Herbalife Reportedly “Raided” by FDA in India

The front page of Nagpur Today – an Indian news website – is running with the headline that the “FDA raids Herbalife”:

front page

A full version of the article can be read here and includes the following ominous statements, when translated using Google:

Nagpur: Keeping mushrooming of nutritional supplement retailers and their dubious activities of dangling weight loss promise in mind, the Food and Drugs Administration (FDA) raided godown of Gajanan Nagar-based Herbalife International Private Limited and took samples of three health supplements. The FDA has also seized a stock of health supplements worth Rs 16.83 lakh. Overdose of nutraceuticals

The raid action was initiated by Assistant Commissioner Milind Deshpande. The squad members included Food Safety Officers Abhay Deshpande, Pravin Umap, Seema Surkar, and Kiran Gedam.

The FDA has warned of initiating severe action against the erring food supplement retailers in the coming days also. Like drugs, dietary supplements have risks and side effects. But sellers aren’t required to do research studies in people to prove that a dietary supplement is safe. And unlike drugs, dietary supplements are mostly self-prescribed with no input from informed medical sources like doctors, nurses, or pharmacists. Supplement makers are required to report serious harmful effects to the FDA.

I’m guessing we will probably hear nothing about this from the company. Regardless, another brick to add into the wall. The world – not just those here in the U.S. – are starting to wise up to Herbalife.

(h/t @mattintoronto)

Colombian Doctor Claims “Clear Relationship” Between Herbalife Products and Liver Damage

On Friday, QTR was given two new nuggets of information about our friends over at Herbalife.

The first was that according to a source close to the matter, the company’s EVP of Finance in China has left the company. This is unconfirmed by QTR so far, though I have had a second source echo that he found out the same. Despite this, I always work to verify on my own and will keep reading informed of new developments on my Twitter.

I am working to confirm this detail over the weekend and, if its true, it will be the second Herbalife executive from China to hit the road in just over a couple of weeks. If you have information on this development, you can always shoot me an e-mail at quoththeravensa@gmail.com.


You may recall that QTR published a piece last year linking Herbalife to liver damage. You can read that full article here. In that article, I stated:

  • A Journal of Hepatology scholarly article from 2007 concluded from tests in Israel that “an association between intake of Herbalife products and acute hepatitis was identified in Israel”
  • Several additional scholarly journal articles have been written about the potential hepatoxicity of Herbalife’s products
  • Similar reports were echoed out of Mexico last year before being refuted very quickly
  • Herbalife paid Barry Minkow – the last major critic who looked at the lead content in their products – $300,000 for undisclosed reasons in a settlement

The second piece I came across just this week was a news article published in El Espectador, a Colombian online newsmagazine. The article (translated using Google), has the following headline:


The El Espectador article goes on to say:


You can read the full article here.

Herbalife Will Lower Sales Guidance Monday, Still No Comment on Executive Departures

Just weeks after issuing its guidance and “beating” estimates that would have missed estimates issued a couple of short quarters ago, Scott Wapner at CNBC reports that Herbalife is set to lower its sales guidance before market open tomorrow, Monday morning.

Wapner’s exclusive, out late Sunday night, stated:

Herbalife will lower its sales outlook for the current quarter before Monday’s market open, the company told CNBC, as it gears up for tougher new Federal Trade Commission regulations appeared to hurt business more than anticipated.

According to a press release reviewed by CNBC, Herbalife now expects revenues to be 1.5 percent lower than prior estimates, with a key sales metric known as volume points expected to be 3 percent below its earlier view. Earnings per share were actually increased for the quarter and the full year.

The company said the transition to the new FTC rules along with softness in Mexico was to blame for the lowered numbers.

To try and couch the blow, the company also apparently told Wapner it had been meeting standards established by the new FTC constraints on the company:

Though the company said preparing distributors for the new regulations likely impacted sales, there was a silver lining in the disappointment. Herbalife said it easily exceeded the new FTC threshold, showing that 90 percent of sales since May 1 have met the new guidelines.

“We knew we would be able to meet the threshold test of 80 percent because we knew we had real customers,” Hoffman said.

The company said it could also show that it has 400,000 so-called “preferred” members in the U.S. who buy products at a discount and aren’t pursuing the business opportunity in any way.

QTR isn’t interested in “since May 1” – he is interested in how the numbers come out over the next few quarters. The company’s preferred customer metric has widely been written about as a fallacy in articles like this one by Gary Milne. There is no doubt this fallacy has contributed to the company meeting its 80% number from the get-go. Whether or not the company can continue its 80% number form this point forward will be a question worth watching. 

In addition, Herbalife apparently made zero comment about a number of executives that have been said to leave the company over the last few weeks. You can read about these mystery executive disappearances in an article I published yesterday. The lack of information about these executives, including the company’s General Counsel, leaving is astonishing. 

As I predicted months ago in my latest 28 page research report, I believe “Betting on Zero” and the new FTC rules could have a crippling effect on Herbalife moving forward from here. For reminder of the negative affect I feel the documentary is going to have on the company, you can click through and read this Yahoo Finance article here or my most recent 28 page analysis on why I believe Herbalife’s stock will still eventually crater.


As Herbalife Executives Seem to Disappear, Betting on Zero Goes Viral

To open and “set the mood”, read this excerpt from Herbalife’s most recent 10-K filing.

“The loss or departure of any member of our senior management team could adversely impact our Member relations and operating results. If any of these executives do not remain with us, our business could suffer. Also, the loss of key personnel, including our regional and country managers, could negatively impact our ability to implement our business strategy, and our continued success will also be dependent on our ability to retain existing, and attract additional, qualified personnel to meet our needs.”

Now, let’s address what appears to be four Senior Management executives possibly leaving the company since this 10-K was filed just months ago.

Mystery Executive #1

If you follow me on Twitter or have been following the Herbalife story for the past week, you know that I have been raising a lot of questions about Herbalife executives seemingly disappearing from the company without apparent rhyme or reason.

Last week, I raised the question of why the company’s VP of China, a market that is responsible for about 20% of total revenue, was reported to have “suddenly left” by the Chinese media. I wrote an article documenting that story.

Mystery Executive #2

In the following days, it was reported by various sources on Twitter that the company’s general counsel had also left the company.


Certainly, the General Counsel leaving the company for any reason may be material seeing as how the company is still battling various regulatory issues across the board, including a previously disclosed FCPA investigation in China and a potential ongoing SEC inquiry.

I phoned the company last week to confirm Mr. Friedman had in fact left and was told by Investor Relations, when asked about Friedman, that I needed to talk to the media department. They transferred me to media and I went to a voicemail. When I called back a second time, the Investor Relations line went directly to voicemail. On a third call back, I was again given the voicemail at Investor Relations. On a fourth call back, I simply asked the operator to transfer me to Mark Friedman, the company’s General Counsel. The operator told me “he is no longer with the company”. That falls in line with what has been reported on Bloomberg.


The screenshot above shows Bloomberg stating that he may have left the company in mid May. If all of this is true, it leaves one to ask why the company would not disclose that its EVP, Secretary and General Counsel had left.

Mystery Executive #3

To make things even weirder, additional people have disappeared off of Herbalife’s website over the last few months, including Frank Lamberti, former Senior VP and Managing Director of North Asia.

north asia

As of 6/3/2017, Mr. Lamberti is no longer listed on Herbalife’s executive list on its website.

Mystery Executive #4

The company’s VP and Managing Director of Brazil (where they have a sizable potential tax liability also outstanding) also seems to have disappeared from the company’s website. This shot was from March of 2017:


Subsequent to that in April, Mr. Okuhara does not appear on the website.

goji 2

Why is this Important?

This is worth noting for a couple of reasons. The first is a relatively obvious concern. If these four people have in fact left the company, that represents about 20% of all listed managers on the company’s website (there’s about 20 total at any given point). Why has the company not talked about any of these managers if they have, in fact, left? Is there a reasonable explanation?

There were rumors last week that the company had addressed it’s VP of China leaving on a conference call, but this was obviously not a call that everybody was privy to if it took place. Couldn’t this be a violation of Reg FD, if true?

We know that senior management turnover is a real risk for the company because it says so in the company’s 10-K. The company states very clearly in its 10-K that the loss of senior management could have a negative affect on the business:

hlf risk factor

Based on that, if the above is all true, why would investors not be given an explanation or transparency on what has or has not transpired here, especially while the stock has risen about 6% over the last couple of weeks?

The company took the time to issue a nice press release last week talking about the CEO transition, but did not comment about any of these other management changes.
Perhaps there is a reasonable explanation having to do with the new CEO, but I’d like to hear more from the company. It seems like management turnover would be the last thing the company wants at this stage in the game and the company’s new CEO, Rich Goudis, was previously President of the company. One could assume if he wanted these people out a while back, it would have already happened.


At the same time, while the stock rips toward new 52-week highs, Betting on Zero, a critical documentary (now available on Netflix) that portrays the company as a pyramid scheme, has gone viral on Reddit. Over the last 24 hour period, the documentary has received nearly 6800 upvotes and has garnered a conversation of over 800 comments.

It’s currently the #4 ranked post on Reddit’s r/documentaries page.


I have no choice to believe that the documentary’s first couple days on Netflix have been a success. For reminder of the negative affect I feel the documentary is going to have on the company, you can click through and read this Yahoo Finance article here or my most recent 28 page analysis on why I believe Herbalife’s stock will still eventually crater.

Herbalife China SVP Reportedly “Suddenly Removed” After Company Makes “Anti-Pyramiding” Warning in Last 10-Q

This morning it crossed the wires that Herbalife’s President of Operations in China, Jerry Li, has “suddenly” hit the road. He had been at Herbalife for a decade:


Heres a link to the Chinese media article: http://www.cs.com.cn/xwzx/201705/t20170523_5294672.html

And the original article:


Here’s is a translation of the Chinese article:


This comes just days after Herbalife seriously amended a ton of its regulatory language related to China in its filings. Here’s just one example of how the language has changed to include “anti-pyramiding” language:

anti pyra

It also comes just days after the company reported that a “pull forward” in sales due to a price change was what helped Herbalife make their quarter in China. Supposedly 40 to 45 million volume points were pulled forward last quarter.

Mr. Li filed a Form 4 to sell stock as recent as May 11, 2017:

form 4

Herbalife has already disclosed an FCPA investigation in China. Is it possible the company is now also under investigation for being a pyramid in China, which is the company’s largest growing and most prominent market?

Herbalife: A Devastatingly Perfect Storm that Could Send Shares Under $30

  • Quoth the Raven Research continues to believe Herbalife is a strong sell with downside of more than 46.3% before the end of 2017 and further downside in following quarters
  • The potential impact of a coming nation-wide documentary has been significantly underestimated and may cause an unprecedented public relations nightmare for the company that it may permanently have trouble recovering from
    • For comparison, Blackfish, a similar style of critical documentary, drove SeaWorld’s stock price down 60% leading up to its release. A critical nationwide 60 Minutes expose on Lumber Liquidators helped drive its stock price down more than 80% in the months following the report
  • Carl Icahn has a history of selling his stake in companies into buybacks.
    • In 2016 he sold $500m in shares into Nuance’s buyback. In 2012, he sold $1.17 billion in stock back to Motorola Solutions. I believe Mr. Icahn may consider exiting his Herbalife position before the documentary’s March 17, 2017 release or before the FTC’s sanctions on Herbalife’s business model take effect in May 2017
  • The company’s largest growth market, China, appears to be stalling and a newly disclosed SEC Foreign Corrupt Practices Act investigation and a new joint venture with a China-based company raises questions about whether the company is still on solid footing in its largest market
  • I believe the company’s true fundamentals continue to deteriorate much more than the company’s Non-GAAP numbers and accompanying constructed narrative lead on
  • I believe the only publicized sell side analyst for the company (who is also an Herbalife distributor) continues to lead shareholders to the slaughter with an absurd $90 price target

Read a copy and download QTR’s full, brand new 28 page report.

There’s Something Odd About Herbalife’s New Joint Venture

I find something very weird about Herbalife’s new joint venture with Tasly Holding Group.

Mostly, it just doesn’t make any sense.

I’m not an expert in the products that Tasly offers nor am I an expert on how these two companies plan on hammering out this joint venture, but from what I learned in the press release only, something doesn’t smell right.


I could spend 5,000 or maybe even 10,000 words going into detail about what an atrocious quarter Herbalife just had, but most everybody already understands that at this point. Sales are down in China, which is supposed to be the company’s biggest opportunity for growth and Herbalife significantly lowered its first quarter guidance to $0.75-$0.95 versus Wall Street estimates of $1.25-$1.35. If you’re worried that this punt in the nuts to sell side analysts covering the company may have finally caused some analysts to capitulate (and/or come to grips with reality), worry not. Tim Ramey has already reiterated his $90 price target on the company, just hours after telling – err, asking – the company if they were 95% finished with their FTC implementation,

Ramey: If we were thinking about the May 15 implementation, where would you say you are in terms of percentage completion of your task, essentially there 95% – there’s still a little bit more work to do. How would you characterize that?

Maybe next quarter Ramey can just hold the Q&A with himself. As analyst Zander Rosenbluth pointed out on Twitter, Ramey’s last projected 2017 EPS estimate for Herbalife was $5.35. The company just came out and said $3.65 to $4.05, so why would there be any need to adjust your price target? 

To quote Lou Brown, “Can you believe this shit?”


Despite the horrendous Q1 guide, Herbalife kept its full year outlook inline, a move that suggests to QTR that the company doesn’t really understand what this upcoming documentary may very well do to it over the course of the long term. I’ve seen the movie and I continue to believe it’s going to have a much deeper negative impact than a lot of folks imagine. If you want additional thoughts on the quarter, check out my last hundred or so Tweets about Herbalife after the report came out. If you want a glimpse of what the public, through theaters and Netflix, are in store for when Betting on Zero is released you can watch the new trailer here and read my World Premier First Review


In addition to releasing a horrendous quarter and touting the “strength of the balance sheet” of a company that will soon be pushing 5X EBIT in leverage, Herbalife also announced a joint venture with Tasly, a “traditional Chinese medicine” company.

The fact that the company is making some strategic moves or considering some M&A is not a surprise to me. I had actually been thinking for a while that Herbalife may want to roll up a company like Vitamin Shoppe or Nutrisystem in order to legitimize the business a little bit and take some pressure off of the direct selling model. Those types of acquisitions make sense to me. They make sense because with the multilevel marketing distribution model under fire, the goal of the company should be to diversify itself and give itself another leg to stand on aside from the asinine direct selling model.

But with this Tasly deal, they are doing just the opposite. The press release states that they are going to be taking products from Tasly and looking to sell them through Herbalife’s distributor network. The press release says:

The joint venture would develop and commercialize high-quality consumer health products based on Tasly’s deep portfolio of proprietary formulations, patents, know-hows, and clinical studies by leveraging the Herbalife Nutrition scientific, regulatory and commercial development expertise to bring products to a global market through the Herbalife Nutrition distributor network. The proposed joint venture furthers the Herbalife Nutrition business plan to expand its product range globally.

Expand its product range? What was wrong with Herbalife’s already existent line of products? Perhaps things went awry when John Oliver described the company’s soup mix as tasting like “the wood shavings inside a gerbil cage”.

In other words, Herbalife is just bringing on more products, but using the same garbage business model. This is the exact opposite of what makes sense and it puts even more pressure on the company’s direct selling model going forward. They are doubling down on the model instead of playing it safe and diversifying.

It is even more surprising when we take into account that it appears as though one of Tasly’s subsidiaries (Kasly Ju) already has a direct selling license in China.


For me, some interesting questions start to pop up. Questions like:

  • “Are Tasly’s products so different and so in demand that they can be a standalone revenue driver for a company that already sells nutritional products via a direct selling model across the globe?”
  • “If Tasly already has a direct selling subsidiary, what do they need Herbalife for?”

It also leaves me questioning whether or not the company has looked at traditional acquisitions in the retail space the way that I pointed out earlier. I would have to assume that they would have, only because it seems to be the scenario that makes the most sense. Is it possible that none of the companies that they targeted wanted to work with them, or is it more possible that Tasly is the first and only company that they identified as a potential candidate?

With $1.5 billion in the bank from a new debt issuance, it just seems as though the money could be used in such a better way. Playing devils advocate, I would use that money to buy a traditional retail nutrition company and then maybe use the rest to buy back stock – only if it falls. The fact that we are simply going to see a $1.5 billion buyback go “poof” nearly immediately makes it seem as though the company is out of ideas. The fact that I can’t quantify or really make sense of this joint venture at this point, can’t help but make me think that there may be something else going on behind-the-scenes.

Is it possible there’s another reason for this joint venture?


Does Mallinckrodt Think We Are All Morons?

Tonight Mallinckrodt put out a press release trying to “clear the air” about Acthar, a drug that QTR has been very critical of (see this article and these articles) over the last few years.

One of the controversies surrounding Acthar is that it doesn’t have any documented randomized clinical trials that support its effectiveness in any other indication aside from infantile spasms, which makes up only a small portion of its sales. It also happens to cost around $40,000 a vial. Though I’m not sure what articles provoked Mallinckrodt to feel the need to make a statement today, something obviously set them off tonight:

Recently, several articles have appeared that draw a number  of erroneous conclusions about Mallinckrodt Pharmaceuticals and its product  H.P. Acthar Gel based on misinformation and a variety of distorted and  conflated facts. Mallinckrodt disagrees with these views and offers the  following basic, but important facts about this critical medicine.

Very official sounding. You can read the whole fancy thing over at Mallinckrodt’s IR site.

But first a refresher on Acthar history:

Acthar, the drug in question, was approved by the FDA in 1952 – Harry Truman was president, the Dow Jones was at around 275 and Mickey Mantle had just hit his first career grand slam.

A lot has happened in those 64 years, including the development of synthesizing steroids like prednisone. These synthetics “became the treatment of choice” for the same health problems that Acthar was treating at the time. Acthar was actually discontinued in 1995, when the FDA found quality control problems at the factory manufacturing the drug, according to the New York Times. It was reported that Aventis then only manufactured the drug for a small group of patients that wanted it for infantile spasms. It was a money-losing drug that was made in limited supply for infantile spasms or acute MS exacerbations. Aventis helped Questcor set up facilities to produce the drug after they purchased it, according to the New York Times.

The company is correct in its press release when it says there’s randomized clinical trials supporting its effectiveness in infantile spasms:

The effectiveness of the drug as  an IS treatment is supported by two randomized clinical trials, one of which compared H.P. Acthar Gel to prednisone, and is reflected in the IS clinical trial results that appear in Section 14 of the full prescribing information for the drug.

Infantile spasms are just one of the nineteen indications that Acthar is prescribed for, though.

The company then cites a bunch of official looking “articles” to back up its use in other indications. Presumably the company wants you to think these articles are something close to randomized clinical trials. They are nothing of the sort. They’re just subjective articles referencing an experience here and there. None of them are randomized clinical trials.


As QTR pointed out the last time I wrote about Mallinckrodt late last year, the company did recently run one “eight-week, double-blind, randomized placebo-controlled trial that assessed the clinical efficacy of repository corticotropin injection (RCI) in 38 patients with persistently active SLE involving skin and/or joints despite moderate dose corticosteroids” in 2015.

The study failed to meet its primary endpoint.

But, as QTR stated in September, that hasn’t stopped Mallinckrodt from aggressively continuing to market Acthar for Lupus flares and maintenance, among more than 15 other indications.

So, this press release clears up nothing. Zero. Zip. Nada.

Does Mallinckrodt think we are all morons? I may be, but that’s beside the point.


Herbalife Admits to Ongoing SEC & DOJ Investigation Regarding Its Largest Market: China

Herbalife has just admitted in a disclosure filed hours ago that it is still being investigated by the Securities and Exchange Commission and the Department of Justice. Even worse for Herbalife is the fact that the investigation seems to have narrowed in on the company’s largest and fastest growing market: China. These are two ongoing investigations that only QTR exclusively warned were not over back in February of 2016, despite professional sell side cheerleader (and self-admitted Herbalife distributor) Tim Ramey claimed the SEC investigation ended in mid-2015. The Chinese market is by far almost singlehandedly keeping the company growing at this point and Herbalife needs China to perform in order to have any chance for real growth in coming years.

The confidential information memorandum to the company’s proposed refinancing gives a look at the business as it stands today. In addition to lowering guidance and expectations across the board, page 26 stood out.


The company is acknowledging ongoing “anti-corruption compliance” investigations from both the SEC and the Department of Justice. For years, it has been alleged that Herbalife is running an illegal business model in China, a country that accounted for almost 20% of total Herbalife sales in 2016.

QTR reported on the potential impact of losing China’s growth for Herbalife going forward. For those not interested in doing their own analysis, the simple answer is that it would be absolutely devastating. On top of having their U.S. business curtailed significantly by recent FTC sanctions, any vulnerability in China could be catastrophic. 

At a time when many thought regulatory action against the company was just coming to a close, it looks at though the opposite could be true: things could just be getting started.

Seems like a great time to take on more debt, right?

What Happened To Herbalife Director and Audit Chair Richard Bermingham?

Someone shot me a message today asking me to look into Herbalife Director Richard Bermingham. Bermingham replaced former Audit Committee Chair Leroy Barnes when he resigned in 2014.

Global nutrition company, Herbalife Ltd. (NYSE: HLF) announced today that, on February 17, 2015, after the company completes its audit and files its annual report on Form 10-K with the SEC, board of directors member, Leroy Barnes, will be retiring from the board. Barnes will have served on the board for more than a decade. The company further announced that, as part of the transition, fellow board member, Richard Bermingham, will assume Barnes’ position as chair of the Audit Committee, effective November 4, 2014.

But Bermingham is no longer listed on Herbalife’s website, where he once was earlier this year. He used to be right under Michael Johnson. 


Today, no such luck.


On another part of the website that lists the committee compositions, Bermingham and a symbol for the Chair of the Audit Committee are both absent.


So what has become of Richard Bermingham?

Administrative error on the website?

Has he resigned, quit or passed away?

Hopefully we’ll hear from the company on this soon.