The supplement giant Herbalife has assembled an all-star roster of Hispanic lobbyists as part of an aggressive outreach campaign aimed at protecting its business from fraud allegations.
Herbalife, a global brand that brought in more than $4.8 billion in net sales last year, is under fire from Wall Street titan Bill Ackman and his hedge fund, Pershing Square Capital Management.
Ackman alleges the company is a pyramid scheme based on fraud and deception, and has placed a $1.1 billion short on Herbalife stock, saying the company would soon collapse.
Herbalife also came under Federal Trade Commission (FTC) investigation earlier this month, after several groups and lawmakers, such as Sen. Ed Markey (D-Mass.) and Rep. Linda Sánchez (D-Calif.), called on federal authorities to examine its business practices.
The company said it welcomed the inquiry, “given the tremendous amount of misinformation in the marketplace, and will cooperate fully with the FTC.”
In response to the scrutiny, the Los Angeles-based Herbalife has boosted its lobbying spending and gone on a hiring spree of prominent Hispanics from K Street and the government.
Hispanic support is critical for both sides, as Herbalife’s customer and distributor base is 60 percent Spanish-speaking, according to a company estimate.
In 2013, Herbalife signed up with four new lobby firms: The Glover Park Group, Podesta Group, Ogilvy Government Relations and The Raben Group. The roster includes some of Washington’s most prominent Hispanic lobbyists, including Cristina Antelo at Podesta; Dean Aguillen and Moses Mercado at Ogilvy; and Robert Raben and Estuardo Rodriguez at the Raben Group.
Herbalife spent nearly $1.3 million on lobbying in 2013, according to disclosure records, more than twice the company’s $560,000 spending on K Street in 2012.
Herbalife has also brought well-known Hispanics into the company.
Former State Department official Maria Otero and ex-Surgeon General Richard Carmona have been named to the company’s board of directors. In addition, Angela Arboleda, once a senior aide to Senate Majority Leader Harry Reid (D-Nev.), has joined the company, while former Los Angeles Mayor Antonio Villaraigosa has been named a senior adviser.
Herbalife said it has increased its advocacy efforts to counter Pershing Square’s “well-funded” attack against the company.
“For the past year and a half, we have faced a coordinated, well-funded attack from notorious hedge fund manager Bill Ackman, motivated by one thing: winning a billion dollar bet he made against Herbalife. The expansion of our team is in direct response to his attacks and his hiring of multiple lobbyists, PR firms and so-called grassroots organizers,” said an Herbalife company representative.
Further, D&P Creative Strategies, a minority and women-owned consulting firm, is helping Herbalife with “third-party engagement,” according to Catherine Pino, the firm’s co-founder and principal.
“What we have found is a company empowering Hispanics with a great product, and we’ve chosen to help tell that story,” Pino said.
Ackman also has Hispanic K Streeters in its corner, with Ibarra Strategy Group — headed up by Mickey Ibarra, a former senior Clinton White House aide — registering to lobby for the hedge fund in October last year.
Pershing Square spent $264,000 on lobbying in 2013. The hedge fund has also retained consulting firm Global Strategy Group, which has also subcontracted with Dewey Square Group, in its effort against Herbalife.
Brent Wilkes, national executive director for the League of United Latin American Citizens (LULAC), said Herbalife’s engagement with Hispanics has come too late.
“You cannot start making all these ties to Hispanic groups at the last minute and expect things to change. You cannot bring on some pretty prominent Hispanic business leaders at the last minute and expect them to change your business model,” Wilkes said.
“They were not doing any kind of engagement with the Hispanic community until they got in trouble.”
Wilkes said he has gotten reports this year from some of LULAC’s local councils that Herbalife has offered them financial support in an apparent effort to sow dissent within the civil rights group. In turn, Wilkes said LULAC plans to send a letter via email this week to all LULAC members, urging them not to accept Herbalife funds while the company is under FTC investigation.
“It’s not something we can’t manage, but I can’t think of a company that has tried to get the local councils to turn against and reverse a position by the national organization. It’s really odd that a company can’t respect the internal deliberations of an 85-year-old civil rights organization,” Wilkes said.
In response to Wilkes’s claims, the Herbalife company representative said the company “has deep respect for LULAC and shares its goal of empowering communities and individuals around the country, which we endeavor to do each day.”
LULAC has long been a thorn in Herbalife’s side.
Wilkes said he and others have met with lawyers at the FTC, the California Attorney General’s Office and other regulators to discuss Herbalife. In addition, the group has handed out letters to Herbalife distributors asking them to change the company’s business practices.
Herbalife’s critics contend that the company’s revenue depends on recruitment of its distributors, not the sale of its products. The new distributors buy Herbalife products to sell, including from their sponsors, but some face financial ruin when they can’t offload their supplies, they say.
The company took off in Mexico with the advent of nutrition clubs and became a mainstay in Hispanic communities, with many selling Herbalife products out of their homes.
Herbalife says their company helps Hispanics by giving them a chance to be business owners.
“Herbalife is incredibly proud of the support we have in the Hispanic community and the economic empowerment experienced by our members. Their success is a tribute to the hard work of our distributors and a clear demand among Hispanics for a healthy lifestyle,” said the company spokesperson.
Earlier this month, The New York Times detailed an extensive campaign by Ackman and his advocates to find alleged victims of Herbalife. The effort reportedly included funding for Hispanic groups.
LULAC ended up returning $10,000 from Pershing Square after the newspaper raised questions about the contribution for a table at the group’s legislative gala last year.
“We decided not to accept any funding from either side to insure that our sole motivation was helping to protect the Hispanic community from a fraudulent business practice,” Wilkes said. “We have spent more than $100,000 on the campaign in our own unrestricted funds.”
Other Hispanic groups have come to the defense of Herbalife.
Last month, the “Friends of Herbalife” sent a letter to lawmakers touting the company. But the minority advocacy groups who signed the letter have received Herbalife funds, according to documents obtained by The New York Times and some of the groups’ own websites.
The National Puerto Rican Coalition (NPRC) was one of the groups that signed onto the letter. Rafael Fantauzzi, the group’s president and CEO, said NPRC researched both sides before offering support to Herbalife, “which they did not request and was offered way before we decided to accept any programmatic funds.”
“Frankly, it is an insult to our intellectual capacity the mere assertion that we side with whoever gives us dollars. Our community is not for sale, and that is who we represent and are committed to protect,” Fantauzzi said.