Herbalife Ties to ‘Work From Home’ Promoters May Draw New Scrutiny

Entities that promote “work from home” opportunities could be a new source of scrutiny for Herbalife, the nutritional products company that has become the subject of a pitched battle on Wall Street.

The Federal Trade Commission has received scores of complaints from people who paid money to operations with names like Income At Home and Online Business Systems, according to materials the agency released under the Freedom of Information Act.

In many of the complaints, consumers who contacted such companies said they discovered at a later stage that they were being recruited to sell Herbalife products, an opportunity many did not wish to pursue.

“I have absolutely no desire to buy and/or sell Herbalife products,” wrote a person from Amarillo, Tex., who made a complaint about Income At Home last year. “I was looking for work that I can do online to earn money since I was recently laid off and have no income to devote to buying products that I don’t want or need.”

The complaints could further stoke the fierce debate over Herbalife’s business practices. They suggest that members of the company’s sales network commonly used the work-from-home entities to recruit new members. And, in a recent move that the company has not fully explained, Herbalife in February told its salespeople that they could no longer use services provided by an entity frequently mentioned in the complaints.

Herbalife has been in the spotlight since the hedge fund manager William A. Ackman called the company a pyramid scheme and took a $1 billion investment position betting that the stock price of the company would collapse.

Mr. Ackman has called on the Federal Trade Commission to investigate the company, and his firm Pershing Square was behind the Freedom of Information Act request that led to the release of the complaints against the entities linked to Herbalife. The F.T.C. confirmed that it had released the complaints. It removed the names of the consumers in the complaints.

In total, the agency in March released 113 complaints relating to work-at-home type businesses. Over 100 of the complaints mention Herbalife in comments that detail the grievances. Herbalife cautions against reading too much into the F.T.C. complaints.

“For a company of our size, we have had a relatively low number of complaints to the F.T.C,” Julian Cacchioli, a company spokesman, said in an e-mail. He also stated that the work-at-home entities, “do not work on behalf of Herbalife and the practices are not condoned or encouraged by Herbalife.”

Still, the complaints could help regulators better understand how Herbalife recruits â€" and how it generates revenue. The company sells its shakes and teas through a network of recruited salespeople and other individuals who do not officially work for the company.

Herbalife says there is genuine and strong demand both inside and outside its network for its products. But the company’s critics say it primarily makes money from selling products to new recruits, most of whom then fail to make much money from selling their Herbalife goods.

The distinction is crucial.

Regulators may target an entity that relies heavily on recruitment for generating revenue. Such firms have often turned out to be pyramid schemes that collapse when they eventually run out of a sufficient number of new entrants into the scheme. “As always, the agency cannot say whether it is or is not investigating a company,” said Frank Dorman, a spokesman for the F.T.C.

Herbalife has repeatedly rejected Mr. Ackman’s assertions and says that for over 30 years its business has benefited salespeople and consumers.

The complaints suggest that individuals, visiting Web sites and listening to ads on talk radio, were invited to buy information on how to start an online business. One person was listed in many of the complaints: Shawn Dahl, a member of the company’s so-called Chairman’s Club, a senior group of salespeople. He has promoted Income At Home and Online Business Systems, both of which have been used to recruit people to Herbalife.

Many of the people assert that they did not know they were going to be asked to join the Herbalife network. When they found out, many said they had trouble getting refunds. “Rather than refunding my $9.95, the company charged me an additional $39.95,” wrote a person from Santa Cruz, Calif., in February.

This is the second batch of complaints relating to Herbalife. In January, the F.T.C. released 192 complaints against Herbalife, also under a Freedom of Information Act request. By reviewing the F.T.C. numbers attached to both sets of complaints, it appears that three in the latest group were also in the earlier release. This suggests the agency has so far released around 300 complaints relating to Herbalife, which were made over five years.

Mr. Cacchioli, the Herbalife spokesman, said the number of complaints was quite low for that time period for a company of Herbalife’s size. He added, “We take complaints seriously and stand by our record of doing right by our distributors and consumers of our products.”

Still, it’s not clear why Herbalife has distanced itself from the major work-at-home entities.

In February, the company appeared to sever ties with Centurion Media Group, a Barbados-based company that owns the Income At Home Web site. Herbalife told its United States sales network that they, “may not purchase, sell, endorse, recommend, promote or use anything from Centurion Media Group.”

Herbalife also said its American network could no longer use Online Business Systems for sales leads and advertising.

Since then, Mr. Cacchioli said the company had gone further. As of June 30, Herbalife will prohibit its network members from selling any sales leads. Mr. Cacchioli did not detail any specific problems that Herbalife had with Centurion Media Group and Online Business Systems. But he said that network members could use third-party firms only if they complied with Herbalife’s rules and any applicable laws.

One of Herbalife’s requirements is that such firms have transparency of ownership, said Mr. Cacchioli.

Centurion’s Web site gives no indication who its owners are and does not provide a phone number. It lists a contact e-mail address, but messages seeking comment did not get a response.