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Know Your Rights
Source: New York Post
Subject: Immigration
Type: Media Coverage

NY attorney general probes Herbalife: sources

New York Attorney General Eric Schneiderman is investigating Herbalife over claims it is a pyramid scheme, The Post has learned.

At least two whistleblowers have come forward and given Schneiderman’s investigators sworn testimony, sources said.

The New York lawman has also fielded complaints from former Hispanic Herbalife distributors who say they were defrauded by Herbalife, sources said.

A spokesman for Schneiderman declined comment.

The Los Angeles distributor of nutritional supplements is already the subject of federal civil and criminal probes over pyramid-scheme allegations.

A report on Friday that the FBI and Manhattan US Attorney Preet Bharara had launched criminal probes of the $5 billion multilevel marketer — which sells its products worldwide through a network of 3 million-plus distributors — spooked investors and sparked a 17 percent stock sell-off.

Shares partially recovered on Monday, climbing about 4.4 percent in heavy mid-afternoon trading.

In March, the Federal Trade Commission confirmed a published report that it was investigating the company. The Securities and Exchange Commission also has an open inquiry, which Herbalife has acknowledged in public filings.

Herbalife, which denies it is a pyramid scheme, was blind-sided by news of the criminal investigation.

Executives had not been informed by the FBI of the probe, the company said. The 34-year-old company, in fact, denied it was under an investigation.

The criminal probe, first reported by the Financial Times, was independently confirmed by at least nine other media outlets, including The Post.

Herbalife has been bracing for action on the state level because activist investor Bill Ackman, who bet $1 billion Herbalife was a fraud 16 months ago, last year told The Post and other media that his Pershing Square hedge fund had contacted at least eight state attorneys general in its quest for a regulatory probe.

Ackman declined further comment.

Schneiderman has been the subject of an intense lobbying effort by both anti-Herbalife and pro-Herbalife forces, according to people familiar with the situation.

Herbalife hired law firm Dickstein Shapiro to lobby state attorneys general on its behalf, said sources close to the situation, who noted that Schneiderman is a top focus of that effort.

Dickstein gave $30,000 to the Democratic Attorneys General Association in the 2012 election cycle. Herbalife donated another $10,000 to the group in May of last year.

Last week, Herbalife raised the stakes, hiring political advisory SKD Knickerbocker Group, where Schneiderman’s ex-wife, Jennifer Cunningham, a powerful state lobbyist, is a managing director. Cunningham, the former legal counsel to state Assembly Speaker Sheldon Silver, previously advised Schneiderman in his campaign for attorney general.

Cunningham will not be on the Herbalife account, Herbalife said.

“They [SKD Knickerbocker] are not lobbyists and do not communicate with state attorneys general or elected officials on [Herbalife’s] behalf, nor will they in the future,” the company said in a statement.

It declined to comment on the Schneiderman probe.

Those anti-Herbalife groups asking the AG for a probe include Make the Road New York, a community group, which in its survey of hundreds of Hispanic New Yorkers found none who made any money in their pursuit of the Herbalife business opportunity.

Several New York Democrats, including City Council Speaker Melissa Mark-Viverito, State Sen. Adriano Espaillo and Council member Julissa Ferreras have also asked Schneiderman for a probe.

In 2013, New York had one of the largest numbers of Herbalife distributors in the US, according to company records. Only California, Texas and Florida had more.

New York City’s boroughs of Queens, Brooklyn and The Bronx also have high concentrations of Herbalife nutrition clubs, which critics, including Ackman, claim are used to recruit Herbalife distributors.

There are 3,000 nutrition clubs in the tri-state area, an Herbalife executive told The Post.

In a pyramid scheme, most distributors’ profits come from recruitment, not from selling product to customers outside the network. New recruits are constantly necessary to keep the scheme afloat, as most of them will lose money and leave.

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