By Peter Schroeder - 01/23/14 09:56 AM EST
Sen. Ed Markey (D-Mass.) called on regulators Thursday to investigate the nutritional supplement company Herbalife as a possible pyramid scheme.
Saying he had heard from constituents who lost their life savings investing in the company, Markey called on the Securities and Exchange Commission and Federal Trade Commission to look into the company’s business practices.
Markey’s charge draws Washington into a long-running controversy over the company’s business. The investor Bill Ackman publicly charged in 2012 that the company was merely a sophisticated pyramid scheme, and shorted the stock.
Herbalife has defended its business practices, calling criticisms attacks against the company.
The company bills itself as a multilevel marketing company, an arrangement where sales employees make money from their own commissions, as well as the work of personnel operating below them.
But skeptics argue the company is a pyramid scheme, producing its profits by simply recruiting more and more people into its workforce.
Markey said he had heard from constituents who had lost their life savings investing in the company, and others who were pushed to recruit family members into the company, and buy products themselves to move up in the company’s hierarchy. Another says she was pushed to stay in the program after wanting to leave.
Markey said he is not picking sides in the fight, but merely wants regulators to dig into the matter. He also sent a letter directly to Herbalife’s CEO, asking him to detail the company’s business practices, structure and compensation system.