

In the Face of These Obstacles to Success, How Does Herbalife Lure in Recruits?

First, tell them its not about selling shakes, its about DUPLICATION

67

Where your moneys made is not serving smoothies. Where your moneys made is having hundreds, or tens, or thousands of distributors around the globe who are working.

Doran Andry,

Herbalife Chairmans Club Member

The Real Purpose of Nutrition

Clubs Is Recruitment

Source: Doran Andry conducting a Full Wellness Training, available at https://vimeo.com/88161989 at 3:58 (password: andry). See also: Profile of Andry on www.herbalifepyramidscheme.com.

69

Because when you buy the product once a month and you have to come out the pocket $30, $40, $50 or $100, it's hard for people to afford. If you could break it to a daily price point, you could have the same price per serving, but now you break it to $2, $3, $4 per day, it becomes very accessible to people. So it's not more affordable, but it's more accessible.

John DeSimone, Herbalife CFO, Sept 6, 2012



So it's not more affordable, but it's more accessible."

Source: Barclays Back-to-School Consumer Conference 70



Source: Financial Success System presentation on Nutrition Clubs, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Eng_OperatorsTraining.pdf. See also: Profile of Andry on www.herbalifepyramidscheme.com.

71



Money is made in the duplication of Distributors

starting their own Clubs.


72




73

How Does Herbalife Explain Nutrition Clubs to Wall Street?

Its All About Consumption

74

It Is All Consumption Based

I think its important for somebody interested in this model to go

see a club. And youll understand that within the clubs, it is all

consumption based.

John DeSimone, CFO, Nov. 14, 2012

Source: Herbalife Independent Distributor Presentation Source: Herbalife Investor Day Presentation, March 23, 2012

Source: Nov. 14, 2012 Morgan Stanley Global Consumer & Retail Conference; Independent Distributor Presentation. 75

Herbalife Tells Wall Street

Nutrition Clubs Attract Repeat Customers

In response to a survey of U.S. Nutrition Club members, nearly 60% said they attended a nutrition club everyday, almost 80% attended more than 3 days a week, and more than 40% have been attending the club for longer than one year.

CEO Michael Johnson,

2Q 2011 Earnings Conference Call

Herbalife Chief Executive Officer Michael O. Johnson told investors during an earnings conference call that people in Nutrition Clubs are loyal:

76


5. Support Training Programs in Nutrition Clubs an entry point for low-income recruits who cant or wont invest to open a club

77

Herbalife Promotes Training

In the face of:

High start-up and operating costs

Projected losses from operations

Saturated markets

The daunting prospect of trying to duplicate a Club

How can Herbalife recruit low-income, inexperienced, first-time business operators to try the business if they are unwilling or unable to open a Club?

TRAINING! 78

Recruits Are Told They Cannot Succeed

Without Training

Data

Of 100 Clubs 64 closed in their first year

90% of Clubs that closed had less than 15 complete consumptions

9 out of 10 Clubs that were closed were attended by distributors who are not trained

Translation:

Source: https://www.facebook.com/solrac.c.zenemij/photos. 79

And frankly, this home commercial model, the method of systemized training that we're now seeing introduced by many distributor leaders in Mexico supported obviously by the Company with Nutrition Club tours and so on.

Des Walsh, President, Feb. 22, 2012

In Mexico, the more structured training methods that many distributors are integrating into their businesses is driving solid volume growth, duplication of Clubs . . ..

Des Walsh, November 1, 2011

Herbalifes Elusive Systems of Training

Source: Q3 & Q4 2011 HLF Earnings Conference Calls (emphasis added)

Herbalife repeatedly refers to structured or systemized training methods, but they dont explain what they are

80

They've come together and gone into light commercial or industrial space, and they've put five or six distributorships together, and they have a social environment. They have a nutrition environment. They have a training environment. They have a recruiting environment all under one roof.

Michael Johnson, CEO, Sept. 3, 2008

Herbalifes Elusive Systems of Training

Source: HLF at Goldman Sachs Global Retailing Conference, Septermber 3, 2008

Herbalife repeatedly refers to systemized or structured training methods but doesnt explain what they are

81

Herbalife has Fostered Many Training Programs, including Club 100, Universidad del Exito (Success University) and other Trainings and Certifications, including Herbalifes own Best of the Best / Lo Mejor de Lo Mejor

82

Club 100: A Pyramid Within a Pyramid

Source: www.slideshare.net/ivanpatricioarias/hom-club-100. 83

Club 100: A Pyramid Within a Pyramid

84

All of our Wall Street analysts have been into clubs throughout the U.S. and in some cases, Mexico, Brazil or even Russia, and they can attest to the fact that there are more customers enjoying Herbalife products on a more frequent basis than ever before.

Michael Johnson Herbalife CEO, July 31, 2012

Source: Q2 12 Earnings Call

John Hempton is the most public bull and blogger for Herbalife

Wall Street Buys that People in Nutrition Clubs

are Customers

They . . . were clearly customers they came in they paid their money they drank their shake. They look like customers because they were customers.

John Hempton, Bronte Capital, after a visiting a Nutrition Club in Queens

to which Herbalife had directed him

See http://nypost.com/2014/04/16/ackman-adversary-john-hempton-falls-off-herba-cliff/ 85

An institutionalized system for recruiting, training, and motivating Nutrition Club operators that has driven

Herbalifes growth in many Spanish-speaking markets and elsewhere

Originated in Queretaro, Mexico

Trademarked in Mexico by Jorge Ruiz in 2009

Has spread across the U.S. and Latin American markets, and elsewhere

Has its own rules, rewards, symbols and tools

Club 100 is intentionally secretive

Almost no written explanation or rules

Rules are inconsistently applied between systems and sponsors

Completion of steps is at the discretion of the sponsor

The message, however, is very consistent: Club 100 says it

offers a way for distributors to reach the Presidents Team

Price is little when the promise is clear, as my teacher used to say, right? The promise what you are promising people is very important. You have to sell them the idea that one day they are going to make Presidents Team.

Undercover Investigator at a Club 100 Training

Whats Wrong with Club 100: False Income Claims

Source: www.facebook.com/yimenita.mora/photos. 89

Presidents Team Members Across the U.S. Are Linked to Club 100

Ernesto Zavalza Portland, OR

Juan Mendoza Scottsdale, AZ

CHAIRMANS CLUB

Monica Del Caprio Scottsdale, AZ

Maria Elena Caballero Park City, IL

Luciano Oliveira Chicago and PR

Milton Camas Passaic, NJ

Edgar Montalvan Queens, NY

Santiago Cobos New York

Nelson Pablo Paucar Brooklyn, NY

Estuardo Loza New York, NY

Marcelo Real Boston, MA

Emily Molina Waterbury, CT

George Gutierrez Puerto Rico

Sujaila Toro & Carlos Franqui

CT / PR

Veronica Zumano Metro DC / MD

Alvaro Echavarria Miami, FL

Andres Gutierrez & Martha Muriel

Miami, FL

Olga Cortes & Pedro Rojas Atlanta, GA

Maritza Sanabria Houston, TX

Joe Pastrana Houston, TX

Erick & Flor Rios Houston, TX

Dalia & Angel Ibarra San Antonio, TX

Norma Nava Oxnard, CA

David Yanez Anaheim, CA

Elizabeth Yanez Anaheim, CA

90

Club 100: Getting Certified

Source: Facebook 91

Club 100

Certification

Source: http://www.planclub100.com, before the website was taken down in December 2013.

Club 100

Certification


Translation: Certification Course

Distributors work in an upline distributors club

Distributors pursue certification under a Yellow or Green Card

Green Card holders go at their own pace

Yellow Card holders are on the fast track and are required to work a set schedule



Youll learn how to make the shakes,

how to call and invite people to the club,

as well as how to manage the club

finances and rules.

Club 100 Recruiter, Bogota, Colombia

The position is like an unpaid internship



The trainee said he would prefer to drink his

shake, tea and Aloe Water at the end of his

shift. His upline said, How can we serve the

tea if we haven't had the tea?

Notes from Undercover Investigator

A distributor's first task, however, is to pay for and consume the products.


Club 100 Certification

Classes

Translation: Certification Class



Classes

Classes typically are held three times a week (but sometimes more frequently)

The content of the classes is highly repetitive from one session to the next

Those who arrive even one minute late dont receive credit for the class and must attend

another class, but they must still pay



Classes

Distributors pay a fee to attend classes which often

includes the cost of consuming products during the

classes.



Classes

A trainee at the club was asked by another trainee how

many more classes she needed to take to complete

her certification. She replied that she didnt know because as soon as she completes one series of

trainings she begins a new one.


As with many of Club 100s requirements, class attendance requirements can be confusing and

inconsistently described.



Testimonials

Translation: Product Training



Week 1 Translation: Tour of Clubs

Consumptions

Club visited

Host Signature



Week 1*

Distributors during the certification

process have to visit your club on the

tour, and they would have to pay for

their consumption for training. Thats

the hosts benefit of teaching you from

their experience.

Club 100 Distributor, Colombia

Touring requires paying for Herbalife products

*Each stage can last longer than a week



Week 1

Rules for the Certification Tour posted online by Club 100 in Venezuela:

During the first week of the certification tour, visit seven different clubs, staying for a minimum of two hours at each

Only visit clubs that have obtained the 25 and More qualification

Inform the host when you plan to attend

Avoid visiting clubs in groups of more than five

Avoid use of unauthorized cameras

Avoid talking to the clubs consumers unless asked by the host

Trainees are encouraged to look like customers



Week 2

Translation: Shake Preparation (how many)

Shakes

School Club

Host Signature


Week 2

Making an Herbalife shake is a fairly simple process

two scoops of Formula One blended with a glass of water. The training, however, is extensive.

The first thing trainees learn is the importance of

customer service; then they learn how to make

shakes. A trainee was told that she must make at

least 100 shakes.



Week 2

Not only must trainees make shakes, they must also find people to pay for and consume them.

Of course, you and your relatives have to pay

the host for the meals or shakes that you

guys take in the school club.

Club 100 Distributor, Colombia


Week 2

Not only must trainees make shakes, they must also find people to pay for and consume them.

The undercover asked a trainee who had been working

at the club for two years if it takes a long time to learn to

make shakes. She said, Nah.

Later, the undercover asked the trainee if she had

completed the certification process, and she said she

still needs to pass some of the tests.




Week 3

Translation: Give Information (to how many people)

No. of People

Club School

Host Signature



Week 4

Translation: Invite (how many delivered)

Invitations

Club Visited

Host Signature


Week 4

A trainee in the club asked another trainee if she

had completed the tests the shake making, the inviting, the giving information requirements.

"Haven't you already done all that?" he asked.

The trainee said she had, but the invitees needed

to consume product for her to pass those tests.



Week 4

Example of a flyer

inviting a person to

visit a Nutrition Club

Note that the invitation

is for a free sample



Retained Members



Retained Members

Interview notes from a Club 100 club in Caracas, Venezuela

A distributor mentioned that during her

certification, she spent almost three months

trying to complete the retention requirement,

which requires a trainee to bring 10 people

from their circle of family and friends to

consume regularly in the club.



Retained Members

Distributors are told they should feel grateful when

turning over 10 family members and friends to their

upline's club in order to graduate.

That club opened the doors for you. Imagine

how great it is! ... So you have to start

working, inviting people to go in, and when

you get 10 people into the club, it means that

you are no longer afraid of anything.

Club 100 Co-founder Esther Espinosa, at a training event in Mexico

Note: If the Trainee delivers 10 Retained Clients from his or her Circle of Influence to the

sponsors Nutrition Club, theres no one left to patronize the Trainees Club, if it ever opens. He will need to recruit trainers to bring their Circle of Influence.

So Whos Really Consuming in Herbalife Nutrition Clubs?

Friends and family of those working at clubs to be certified

Potential recruits on the Presentation Tour

Distributors training in their sponsors clubs

Distributors on Certification Tours

115



Graduation

Translation: Club 100 Graduation Ceremony

Source: www.facebook.com/hiram.j.silva?fref=ts.

Club 100:

Certified Worksheet

117

Amount

Trainee consumes in sponsors club twice a day for three months 180

Trainee goes on tours and consumes in 8 clubs as part of the tour 8

Trainee consumes at each class/event attended (Assumes 3 weekly events for 16 weeks) 48

Trainee makes 100 shakes for practice, finds relatives to consume them 100

Trainee takes inviting test and gets 1 person to come into the club every half hour for 4 hours 8

Trainee recruits 10 relatives to consume in his uplines club once a day for a month 300

Estimated Total Shakes Consumed by Trainee or Trainee's Friends & Family 644

Daily Membership Fee for Nutrition Clubs $5.00

Total Estimated Cost of Shakes Consumed by Trainee or Trainee's Friends & Family $3,220

Hidden Costs of Club 100 Certification

Source: Estimates based on Pershing Square undercover investigations

Amount and Cost of Shakes Prepared by Trainee during Club 100 Certification

The total cost to become a certified Club 100 member approximates the $3,000

cost to become a supervisor - excluding the cost of classes

We estimate that a Club 100 trainee and their family and friends incur

more than $3,000 in fees to purchase shakes

118

Club 100: Graduates in Caps and Gowns

119

Source: www.slideshare.net/ivanpatricioarias/hom-club-100.

Club 100: Another Pyramid to Climb

Now, the new Club operator attempts to advance by ordering large

volumes of Herbalife products to grow consumptions

120

Source: www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be


And when you get to a weekly average of 25, then we begin

talking about other interesting

things. As they said to us during

our tour when we asked several

questions: Ill tell you when you get to 25 or more.

Edgar Balbas, Chairmans Club member since 2013

There are rewards for reaching various targets, but top distributors are

coy about them

121

Source: www.facebook.com/gustavo.anaya.33/photos.


Club operators get a certificate for each new level, starting with

25 consumers

122

Source: www.facebook.com/alvaro.echavarria.92?fref=ts#!/photo.php?fbid=10150117556852709.


Distributors must faithfully record all consumers entering their clubs

123

And I'm going to clarify again that these are not consumers, but

how many consumptions your club

had. Because if someone went

and consumed two or even three

times that day in your nutrition

club, that would be registered

here as three consumptions and

his or her name would be written

three times.

Source: http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.


The number of consumers, however, is not as important as the amount

of product they consume

124


Now, you see, the objective we want to achieve is that a club

with 25 [daily consumers]

moves, not 1,200 points [the

amount of volume required to

serve 25 people for 30 days],

but 2,500 points. That means

that there are still 1,300 to go.

Those 1,300 points, my friends,

are achieved with products, eh,

by selling closed products for

specific nutrition.

Finally, Club 100 requires that distributors place set volume point orders

every month to back up that they have the claimed 25, 50, 75 or 100

consumptions going on daily at their club

125


Once you have reached 25 meals, you can become a daily school club. Then, others will go to yours, to learn and pay for their

consumption.

Interview with a Club 100 operator in Colombia

The benefits of reaching these inventory loading targets are more

consumers

126


We were told that clubs are permitted to train new recruits only when they reach 50 or More consumers. We spoke with a distributor who had recruited a trainee but was unable to have

that trainee work in her club because she not reached 50 and More. As a result, the trainee was working in her uplines club.


The rewards continue to build with the status of the club

127

After reaching 100 daily consumos, the Club operator then focuses on getting downline recruits to open new Clubs

Source: www.slideshare.net/ivanpatricioarias/hom-club-100.

Club 100: Yet Another Pyramid to Climb

128


Source: http://planclub100.com/portada/wp-content/uploads/2010/06/5-x-5-clubs.pdf.

129

Club 100 uses a record keeping system called the Engargolado or the Binding, which tracks all aspects of the distributors business. The Engargolado requires distributors to misrepresent

the profitability of a Nutrition Club


In all honesty, the first

time I heard that name

[the Binding], I didnt like it.

And I said, Im going to call

it controller. But then I said,

You know what? Im going

to call it binding.

130

As part of the Engargolado Club 100 tells Club operators to

separate the cash generated by their businesses into RED and

GREEN envelopes.

Source: Edgar Balbas video, available at http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.

Club 100: Required Increases in Inventory


What is the red envelope? The red envelope, my friend,

cannot be touched because

that is the cost and that

money is not yours. That

money goes to Herbalife, it

belongs to your business

and it has to be used,

obviously, for product

reposition.


132


You place that amount in your green envelope, and that is your salary. You take that 16 dollars just as if you go to work

someplace else. What do you do with the green envelope that is

your salary? You pay for electricity, you start saving to pay for

electricity, you pay for water, your phone, your club, everything.

Online Training

The Green Envelope is described as equivalent of a club operators take-home pay, but theres a catch

133

The first of the binding is a clear plastic sheet and it is super

important that it is like that, clear,

because in the end, eh, here is the

monthly summary of earnings.

The fact that it is see-through

turns it into a very effective

recruiting tool once your club

becomes successful.

Edgar Balbas, Herbalife Chairmans Club member

Club 100: False Earnings Claims

Source: http://www.youtube.com/watch?v=D9ve9LZcdpc.

That catch doesnt stop Club 100 from telling distributors to include the profits they earn in their clubs on forms shared with potential recruits

134

Club 100: False Earnings Claims

These earnings statements provide proof to potential recruits that Club 100 operators are steadily advancing toward the promised

Presidents Team level. There are frequent opportunities to present this proof at classes where club operators provide earnings claims as well as

health claims

135

Club 100: The Requalification Treadmill

Qualification is a never-ending process. Distributors must constantly

re-qualify in order to stay in the game. Those who dont re-qualify have their clubs taken off the tour list, arent permitted to bring potential recruits to classes and arent welcome to bring their potential recruits on Presentation Tours of qualified clubs. In other words, they lose

access to Club 100s (deceptive) marketing techniques.

137

Club 100 requires Club operators to take 10% out of the GREEN

envelope every week and place it in the RED envelope to purchase

additional products. Unless the Club operator reports increased

inventory, he will not re-qualify to remain on the tour list.

10%

Source: Edgar Balbas video, available at http://www.youtube.com/watch?v=D9ve9LZcdpc&feature=youtu.be.

Club 100: The Re-Qualification Treadmill

138


Specifically here from the green envelope, from your profit, you are

going to take 10% and you are going

to put it here in 'increase.' What for?

Because what we want to achieve

with this is that your inventory,

independently of what you start

withif it was 500 or 1,000 points with that, my friends, you can get to

what we saw in those nutrition clubs

with weekly inventories of 3, 4, 5

thousand volume points with this,

with this principle of the 10%.


139

Thus, the RED envelopecontaining money to buy Herbalife productscontinues to grow even if it means more of the Club operators salary in the GREEN envelope continues to shrink

More money for Herbalife and the sponsor . . . and larger

stockpiles of Herbalife products for the Club operator to give away

as free samples


140


Promotions are used to keep the volume moving

through clubs:

Distributor birthday parties Mothers Day giveaways Product raffles Free facials Other creative promotions, such as

141

Three hours of free babysitting with purchase

of a shake

142

Recall that distributors cover the cost of promotions and

must assure that the money needed to replace products are

placed in the RED envelope.

As long as distributors keep ordering more product, ignoring

other expenses and funding the RED envelope, distributors

will see their earnings continue to grow.


143


Club operators

advertise the status

of their clubs with

elaborate displays of

product containers,

suggesting success is determined not by a

crowded club but by the

volume purchased and

consumed through

that club.

144


145

More large volume

purchases from Herbalife

UNDERCOVER

147

VIDEO UNDERCOVER

http://vimeo.com/101256156 password: And3s

Whats Wrong with Club 100?

Relies on deceptive income claims

Deceives trainees into believing they are investing in an education with a valuable pay-off at substantial cost in time and money for the trainee

Demands DUPLICATION for success

Creates fake Club traffic consisting of trainees and their family members and friends

Promotes inventory loading

Violates Federal labor laws applicable to unpaid employees

148

Source: www.slideshare.net/ivanpatricioarias/hom-club-100; :

www.facebook.com/solrac.c.zenemij/photos.

Trainees are told they are on the road to the Presidents Team or higher

Through Club 100s pentagonal growth, they can earn $657,000

With Herbalife, they can pay the rent, buy shoes for

their children, leave money to their grandchildren

But, according to Club 100: 9 out of 10 Clubs that were closed were attended by distributors who are not trained So recruits need Training.


149


Club 100 duplication system

Club 100 Pentagonal Progress: 5 steps on each side of the ladder; 5 x 5 x 5 Diagram of Generations

150

No Disclosure or Warnings regarding training: Cost of Training in Time and Money Capital Required to Open a Club Retail Sales at Clubs Net Profits or Losses at Clubs Churn Rate of New Recruits How many Trainees become Sales Leaders Does anyone make money? Does anyone find a career?


151

A Pyramid

Within

A Pyramid presented as a

University

Source: Facebook page of Universidad Del Exito Cuenca [Success University]

Whats Wrong with Club 100 and Other Training Programs: Illegal Use of the Term University

152


Source: Herbalife Success University

From

Financial

Success

System

(Doran

Andry)

Note:

Herbalife

name,

logo,

text font

&

trademark

notice

153


New York Education Law 224(1): No individual, association, partnership or corporation not holding university, college or other degree conferring powers by special charter from the legislature of this state or from the regents, shall confer any degree or use, advertise or transact business under the name university or college . . . unless the right to do so shall have been granted by the regents in writing under their seal. Cal. Educ. Code 94050(b): No person shall designate a business, social, political, religious, or other organization operating in this state, including, but not limited to, any firm, association, partnership, or corporation, as a college or university. Tex. Educ. Code 61.313(c): A person may not use the term college, [or] university . . . in the official name or title of an educational or training establishment. Other laws: licensing of teachers and administrators; school advertising; certification of agents who solicit or enroll students; student refunds; general prohibition of unfair or deceptive acts or practices and false advertising, such as FTC Act 5, New York General Business Law 349- 350, and similar laws in other States.

See State of New York v. The Trump Entrepreneur Initiative LLC f/k/a Trump University LLC, Index No. 451463/2013 (N.Y. Sup. Ct., Aug. 24, 2013). 154

Translation:

The school where

you will learn

1. Open your own

club.

2. Grow your club

(25, 50, 75, 100,

etc Consumos)

3. DUPLICATE

Source: http://www.slideshare.net/ivanpatricioarias/hom-club-100.

Whats Wrong with Club 100: DUPLICATION

155

Violates Labor Laws

Source: Advisory (July 2013) available to distributors at MyHerbalife.com, paraphrasing U.S. Department of Labor, Wage

and Hour Division, Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (issued Apr. 2010), available

at www.dol.gov/whd/regs/compliance/whdfs71.htm.

Herbalife Advisory (July 2013):

Herbalife warns Nutrition Clubs that their trainees may be seen as

unpaid workers in violation of Federal labor law

156

Violates Labor Laws - Herbalife Advisory (7/13):

157

Herbalife is Complicit in the Propagation of Nutrition Clubs and Training Programs

158

Herbalife Monitors and Propagates New DMOs

[N]ew ideas and DMOs [Distributor Methods of Operation] are being generated in many of our markets and are globalized where applicable through the combined efforts of Members, country management or regional and corporate management. . . . Managements strategy is to review the applicability of expanding successful country initiatives throughout a region, and where appropriate, financially support the globalization of these initiatives.

HLF 10Q for First Quarter 2014

Herbalifes Standard Language in its 10Ks and 10Qs about Globalizing DMOs, since at least 2008:

159

Herbalife Monitors and Propagates New DMOs

Look at whats working Walsh wanted to get inside the heads of his successful

distributors and figure out what it was they were doing so well . . .

Source: http://www.blog.thenutritionshop.co.uk/2012/01/how-des-walsh-helped-reinvigorate-sales.html

. . . If we find out based on that, it is an idea that can spread across cultures and across markets, we look to do that.

From an Article about Herbalife Pres. Des Walsh (Jan. 4, 2012):

Training Programs Have Been Globalized by Herbalife and its Senior-most Distributors

161

Herbalife Mandates Formal Training

[A]ny participant desiring to use a nutrition club DMO will be required to complete a formal Company training program. This is in addition to the already implemented 90 day waiting period prior to opening a club.

CEO Michael Johnson, 3Q13 Conf. Call, 10/29/13

Herbalife Uses its New 90-Day Waiting Period to Promote Formal Training

Herbalifes Formal Training Consists of an Online Quiz with low standards for passing. Others offer their own Training programs

162

Herbalifes Training

163

VIDEO FORMAL TRAINING

Herbalifes Support for Club 100

Leonard Aquino: can you

send me that club 100 poster on

the left?

Deborah Sousa: they gave it

at extravaganza if not they have the file on myherbalife

Leonardo Aquino: WHERE?

CAN YOU SEND ME THE FILE

PLS?

Source: https://www.facebook.com/debysousa/photos.

Herbalife distributed Club 100 posters at its Extravaganza in 2012 and

made them available on the website MyHerbalife.com

165


Source: Michael A. Swartz, SunTrust Robinson Humphrey Analyst Report, at 1, Sept. 14, 2012

In 2012, an analyst report touted Club Cien (Club 100), a best practices program that could add a few percentage points to [Herbalifes] U.S. growth in the near term

166

Herbalife Touts the Success of Clubs

Using the Club 100 System

[Play edited version of Herbalife Nutrition Club video highlighting Club 100 logos]

Source: Herbalife Nutrition Club Video

In the January 2013 Investor Day, in response to Pershing Square,

Herbalife broadcast a video of Nutrition Clubs, in which Club 100

appears prominently in Club after Club

168

VIDEO - WELCOME

TO MY CLUB

Herbalife Promotes Club 100

Perpetrators in its Own Defense

Members like me are under attack by a billionaire hedge fund manager who has embarked on an unprecedented effort to take down my way of life, and we want him to know that Herbalife members wont stand for it

Silvia Muir, Palantine, IL, July 18, 2014

Silvia Muirs way of life is pursuing Club 100

Herbalife Promotes Club 100

Perpetrators in its Own Defense

Best of the Best/Club 100: Silvia Muir Marty & Gina Montasterski Erick Sandoval (son of Chairmans Club Members Gabriel & Emma Sandoval) Angel Ibarra Universidad del Exito: Olga Vigoya Veronica & Carlos Rivera Ximena Bentancourt Oscar Morales & Aida Sanchez

On July 10, 2014, Herbalife sent distributors to Washington, DC and

presented in a press conference in defense of its business are in

training programs

170

Beginning in 2013, Herbalife began to attempt to hide its relationship with Club 100


Source: Herbalife U.S. Nutrition Club Notification Form, available at http://factsaboutherbalife.com/wp-content/uploads/2013/02/Nutrition_Club_Notification_Form_2011.pdf.

Herbalife included Club 100 on its Nutrition Club

registration form in 2011 and 2012

172

Herbalife: Hiding its Connection to Club 100

Source: Herbalife U.S. and Puerto Rico Nutrition Club Notification Form, available at https://www.myherbalife.com/Content/en-US/pdf/toolsAndTraining/business/businessMethods/DMOs/nutritionClub/NutritionClub_RegistrationForm_USEN.pdf.

In 2013, Herbalife removed Club 100 from its U.S. and Puerto Rico

Nutrition Club registration form

173

Herbalife: Hiding its Connection to Club 100

Jorge Ruiz Club 100 website disappeared in December 2013

174

Source: https://www.facebook.com/linis.leal/photos#!/linis.leal/photos_albums.

Club 100 Lives On

New trainees in November 2013

175

Source: http://herbalifespectacular.com.my/Edgar%20Speaker%20Flyer_R2.pdf.

Club 100 Lives On

176

HLFs Own Training Worksheet Tracks Club 100

In 2013, Herbalife created its own training program called Best of the Best / Lo Mejor de Lo Mejor which closely tracks Club 100

177

HLFs Own Training Worksheet Tracks Club 100

Club 100 Lo Mejor de Lo Mejor

178

Herbalifes Own Lo Mejor de Lo Mejor

Herbalifes four Fases (phases) tracks Club 100s four-part training: - Visiting - Preparing Shakes - Giving Information - Inviting Others

Herbalifes 3-8-1 list parallels Club 100s 3-8-1 list. HLF requires: 3 - Product Trainings 8 - Training Clubs 1 - STS

179

Herbalifes Continued Support for Club 100 and Other Training Programs

Herbalife touts its new 90-day waiting period, as if it prevents recruits from committing to the business opportunity too quickly. In fact, Herbalife uses the 90-day period to encourage recruits to become committed to a training program which promises success in the business

180

Herbalife Club 100 Worksheet Notice (emphasis added):

The Worksheet for Nutrition Club Training will help to ensure that new Nutrition

Club operators receive adequate training for their own successful Nutrition

Club. Use this worksheet in your system to keep track of your attendance at

each stage of the theoretical and practical training. This training will take 30

days to complete or can progress at a pace that is most comfortable for you.

Before signing a tenancy agreement for the purpose of opening a

nonresidential Nutrition Club you must complete the first 90 days since

Herbalife accepted your Application and Membership Agreement.

Translation of Legend in Spanish at the bottom of Lo Mejor de Lo Mejor Training Worksheet

Herbalifes own Best of the Best (Lo Mejor de Lo Mejor) instructs new recruits to keep track of their training over 30 days

181

Herbalifes Continued Support for Club 100 and Other Training Programs

Club 100, Universidad del Exito (Success University) and other Training and Certification programs pervade the uppermost reaches of the Herbalife network

182

183

And one of the reasons we want to get this out of the way our

Chairman's Club who are the real, real go-getters, the real leaders, the people who take the stage, who lead the parade in this company, who are the heavily inspiring, motivating people we have highly aspirational folks. We will be on the phone with them in two hours to go through this in more depth with more discussions this years as we have got to do. They will give us a ton of input and say, here is what you need to do and here is the support we need to integrate the market. Yeah, and together and this will also be because these are global leaders.

Michael Johnson, Herbalife CEO, Jan 5, 2007

Source: 2007 Guidance Call

Meet the Professors of Success University The Chairman's Club (and higher)

Eduardo Salazar (deceased)

Leon Waisbein

Gabriel & Emma Sandoval

Raquel Cortes

Enrique Valero & Gracielo Mier

Humberto Jaimes

Fernando and Judith Rancel

Giancarlo Lanzilli

Guillermo Luna

Eduardo Cuellar and Silvia Anzola

Edgar Balbas Art Wesley and Lourdes Montero

Esther Espinosa and Jorge Ruiz

Pedro Cardoso

David Bevan and Jane Clark

Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off

Recruited 2nd ex-wife 1st ex-wife

Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited


Herbalife's most celebrated Latino

distributor, Eduardo Salazar was

murdered in Mexico by a double-crossing

hit man whom Salazar had hired to kill a

rival bar owner.

Salazar was an early user of the

"Universidad del Exito" concept, which

is now used across the U.S. and Latin

America, and requires distributors to

undergo "training" in order to participate

in the Herbalife business opportunity. 1



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited


Salazar's distributorship is run

through a corporation, Corporativo

S. de r.l. de c.v., and according to

a former employee is still one of the

most profitable distributorships

within Herbalife.

2



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited

The University of Success

Universidad del Exito is used to describe

various training programs that promise

"trainees" they can reach the President's

Team by undergoing an educational

program that includes "graduation."

To graduate, distributors frequently are

required to buy set amounts of Herbalife

products, either through Nutrition Clubs

or from Herbalife directly and to recruit

others into the "University."

1



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited


The use of the term University for an

unlicensed and unchartered business

purporting to provide training services likely

violates a range of state education laws,

as well as consumer protection laws.

For example, California Education Code

94050(b): No person shall designate

a business, social, political, religious, or other

organization operating in this state, including,

but not limited to, any firm, association,

partnership, or corporation, as a college

or university.

2



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited


We found more than 2,500 people

on LinkedIn who listed "Universidad

del Exito" on the education section

of their resumes.

3



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited

Enrique Varela & Graciela Mier



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited

Enrique Varela & Graciela Mier

The couple is credited with creating

the entire Nutrition Club concept in

Mexico. They are in Eduardo

Salazar's first line and their downline

organizations attend Universidad del

Exito trainings.



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited

Raquel Cortes



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited

Raquel Cortes

Raquel Cortes was the No. 1 Herbalife

distributor in the world in 2008, 2010,

2011, 2012 and possibly 2013.

She is also frequently associated

with Universidad del Exito trainings.



Leon Waisbein


Raquel Cortes


Humberto Jaimes


Giancarlo Lanzilli

Guillermo Luna




Pedro Cardoso


Doran Andry

Carola Lichtman

Paulina Riveros

Success University

Juan Miguel Mendoza

Created

Spin-Off


Spin-Off

Same System

Spin-Off

Spin-Off

Recruited

Uses

Recruited




Leon Waisbein


Raquel Cortes


bill ackman herbalife presentation - the big lie

Documents

statements pershing

possession of herbalife

common shares of herbalife

common stock of herbalife

pershing squares control

pershing squares analyses

regulatory issues herbalife

herbalife nutrition