Category Archives: African American News

Here you will find news featuring African Americans

The siege of Herbalife

Hedge fund titan Bill Ackman has been on a nearly three-year quest to bring down the $5 billion-in-revenue nutrition giant. Call it destructive activism. But worth asking: Do short-sellers make good regulators?

At about 2 p.m. on Wednesday, Dec. 19, 2012, CNBC’s Kate Kelly broke the news that billionaire Bill Ackman’s hedge fund had taken a massive short position—about $1 billion worth, we know now—in the stock of a nutrition company called Herbalife HLF -0.55% . He considered it to be a pyramid scheme, Kelly continued, and would be presenting details the next day. Herbalife stock then fell 10% in six seconds, triggering circuit breakers and a temporary trading halt.

Ackman, now 49, is the brilliant, cocksure, media-savvy activist investor whose fund, Pershing Square, has harvested 21% average net returns since inception in 2004. The fund now commands nearly $19 billion in assets.

The day after the CNBC report, Ackman presented a “public short” the likes of which no one had ever seen before. A public short is a risky, fairly rare phenomenon in which an investor not only bets on a stock to go down—known as short-selling—but publicly announces that he has done so, explaining why. On this occasion Ackman delivered a 3½-hour, 342-slide webcast lecture at a 500-seat auditorium at the AXA Equitable Center in Midtown Manhattan in which he called the company the “best-managed pyramid scheme in the history of the world.” He expected the stock not just to decline but to go to zero, he made clear. If his bet paid off, he’d donate his personal profits to charity, because he considered any proceeds from a corporation so villainous to be “blood money.”

By the following Monday, Christmas Eve, Herbalife stock had fallen 42%, from $41.57, where it had stood before Kelly’s report, to a low of $24.24, with the company having shed close to $2 billion in market value.

Bill Ackman, Herbalife, Michael JohnsonBill Ackman, left, seen in his Manhattan office in 2014, has averaged 21% net returns since 2004 in his Pershing Square fund.Photograph by Peter Yang—August

Herbalife might seem like an odd target for such venom. Based in Los Angeles, it doesn’t make cigarettes, sell alcohol, manage casinos, or emit pollutants. It’s a 35-year-old, 8,000-employee nutrition company that sells 5,300 products in 91 countries, including weight-loss powders, vitamins, performance sports drinks, and a skin-care line.

It is remarkably successful. Its main product—composing 30% of its sales—is a meal-replacement shake powder, made from soy protein isolate, called Formula 1. Though many Fortune readers have likely never heard of it, its sales are more than double those of its three leading competitors—Ensure, Kellogg’s K 0.48% , and SlimFast—combined. Herbalife makes 25 flavors of shakes, including piña colada in the U.S., paçoca—a peanut candy—for the Brazilian market, and borscht for China, and markets non-GMO, gluten-free, and low-glycemic versions too.

But Ackman wasn’t going after Herbalife because it sold milk shakes. His issues stemmed from its being a multilevel marketing company, or MLM. MLMs distribute their products through independent contractors who are rewarded not just for selling the company’s products but also for recruiting other distributors to do so, and for persuading those recruits to recruit still more distributors, and so on, in a pyramidal structure.

The danger with any MLM is that recruiting, not product sales, may become the raison d’être of the enterprise, which then devolves into a thinly disguised money-transfer game indistinguishable from the chain-letter scams of the 1930s—the paradigmatic pyramid schemes. Early participants make out like bandits, but later recruits are mathematically guaranteed to fail.

Some consumer advocates ardently believe that all MLMs, also known as network marketers, should be illegal. But they aren’t. Since 1979, when the Federal Trade Commission blessed the business model of the home-products marketer Amway, MLMs have been considered legitimate so long as they enforce certain safeguards designed to guarantee sustainability. Today MLMs include such everyday names as Avon AVP -13.78% (No. 322 on this year’s Fortune 500 list), Tupperware TUP -0.70% , Usana USNA -0.98% , Nu Skin, Primerica PRI 0.11% , and Pampered Chef—a unit of Warren Buffett’s Berkshire Hathaway.

Herbalife is the largest public MLM by market capitalization and the second largest by revenue, after Avon. With sales of $5 billion last year, Herbalife would have just missed this year’s Fortune 500, ranking at 522, were it not ineligible due to its incorporation in the Cayman Islands.

As big as Herbalife is, however, the New York–based activist is even bigger—a fact that has enabled him to launch a novel, for-profit species of holy war: one that, if successful, will enable him to slay what he believes to be a terrible dragon while netting his fund’s investors more than $1 billion in profit.

Drawing upon bottomless resources and boundless self-confidence, Ackman has committed himself to destroying the company. In the nearly three years since his AXA Equitable presentation, he has denounced Herbalife and its executives in terms that no government authority ever has. It was “one of the great frauds of all time,” he said at a public presentation; Herbalife CEO Michael Johnson was “running a criminal enterprise,” he told Fox; company executives were “at risk of going to jail,” he told CNBC.

He has hired lobbyists to alert community groups to the alleged dangers of Herbalife and has given those groups money to find victims and connect them to regulators. His agents have set up websites, taken out ads, posted notices, and set up 1-800 numbers. They have tracked down former Herbalife employees and distributors, looking for whistleblowers. They’ve solicited nonprofits, concerned citizens, and politicians—including three congressmen and a U.S. senator—to write the FTC and at least seven state attorneys general, sometimes without the letter writers even realizing that a hedge fund manager was the master puppeteer orchestrating the campaign.

Ackman urged PricewaterhouseCoopers not to sign Herbalife’s financial statements. He has made presentations to the FTC, the SEC, the Canadian competition authorities, and U.S. federal prosecutors.

The FTC and SEC have, in fact, initiated investigations of Herbalife, and Manhattan federal prosecutors have made inquiries about the company or its distributors, Herbalife has acknowledged. But federal prosecutors have also examined the practices of some of Ackman’s contractors, according to the Wall Street Journal, looking into allegations of market manipulation.

The attack raises two important questions for society. One is: Is he right about Herbalife being a pyramid scheme? That’s important because if he is, all but a handful of companies in the now $34.5 billion MLM industry, affecting 18 million distributors, are almost certainly pyramid schemes as well. As it happens, we should get an answer to this first question soon, because the FTC, responding to pressure exerted by Ackman, opened a formal inquiry into that question in March 2014—now 17 months ago.

The second and perhaps bigger question is: What if Ackman is wrong? One man’s dragon slayer is another man’s vigilante. Herbalife has had to spend almost $90 million defending against Ackman’s attack so far, according to its SEC filings, while its executives, employees, and distributors have all been villainized, if not defamed. While activist investing was already controversial, Ackman has taken it into new terrain. Is it sound public policy to have freelance, for-profit billionaire regulators roaming the landscape, no matter how well-intentioned?

Conventional activists like Carl Icahn and Nelson Peltz buy shares and then “try to fix the company,” observes one hedge fund investor. Ackman, by contrast, is trying to annihilate a company. “I’ve never heard of short-selling activism in my life,” this investor says. “Are we comfortable that a private individual named Bill can try to put somebody out of business?”

Ackman rejects such criticism. “By shining a spotlight on fraud and abusive practices at Herbalife,” he says, “we have helped protect consumers, potential distributors, and investors from losing their hard-earned money. We are extremely proud of the work we have done on Herbalife.”

This is the story of Ackman’s epic struggle to bring down Herbalife—a case study that, we believe, scholars, policymakers, and regulators will want to study and debate for some time.

Herbalife, Michael Johnson, Bill AckmanCEO Michael Johnson, photographed in August at Herbalife’s Los Angeles headquarters, joined the company from Disney in 2003, where he headed international operations.Photograph by Michael Lewis for Fortune

For that matter, so might novelists, psychologists, and—if only they were still around—ancient Greek tragedians. Ackman’s campaign long ago seems to have crossed over from investment strategy into a colossal hubristic quest for vindication. At this point one might ask: Is he is trying to maximize his investors’ return? Trying to protect huddled masses yearning to be free? Or trying to save face?

Perhaps the best thumbnail précis of this saga was provided by hedge fund manager John Hempton, who runs Bronte Capital, in what was actually a prognostication. Just a week after the campaign launched, he wrote in his blog, “It will be the hedge fund equivalent of Stalingrad. Someone is going to lose big. And the victor will be so bloodied that the word victory will sound hollow.”


If Ackman is the irresistible force, Herbalife CEO Michael O. Johnson is the immovable object. Johnson, who headed Walt Disney Co.’s DIS 0.32% international division before taking the reins at Herbalife in 2003, is a self-described “diesel”—a passionate nutrition nut and endurance athlete who often rides his bike 30 miles to work. In July, Johnson, now 61, completed his third Tour TransAlp, the legendarily grueling, seven-day, 550-mile stage race through the Alps during which cyclists traverse ascents totaling more than 60,000 feet. He’s not a quitter.

With dark, close-cropped hair and pointy ears, Johnson looks like a cross between Lance Armstrong and Star Trek’s Mr. Spock. An avid skier, he went to college at Western State Colorado University in Gunnison, near Crested Butte. He then bounced around through a series of ventures, selling pre-Walkman tape players to skiers, aircraft hosings and couplings, and laser light shows before being tapped in 1986 to run the international division of Disney’s home-video unit. That business took off, and he rode it up the ranks until he was heading the international operations of the whole company.

That’s where he was when—to many scratched heads, he admits—he jumped ship to become Herbalife’s CEO in 2003.

Screen Shot 2015-09-09 at 9.22.26 AM

Click on the above image to see an interactive timeline for a “Scorecard for a three-year death match.” Interactive by Analee Kasudia

He’s furious about Ackman’s campaign, he says. “Wouldn’t you be?” Johnson asks in one of our four interviews. “If you’d worked your tail off for years and years and years to build something—something you believe strongly in? Along comes a guy with half-facts and half-truths and a jaded point of view and starts not just shorting your stock but trying to totally demonize me and demolish the company. It’s like, really? Who the hell does he think he is?”

Ackman, of course, thinks he’s the guy in the white hat, protecting the downtrodden from the likes of Michael Johnson.

“It’s entirely clear to us that this company is operating fraudulently,” he tells me. “They are fraudulently deceiving poor people into investing in a fictitious business opportunity. That’s illegal.”

Six-foot-three, lean, fit, with salt-and-pepper hair, Ackman cuts an intimidating presence. He rowed crew at both Harvard College and Harvard Business School and is an excellent tennis player. He spits out words with machine-gun rapidity, and often with flesh-tearing trenchancy.

We spoke at his offices on the 42nd floor of a midtown building that offers panoramic views of Central Park. Just to the east is the residential tower where he recently bought a $92.5 million penthouse duplex. It’s just an investment, he has said, because he considers it undervalued. In the corner of the conference room stands a striking memento: a rocket-powered ejection seat that once accommodated the pilot of a Canberra nuclear strike bomber of the 1950s. It evokes a crucial skill for a hedge fund manager: knowing when to bail.

Ackman’s conspicuous success speaks for itself. Yet he is fallible. His first fund, Gotham Partners, had to be suddenly wound down in late 2002 after some illiquid investments left him unable to rebound from a handful of redemptions. He also lost big on stakes in Borders, J.C. Penney JCP 0.00% , and Target TGT -0.14% . One fund, devoted exclusively to Target options, lost 90% of its value at one point. Risk management is not his strong suit.

Ackman is astoundingly competitive. In high school he famously bet his dad $2,000 that he’d score an 800 on his verbal SAT. His father wisely let him off the hook the night before, and he scored a 780. And then there was a Hamptons bike ride of 2012, described by William Cohan in Vanity Fair, in which Ackman joined several hedge fund guys and serious cyclists on a 26-mile pleasure ride. Though out of practice, Ackman rushed out in front at an unsustainable pace, became dehydrated, and had to be helped back, barely able to pedal due to excruciating cramping. One rider commented to Cohan, “His mind wrote a check his body couldn’t cash.”

In the siege of Herbalife, Ackman clearly did not anticipate the company’s staying power or the fact that a number of hedge funds would take the opposite side of his bet. The battle has taken a toll.

“If I were to assess the return on invested time, I would say it’s quite poor,” he admits. “Had we known in advance, it might have dissuaded us from making this investment.”

Yet he professes no regrets. “I’ve said publicly that if we are successful in getting this company shut down, it will be one of the most philanthropic things we’ve ever done. I will tell you, this is the most important story I’ve ever been involved with on anything ever. Okay? This is it.”


Though personalities help explain the origins of Ackman’s campaign against Herbalife, it is the law that will declare the winner. And in a word, that’s murky.

There is no federal statute defining “pyramid scheme.” For years MLM critics have begged the FTC to draw some bright-line rules—but in vain. Such schemes are usually prosecuted by the FTC as an “unfair or deceptive act or practice.” If an MLM or its distributors have merely made some misleading claims, the FTC may fine the company and let it live to see another day. But if the commission finds that an MLM is a pyramid scheme—which is considered inherently deceptive—it must shut it down.

The best definition of pyramid scheme emerged from a 1975 case in which the FTC shuttered a cosmetics marketer called Koscot Interplanetary. The key feature is that a pyramid scheme pays its distributors rewards “for recruiting other participants into the programwhich are unrelated to sale of the product to ultimate users.”

So if an MLM were to pay its distributors, say, $150 for each new recruit it signed up, it would probably be a pyramid scheme. Few MLMs are so foolish as to do that. Instead, they typically pay a distributor—as Herbalife does—based on the products he orders, and on the products ordered by his first three levels of recruits, i.e., his direct recruits, his recruits’ recruits, and his recruits’ recruits’ recruits. (A distributor’s recruits and all their recruiting descendants are referred to collectively as his downline.)

While it’s true, then, that no distributor is paid for recruiting as such, it’s also true that no distributor will ever achieve the upper echelons of an MLM’s compensation scheme, including Herbalife’s, without recruiting.

Further complicating the analysis is another striking feature of virtually all MLMs, including Herbalife. Whereas conventional businesses pay salespeople based on their sales, MLMs pay them based on their purchases (and those of their downlines). While the hope is that the products purchased by distributors eventually find their way to consumers or are consumed by the distributors themselves, it’s hard to be sure that they are.

Herbalife, Michael Johnson, Bill AckmanThe 61-year-old Johnson, training near his home in Malibu, recently completed his third Tour TransAlp, a 550-mile, seven-day race across the Alps.Photograph by Michael Lewis for Fortune

If the products are not consumed but, rather, pile up in distributors’ garages, that means there’s no real demand for them; distributors are just buying them to manipulate the compensation plan, and the company is a pyramid scheme. A common feature of pyramid schemes is “inventory loading,” where new distributors are pressured to buy more product than they can resell or consume.

While judges and economists have proposed other definitions, most boil down to this: The more genuine a company’s product, and the more genuine the consumer demand for it, the less likely it is that the company is a pyramid scheme. With a pyramid scheme, the product is little more than a fig leaf camouflaging what is, at its core, an elaborate chain letter.

When the FTC ruled that Amway was legitimate in 1979, all other MLMs took steps to make themselves look like Amway—at least on paper—and an industry exploded.

In recent years, however, with consumer advocates protesting that the industry is rife with pyramid schemes, several market leaders have sought to disassociate themselves from the pack. Tupperware quit the Direct Sellers Association in 2006, and Avon dropped out in 2014. (Both declined to be interviewed for this article.)

In my conversations with Herbalife CEO Johnson he repeatedly told me variants of this sentence: “When I took over in 2003, Herbalife was a multilevel-marketing company that sold nutrition products. Now it’s a nutrition company that uses multilevel marketing as its distribution channel.”

The outcome of Ackman’s assault will likely hinge on how persuasively Johnson has effected that inversion. And here’s the rub: Ackman’s case against Herbalife might once have stuck. But Johnson has made key changes to Herbalife during his 12 years there. The question is whether the great white whale Ackman is so doggedly pursuing still exists.


In February 1980, a charismatic 24-year-old named Mark Reynolds Hughes founded Herbalife. In the beginning Hughes, a ninth-grade dropout, sold weight-loss products from the trunk of his car, according to company lore. His main product was Formula 1, which then came in one flavor: vanilla.

In his product pitches he often referred to his mother’s death, when he was a teenager, from pharmaceuticals a doctor had prescribed to combat her obesity. The story wasn’t true, according to a 2001 Los Angeles Times article by Matthew Heller. Hughes’s mother was never overweight, and she died from an addiction to prescription painkillers.

What was true was that Hughes overcame enormous adversity and was utterly self-made—factors that earned him the love of other distributors, many of whom came from the wrong side of the tracks and who became wealthy beyond their dreams by reciting Hughes’s scripted pitch formulas.

By 1985, Herbalife had grown to about $300 million in sales, and Hughes was living in a palatial Beverly Hills home with his second wife, a former Swedish beauty queen. That year the company became the subject of a CNN series that highlighted dubious medical claims distributors were making about Herbalife products. The California attorney general sued the company, and a Senate subcommittee held a hearing.

Hughes, just 29, came to the Capitol in a splendid suit, with a bouffant hairdo reminiscent of Las Vegas singer Wayne Newton (who had performed at Hughes’s second wedding). Proudly displayed on his lapel was the Herbalife distributor’s trademark, two-toned icebreaker: a button reading lose weight now: ask me how.

After listening to tut-tutting testimony from the committee’s medical experts, Hughes’s rejoinder seemed to leave the senators agape. “If they’re so expert in weight loss,” Hughes parried, “why were they so fat?”

His scrappy performance energized his loyal distributors. But the company paid an $850,000 fine to the California attorney general the following year, and Hughes began seeking a lower profile for his company.

Hughes wrote for Herbalife a comically complex, 27-page compensation plan. Such impenetrability is typical of MLM remuneration schemes. Critics say these are intended to perplex the recruit, leaving him no choice but to trust what the recruiter tells him. Defenders of the Herbalife plan say its complexity arises from efforts to reward diligence, punish laziness, and ensure fairness.

The plan created nine main levels of distributor. A distributor advances up the ladder by amassing “volume points,” which are determined by his purchases and those of his downline. The first four levels buy product at discounts that range from 25% to 42% off suggested retail price (SRP), and if they earn money, it is by reselling products to customers at a markup—ideally at SRP.

Herbalife maintains that most of these lower-level distributors have not joined for the “business opportunity” but mainly because they want to buy the products for their own use at discounted prices. (Ackman will later reject this notion, insisting that these distributors are pursuing the business but failing.)


Source: S&P Capital IQ

At level five, a crucial dividing line, distributors bump up to a 50% discount off SRP but, more important, become eligible for 5% “royalty overrides”—payments from the company—for purchases made by the first three levels of their downlines. At level seven they begin accruing additional bonuses.

The highest tier of Herbalife’s compensation ladder, level nine, is called president’s team. Only a tiny percentage of distributors reach this level, though precisely how tiny is a matter of dispute. (In 2014 in the U.S., there were just 548 president’s team members out of 72,000 pursuing the business, and out of 554,000 total distributors.) An elite few president’s team members attain still higher titles, becoming members of either the chairman’s club (of which there are now just 48 out of 4.1 million distributors worldwide) or, most exalted of all, the founder’s circle (just eight).

Top-tier distributors are also eligible for the subjective and lucrative Mark Hughes bonus. In recent years these checks have ranged from $10,000 up to, on one occasion, $2 million.

It has always been hard to make money as an Herbalife distributor. Even by the company’s calculations only 3.7% of those pursuing the business in the U.S. grossed royalties of more than $25,000 in 2014. (That number excludes income distributors may make from retailing, but also fails to take into account any business expenses they may incur.) In addition, even by Herbalife’s numbers, more than half of all money paid to distributors goes to the top 1%. Ackman will later argue that a system so slanted toward rewarding the highest tiers—attainable only through recruiting—must be a pyramid scheme.


In May 2000, Mark Hughes, 44, was found dead in his bedroom. An autopsy blamed a toxic mix of alcohol and doxepin, an antidepressant he’d been prescribed as a sleeping pill.

He left a minor son; an underwear-model fourth wife; $100 million worth of homes in Beverly Hills, Malibu, Benedict Canyon, and Hawaii; and a company in disarray.

In 2002 two private equity firms—W.H. Whitney and Golden Gate Capital—swooped in to take the company private, paying just $347 million. They went looking for a turnaround team to spruce it up and take it public again.

A headhunter approached Michael Johnson, then in his 17th year at Disney. He was known there as the “shake guy,” since he would often replace breakfast or lunch with a blended concoction of Odwalla, protein powder, and ice.

“I basically hung up on her,” Johnson recalls. “Like many people, I had an impression of Herbalife that was not correct.”

But the private equity guys promised him he would be in control, stressed that it was about nutrition, and offered him a slice of the company. (Since taking over, Johnson has made $163.5 million from the sale of stock and options.)

In April 2003, Johnson made the move. “It was very, very rough,” he says of the transition. “There were a lot of issues I didn’t understand. A language was spoken that I didn’t get.”

Johnson tried to quickly launch a new product without consulting the distributors. “It landed with a thud,” he recalls. He hadn’t understood the distributors’ power at the company.

And they deeply mistrusted him. In the three years since Hughes’s death, four CEOs had already come and gone. The distributors’ attitude, Johnson recalls, was “Who’s this guy? What does he know? A lot of them felt that when the company went public I would exit.”

Distributors weren’t employees, so if they misbehaved, they couldn’t just be fired. The company could annul their distributorship, but that meant forfeiting a business the distributor had built over years. If expelled, the distributor might take his whole downline—sometimes thousands of people—to another MLM.

Johnson began learning about lawsuits he hadn’t known about. One involved a “lead-generation” business, called Newest Way to Wealth, which was run by six distributors. Top Herbalife distributors ran several dozen such side businesses at the time.

They worked like this. The business would run generic TV ads touting business opportunities where you could “work at home.” The contact information for those who responded was then sold to lower-level distributors in the top distributors’ downlines. They, in turn, would contact the prospective recruits and send them a video that showed testimonials of top distributors describing astounding wealth they had purportedly amassed in very little time and with no discernible skills.

If a prospect took the bait, joining Herbalife, he’d then be told that, to effectively compete, he really needed to buy a series of business tools sold by the same business—leads, a merchant account, a website, back-office software—at what might be exorbitant prices. Often the recruit was also pressured to qualify quickly for the level-five distributorship, which meant buying around $3,000 worth of products in a month.

Aside from the sleaze, the quick $3,000 purchase looked like inventory loading, characteristic of a pyramid scheme. It also typically rewarded the recruiting distributor with a quick $150 pop in his royalties (5% of $3,000), suggesting that maybe Herbalife was paying for recruiting after all—another red flag for a pyramid scheme.

Herbalife shut down Newest Way to Wealth in 2002, before CEO Johnson was hired, and reached a tentative settlement of the suit a few months after he got there.

“There were practices that were taking place that were legal, but I’m not sure they fit what we wanted to be as a company,” Johnson says.

That fall, he considered quitting. “I had some ideas in my head that maybe I wasn’t right for this job,” he admits. He went to see his mentor, Jerry Perenchio, who was then chairman of Univision. Perenchio asked him a series of rhetorical questions, Johnson recalls: “How many people get a billion-dollar platform? What’s your title over there? Who’s the captain of the ship? You can stick your tail between your legs and go back to Disney, or you can go in there and exercise your desires and will.”

“I literally went back to the office that night,” Johnson recounts, “and wrote a business plan for the company.”

The plan was about product, brand, image, and the business opportunity. At the time less than 1% of the product was being manufactured in-house. The company needed its own upgraded manufacturing facilities, he felt, plus labs to ensure that the products really contained the herbs the labels claimed they did. (After investing hundreds of millions of dollars, the company today has both, manufacturing in-house 58% of its products.)

To tout the brand, Johnson wanted to sponsor sporting events, teams, and star athletes. (It now sponsors more than 200 of them, including Cristiano Ronaldo, the Portuguese soccer star.)

To cultivate Herbalife’s image Johnson wanted to consolidate its then haphazard charitable giving into a foundation. (Today, through its Casa Herbalife program, the foundation runs 101 orphanages in 51 countries.)

Finally, and most important, Johnson wanted changes in the way the business opportunity was pursued. That meant curbing some practices while also embracing positive ideas being urged by other distributors, he says.

At a videotaped global management retreat in June 2005, viewed by Fortune, Johnson appeared to walk a tightrope, discussing the need for these changes while trying not to alienate powerful distributors. “Those of you who have been around,” he said at the meeting, “know that lead generation is a source of many evils as well as a source of many opportunities. It puts distributors in debt up to their ears.

“I don’t want to say all systems are bad because there are great systems out there and they do great things,” he continued later in the speech. The problems arose, he said, “when that web system starts making false promises, claims, and hopes for product, for money, for recruiting, for customers, for pyramiding, all those things.”

Johnson also wanted to embrace changes being urged by two top distributors, which were designed to reduce the high rates of turnover then being experienced among level-five distributors—those beginning to pursue the business. At the time nearly 75% of them were quitting after just a year. He wanted new distributors to be permitted to achieve level five more slowly and organically, so they wouldn’t have to buy $3,000 worth of products before they had any retail customers to sell them to.

“In the old days,” Johnson explained at the 2005 retreat, “distributors would say, ‘Go build that downline as soon as possible’ … That works for very few people … That’s a lottery ticket. So the best way to build this business … is to build it through retail and retention, and recruiting will come.”

The company phased in changes. It rolled out its own online software tools, supplanting those sold by distributors. Herbalife charged less and could exercise control over content.

Though it did not ban lead generation—“There’s nothing inherently wrong with leads,” company president Des Walsh insists in an interview—it phased in rules that were supposed to curb abuses. Over time, most top distributors exited that business.

The rule changes easing the qualification hurdles for level-five distributors were introduced on a test basis in Russia in 2007, and then globally in 2009. As a result, according to statistics provided by Walsh, the percentage of U.S. level-five distributors staying more than a year improved from just 28% in 2002 to 55% when Ackman launched his campaign in 2012—to 58% today.

Purchasing patterns also changed, these statistics show. Throughout the Johnson era, the size of the average purchase has been getting smaller, while the number of orders has been increasing.

Though the impetus for the changes was apparently not regulatory, its impact could be. While inventory loading seemed like a plausible charge when new recruits were being pressured to buy $3,000 worth of products in a month, it seems less so in a company that, since 2007, has actually been exhorting new recruits to slow down their purchasing.


In 2006 an Herbalife distributor introduced nutrition clubs into the U.S., a concept that arose in Mexico. The way they worked was that a distributor invited customers into a commercially leased space for a small admission fee, usually $5. The charge entitled the customer to consume on premises servings of three prepared Herbalife products: a shake, an aloe drink, and a tea. The club owner would monitor the customer’s progress toward his weight-loss goals, and the customers encouraged one another, as they might at a Weight Watchers meeting.

Herbalife CEO Johnson first heard about nutrition clubs three years earlier, he says, when certain distributors were complaining about them. The critics thought they amounted to retail outlets, which are forbidden under Herbalife’s rules. (Retail outlets undermine any MLM’s structure by allowing the distributor who opens one to steal other distributors’ customers.)

Johnson and Walsh went to look at a club in Zacatecas, Mexico. “I remember Des and I looking at each other,” Johnson says, “and thinking, What’s wrong with this? Daily customers? Daily consumption? A community model? They were celebrating people’s birthdays and weight loss, and the feeling was just incredible. I said, ‘Boy, if this isn’t a potential future for our company I don’t know what is.’ ”

Nutrition clubs effectively allowed Herbalife to reach lower-income customers—because they required only a $5-per-day payment rather than, say, a $39.90 purchase of a 30-serving canister of Formula 1. Today there are about 6,000 nutrition clubs in the U.S., and more than 35,000 in Mexico.

Herbalife, Bill Ackman, Michael JohnsonHerbalife nutrition club owner Edgar Montalban, shown in June 2013, prepares a meal-replacement shake in Queens, N.Y.Photo: Scout Tufankjian—The New York Times/Redux

They became particularly popular in Spanish-speaking communities of the U.S.  As of 2009 about 64% of Herbalife’s U.S. distributors were Latino. (Today, according to the company, the percentage has dropped to only 36%—a figure Ackman scoffs at, asserting that it’s much higher.)

As successful as the model was, not everyone was thrilled with it. Because the clubs let Herbalife sell its products and business opportunity to lower socioeconomic strata than had been previously possible—more vulnerable populations—a former financial journalist named Christine Richard found them to be diabolical.

By the summer of 2011, indeed, Richard had concluded that a great deal was wrong with Herbalife. Above all, she thought, it was a pyramid scheme. Richard worked for the Indago Group, a research boutique that sold much of its work to short-sellers. Richard’s boss at Indago was Diane Schulman, a TV producer turned licensed investigator, and hedge fund types jokingly referred to the two as the Indago girls.

When Richard first spoke to investors about shorting Herbalife, many were wary, she recounts in an interview. “But Christine,” she remembers skeptics telling her, “what’s the catalyst? Why are regulators going to do something now if they haven’t done something in 30 years?” A catalyst is an outside force—a regulator, a journalist, a downturn in the business cycle—that exposes a dirty little secret at a company’s core, causing its stock to plummet.

That wasn’t the response of Bill Ackman, who was also an Indago client. Though Ackman usually takes long positions, he has occasionally placed short bets, and Richard had written a book called Confidence Gameabout Ackman’s most remarkable one. In 2002, Ackman took a massive public short position predicated on the audacious theory that the then triple-A-rated bond insurer MBIA—whose guarantees were propping up the ratings of countless other financial obligations that Wall Street was flogging across the globe—was catastrophically overleveraged and destined to collapse. He doggedly maintained that thesis for five years, weathering ridicule, onerous carrying costs, and even an MBIA-spurred New York State attorney general’s probe for stock manipulation (he was exonerated), before tasting sweet vindication in 2007. When the financial crisis hit, MBIA failed, and Ackman’s fund made more than a billion dollars.

When Richard took her Herbalife suspicions to him, Ackman recalls, she said, “Bill, I think I found the next MBIA.”

His reaction, according to Richard, was not “What’s the catalyst?” It was, rather, “If this is a fraud, we’ll call it out. We’re the catalyst.”

Ackman had his staff start researching Herbalife.


In August 2011, Herbalife CFO John DeSimone got an email from a former employee who said he’d been contacted by Indago’s Schulman, who was asking odd questions.

DeSimone looked Indago up online but didn’t get what it did. He called Schulman. She started asking questions relating to one court’s interpretation of the so-called Amway rules—the rules that all MLMs claim to follow to keep them from being considered pyramid schemes.

“They were questions that I, personally, didn’t know enough to answer,” DeSimone says. He told her he’d put her in touch with a regulatory expert if she’d tell him what she was doing, he says. She declined, and the call ended.

On March 23, 2012, Herbalife had an Investor Day event at a hotel in Los Angeles. At lunch afterward DeSimone went from table to table. At one, the woman next to him, who turned out to be Richard, started asking him similar questions. When he asked who she was, she told him she was doing research for the woman next to her, who was an analyst for Greenlight Capital, David Einhorn’s hedge fund.

Einhorn is widely revered as perhaps the smartest investor on the Street. As DeSimone knew, he’d recently done a public short against Green Mountain Coffee. DeSimone left the table and alerted CEO Johnson.

Einhorn was scheduled to speak at the Sohn Investment Conference on May 16, an annual event at which a number of top hedge fund managers “talk their book,” i.e., present their best ideas, short or long. The company realized he might be preparing a public short.


Source: Company filings

After its May 1 earnings announcement, Herbalife executives took questions by phone. Up popped David Einhorn’s name in the queue. He didn’t fit the usual criteria—sell-side analysts or top 15 investors—but, on the fly, DeSimone decided to take his question. If Einhorn was contemplating a public short, DeSimone says, he felt that was material information the public ought to have.

“How much of … final sales are sold outside the network, and how much are consumed within the distributor base?” Einhorn asked. It was a variant of the same questions Richard and Schulman had been asking.

Herbalife had no lawyer in the room. Walsh, the company’s president, answered: “We don’t have an exact percentage, David, because we don’t have visibility to that level of detail.” He then estimated that “70%” of sales were outside the network, which was wrong. He was thinking of one of the Amway rules, but it wasn’t apt.

The mere fact that Einhorn was asking probing questions was enough to torpedo Herbalife stock, dropping it 20%, from $70 to $56.

On May 16, the day of the Sohn Conference at Avery Fisher Hall in Lincoln Center, Herbalife executives gathered in a conference room at their headquarters in the L.A. Live complex, just across from the Staples Center. They had allies inside the hall with open phone lines. One of Einhorn’s first slides read “MLM.” They braced.

But Einhorn was just messing with their heads. MLM was also the ticker symbol for Martin Marietta MLM -0.59% , and Einhorn proceeded to present against the construction materials manufacturer. Herbalife had dodged a bullet, and its stock shot up 15%, from $43 to close to $50.

Which posed a quandary for Bill Ackman. He’d been researching Herbalife since the summer of 2011, and when he heard Einhorn’s questions on May 1, he’d started deploying a short position that day. He assumed he “could ride Einhorn’s coattails,” he tells me in one of our interviews. “We didn’t want to be the public face of this.”

Then Einhorn never surfaced. Ackman deliberated for months whether to go public, he says, preparing possible presentations. “My goal was to make one in July. And then in September, and then in November.”

In late October and, again, in late November, says Herbalife’s DeSimone, he was alerted to unusual “put” activity—a type of options contract that short-sellers buy—on Herbalife stock. Most of these put buyers were effectively betting that the stock would drop markedly sometime before Dec. 21, 2012, the date when those options would expire.

When CNBC’s Kate Kelly announced Ackman’s short position on the afternoon of Dec. 19, and that he’d be presenting his thesis the next day, the reason for the put activity seemed evident to Herbalife CEO Johnson. Fifty-five minutes after Kelly’s report, he called into CNBC by phone, his fury evident.

“This isn’t about Herbalife’s business model,” he said. “This is about Bill Ackman’s business model … This is totally wrong what’s taking place … This is blatant market manipulation.” (Ackman says he’d purchased no put options at all in Herbalife at that stage. He had simply borrowed common stock and sold it—the conventional short position.)


Ackman’s Dec. 20 presentation was deeply disturbing. There was a lot about Herbalife that was suspicious. Its flagship product, Formula 1, though virtually unknown to Ackman’s audience, had recorded sales of $1.8 billion the previous year, surpassing those of Palmolive and Clorox, and falling just shy of Gerber’s.

It’s “the only $2 billion brand nobody’s heard of,” Ackman acidly observed.

How could that be? His answer, of course, was that Herbalife’s product sales were just empty manipulations of the company’s compensation scheme, which revolved around recruiting. At one point Ackman’s principal analyst at the time, Shane Dinneen, asked, “Do we even know if any retail customers exist?”

Furthermore, the company’s international growth—into 88 countries as of that point—evinced the desperate, exponential expansion of a pyramid scheme poised to collapse, he argued. What the company really sold in all these countries, Ackman explained, was not Formula 1 but a fictitious business opportunity.

Then he played a creepy, officially produced Herbalife video. Doran Andry, a chairman’s club-level Herbalife distributor, was leading a tour of his opulent Beverly Hills home. When he first joined Herbalife, Andry said in the video, he was working just “two or three hours a week,” and yet after his “very first calendar year,” his “income hit $350,000. In my second year, I turned 30 … and our income hit $1.1 million.”

“You know, it’s really amazing,” he continued. “I step out of the Ferrari, the Bentley, or whatever, and people go, ‘What does that guy do for a living?’ And I go, ‘I’m an Herbalife independent distributor,’ and people are absolutely amazed.”

“I am utterly convinced by everything in Bill Ackman’s presentation,” wrote Bronte Capital’s John Hempton in a blog post. “Except the conclusion.”

By Ackman’s calculations the chance of reaching president’s team was less than 0.04%. And even those who did had a median annual gross compensation of only $337,000—nothing that could support Doran Andry’s lifestyle.

The reality, Ackman observed, was that in the previous year (2011), according to the company’s own disclosures, Herbalife paid 88% of its distributors nothing at all.

As troubling as the presentation was, some Wall Street observers were skeptical.

The Doran Andry video had been made in 2003—nine years before Ackman’s presentation. Subsequently, however, CEO Johnson had started toning down such claims, voluntarily disclosing the average gross compensation the company paid its distributors and requiring that income testimonials include disclaimers (at least in the U.S.) referring to that statement. (Ackman argues that Herbalife’s average gross compensation disclosures are misleading. The FTC, for its part, does not require such disclosures, nor explain how comprehensive they must be, if provided. A rule to mandate standardized MLM disclosures was proposed in 2006, but the FTC dropped it in the face of opposition from the MLM industry.)

At the time of the presentation, Herbalife was already a well-known name on Wall Street. It had enjoyed 12 straight record quarters, and its stock had quadrupled in the previous two years. Many investors had done a ton of homework on it—or “due diligence”—and had reached markedly different conclusions from Ackman’s. Says one longtime major shareholder, who adds that he’d talked to at least 150 people familiar with Herbalife: “It’s a real product that helps fight a real-world problem,” i.e., global obesity.

In addition, the showmanship of Ackman’s event put some rivals off. Its scale and bravado struck some as “Einhorn-envy”—an attempt to outdo the master.

Then there was the issue of timing. Ackman presented just 11 days before the end of the year, when hedge fund positions are marked to market for the year. His manager’s fees would be computed based on those numbers, so the temporary paper profits he’d make from his enormous Herbalife position would window-dress the lackluster year he was having in 2012. Given the holiday season, there was no way Herbalife could respond that calendar year. In that context, the bit about Ackman foregoing personal profit struck some as disingenuous.

Still other traders just thought short-selling any MLM was a fool’s errand, given their high cash flow and the FTC’s longtime tolerance of them. On Christmas Eve, four days after the presentation, Bronte Capital’s Hempton took a long position in Herbalife. He explained on his blog: “I am utterly convinced by everything in Bill Ackman’s presentation—except the conclusion.” (In an interview, Hempton says he now rejects the presentation and believes Herbalife’s executives are “highly ethical.”)


In January, Herbalife executives came to the Four Seasons Hotel in New York to give a 2½-hour rebuttal presentation.

As for the notion that Herbalife was desperately expanding into foreign countries because of market saturation, the company had a simple answer: It wasn’t so.

“In fact, 92% of our growth is coming from mature markets,” Des Walsh said, displaying the statistics, with “less than 4% coming from new markets—exactly the opposite from the picture Pershing Square is trying to depict.”

Walsh then offered evidence of consumer demand while asserting the genuineness of the business opportunity.

After Einhorn asked his questions in May, the company had had a reputable corporate survey firm, Lieberman Research Worldwide, perform two 2,000-person surveys. They reached nearly identical results, estimating that close to 6 million American households had used Herbalife products during the previous three months and that 90% of those households were “outside the network,” i.e., no one who lived there was a distributor. (Purchases by people outside the network are the best evidence of consumer demand, because they can’t be motivated by a desire to manipulate the compensation plan.)

While Ackman was correct that 88% of Herbalife distributors were not paid any commissions by Herbalife in 2011, Walsh acknowledged, that was because, as the company had always maintained, the lion’s share of distributors—levels one through four—join mainly to buy products at a discount, not expecting to earn anything. While some do earn modest income from retail sales, such income isn’t included in Herbalife’s gross average compensation disclosures, since it isn’t money paid by Herbalife.

His contention was backed by still another survey, he maintained, which had concluded that 73% of distributors join Herbalife “primarily” to buy products at a discount, including 44% who said they joined “solely” for that purpose.

Pricewaterhouse put themselves in a position where they will be one of the deep pockets when this thing goes down,” says Ackman.

People who did pursue the business could really make it, Walsh insisted, though it did require very hard work. Unlike a pyramid scheme, where only the early entrants get rich, Herbalife—then starting its 33rd year—was still minting new president’s team members each year, with the numbers trending up, he said. In 2012 it had made 46 of them in the U.S., compared with just 18 in 2005, according to the data he displayed.

One last sign that Herbalife had real customers, Walsh argued, was the low rate at which recruits availed themselves of the company’s buyback policy. Herbalife had long offered to buy back 90% of unopened products for a year—the industry standard. In May 2012, seven months before Ackman’s attack, it had bumped that up to 100%. (In 2013 it would also begin paying return shipping costs. Herbalife may now have the most generous buyback policy in the MLM industry.)

If thousands of dollars worth of product were stacking up in distributors’ garages, one would expect disenchanted distributors to take advantage of the buyback policy. Yet the rate of buybacks was low and had steadily dropped throughout the Michael Johnson years. It fell from 2.4% in 2002, before Johnson arrived, to 0.35% in 2012, when Ackman struck—to 0.04% in 2014.

Where were the victims?

That, indeed, was the question the consumer protection agencies were asking Ackman.

“What the regulators told us,” Ackman recounted to me, “is we focus on cases where there are victims. We would like to speak to victims.”

Ackman believed victims weren’t filing complaints because they felt embarrassed, felt guilty (for having recruited others into the scam), or, in the case of undocumented immigrants, feared going to authorities for any purpose.

So he began to look for victims. “The problem is,” he continues, “the Latino community is not interested in talking to a hedge fund manager.” So he hired politically connected consultants, who approached community organizations, like New York’s Hispanic Federation.

“So the Hispanic Federation said, ‘Look, we can help you find the victims through our local chapters,’ ” Ackman continues. “And we gave them a designated amount of money specific just for the staffing required to help recruit victims.” He estimates that sum to have been $130,000. Later he gave additional moneys directly to local organizations for the same purpose. He declines to estimate the total. At the same time he hired a raft of political consultants to find victims and to approach state attorneys general and other public officials in California, Connecticut, Illinois, Massachusetts, Nevada, New Mexico, and New York.


“I’ve really sort of had it with this Ackman guy,” Carl Icahn told CNBC’s Scott Wapner. It was late January 2013, and the famed activist investor, who was then reported to have taken a small stake in Herbalife, called into CNBC’s Fast Money Halftime Report at a point when Ackman was already on the line.

“I went to a tough school in Queens,” Icahn continued, “and they used to beat up the little Jewish boys. He was like one of these little Jewish boys, crying that the world was taking advantage of him.” Icahn went on to recount a dinner he once had with Ackman after which, he said, “I couldn’t figure out if he was the most sanctimonious guy I ever met in my life or the most arrogant.”

Icahn was giving his version of a decade-old dispute that led to a nine-year litigation between Ackman and him. Ackman had prevailed, winning $9 million.

Ackman responded in kind, asserting that Icahn “is not an honest guy, and this is not a guy who keeps his word. This is a guy who takes advantage of little people.”

As traders apparently tuned in to gawk at these titans mud wrestling, trading volume on the three major exchanges dipped nearly 23%, according to a CNBC analysis of Thomson Reuters data.

We now know that Icahn started assembling a modest long position in Herbalife on the very day of Ackman’s 2012 presentation. Three days after the spat, Icahn started buying more. A lot more. In mid-February he disclosed a nearly 13% stake in the company.

The support of Icahn and his $37 billion vehicle, Icahn Enterprises, was transformative for Herbalife. At the time, Ackman belittled Icahn’s involvement as personal and impetuous, referring to Icahn as a “back-of-the-envelope” investor.

“That’s nonsense,” says Icahn in an interview withFortune. “I thought the stock was very undervalued,” he says. “I still do. All this [other] stuff is off-base and ridiculous.”

“I’ve made up with him,” Icahn notes, referring to his relationship with Ackman today. “We’re friendly. But he got stuck in it, and he’s tried to make it a crusade.”

Beyond the fact that one of the nation’s shrewdest investors had now shown confidence in Herbalife, Icahn’s involvement posed a technical peril for Ackman: the short squeeze.

A short squeeze is a feedback loop that occurs when excess demand for a stock pushes the price up, pressuring short-sellers to cover their positions, which requires them to buy stock, which further pushes the price up, and so on.

As Icahn continued buying—today he owns 18.4% of the company and has negotiated effective control over five of its 13 board seats as well—the danger of a short squeeze was becoming acute.

At the time the other biggest buyer was the company itself, which had long been pursuing stock buybacks as a corporate policy. In January and February it bought back stock worth $160 million and began looking for financing to buy more than $1 billion worth more.

Then fate granted Ackman a weird reprieve. It came in April 2013, when the FBI photographed senior KPMG partner Scott London accepting an envelope full of cash from a golf buddy at a Starbucks SBUX 0.61% in the San Fernando Valley. London was quickly arrested for insider trading: For years he’d been tipping off his friend about clients’ upcoming financial statements. (London pleaded guilty and, in April 2014, was sentenced to 14 months.)

As it happened, London was the signing partner on two corporations’ audits—Skechers SKX -1.27% and, yes, Herbalife. Though KPMG had no reason to believe anything was amiss with the statements, it said, London’s conduct meant it had to withdraw approval for several years of financials for both companies.

Without audited financials, Herbalife effectively couldn’t borrow, and it had to shelve plans for more buybacks.

Herbalife hired PricewaterhouseCoopers and said it aimed to have the statements reapproved by the end of the year.

Ackman set out to block that from happening. In late August he wrote the accounting firm a 52-page letter, raising 10 categories of allegedly faulty accounting by Herbalife, as well as several potential conflicts of interests on Pricewaterhouse’s part. In one of nine follow-up communications to the accountants, Ackman noted: “Let’s not forget that Arthur Anderson was destroyed rightly or wrongly by its perceived implicit approval of Enron’s business. As such, I believe that history will judge PwC’s approach to this important matter.”

In December the accounting firm reapproved the financials anyway.

“I was surprised,” Ackman says. “Pricewaterhouse put themselves in a position where they will be one of the deep pockets when this thing goes down.”

Meanwhile Ackman was trying to blunt the impact of Herbalife’s rebuttal presentation of January 2013. He argued that Herbalife’s surveys, purporting to verify consumer demand, were too small to be authoritative. Since Herbalife’s rules require distributors to keep paper records of their retail sales in case of audit, Ackman demanded that Herbalife call in all those records from its 550,000 distributors and make them public. He even offered to have Pershing Square foot the costs.

Herbalife declined the invitation—“untenable, impractical, and unrealistic,” Des Walsh told me—but did perform additional, more extensive surveys and analyses. A masked, unbiased Nielsen survey of 10,525 people performed in May 2013 concluded that close to 8 million consumers had purchased Herbalife products over the previous three months, of which 87% were outside the network. And in June, a survey of 1,349 distributors, designed by former FTC economist Walter Vandaele, concluded, “An estimated 97% of the Herbalife product volume purchased by distributors represents retail sales for end-use consumption.”

“You may think the stock’s overpriced, you don’t think it’s a good business opportunity, or whatever,” says one major investor. “It’s impossible to argue there isn’t a product.”

Later still, the company hired Joseph Farrell, who directed the FTC’s bureau of economics until just seven months before Ackman’s attack, to analyze distributor purchasing patterns. In a 67-page report, previously unreported, he found “genuine consumer demand” and “no evident dependence on unsustainable growth.” On the whole, purchase patterns were consistent with distributors filling consumer orders rather than aiming for qualification targets.

Investors were understandably skeptical of any company-ordered surveys. So several funds did their own. One longtime major investor told me he commissioned a blinded, high-datapoint, randomized survey asking a wide variety of questions. The results basically lined up with Herbalife’s, he said. “Say what you will,” he comments, “you may think the stock’s overpriced, you don’t think it’s a good business opportunity, or whatever. It’s impossible to argue there isn’t a product.”

This investor also said he wondered why Ackman, having spent $50 million on the campaign, hadn’t performed any surveys of his own.

I asked Ackman this. “Surveys are notoriously unreliable,” he responds. There’s no substitute for seeing the distributors’ actual retail records, he insists.


The year 2013 was all Herbalife’s. In July, George Soros’s fund disclosed a large stake in the company—one of the fund’s three largest holdings. While Ackman could discount Icahn’s involvement as personal, Soros Fund Management was known for deliberate research and had waited months before acting.

Ackman hit back hard, telling the New York Post’s Michelle Celarier that he was “very disappointed” in Soros for “trying to profit on the backs of low-income Latinos,” and that he had written the SEC alleging improper attempts by Soros’s fund manager to collude with others at a pitch meeting. The charge appears to have gone nowhere.

In any case, it was soon clear that other sophisticated investors were either buying major stakes in Herbalife or holding on to the ones they’d had when Ackman launched his attack. In September former Ralston Purina CEO Bill Stiritz took a big stake (and still owns about 7% today). Fidelity and Vanguard retained most of their preexisting stakes (now holding 13.8% and 4.6%, respectively), and Capital Research bulked up a previous holding (to almost 17%).

By September 2013, Herbalife stock had climbed into the $70 range. To limit his fund’s exposure, Ackman began redeploying about 40% of his bet from short sales of stock into purchases of put options. This effectively maintained the short bet but placed the fund at less risk if the stock kept rising.

Early in 2014, the contest seesawed back in Ackman’s direction, sending the stock price downhill. First, on Jan. 23, Sen. Edward Markey, a longtime consumer advocate, wrote long letters to the FTC and SEC urging inquiries of Herbalife. Shares in the company were walloped, plunging 10% to about $66. Ackman had met with Markey’s staff the previous October—one of about 15 congressmen to whom he or his staff had spoken.

Herbalife suspected, once again, market manipulation. According to its consultants, four “super-size” put trades had been made during the seven trading days preceding the Markey announcement. They affected 6.5 million shares, cost $63 million to buy, and increased in value by $22 million by the end of trading on Jan. 24.

Markey’s press secretary declined to comment on whether the senator’s staff had given Ackman any inkling that he’d be writing a letter. Remarkably, after the letter came out, Markey told the Boston Globe he hadn’t even known that Ackman was short-selling Herbalife at the time he signed it.

“This whole market manipulation notion is absurd,” says Ackman, spilling out a litany of reasons why: He did not know when a letter would be coming out or whether it would be public; only one of the put trades was his, and it was part of the transition from his being short the stock to having put options; he’d have made more money on paper if he’d not made the switch; the put options were long term, so not the sort of contract you’d buy to capitalize on an event; and finally, he never exercised any option to realize any profit. (Herbalife complained to the SEC about these puts in March 2014, but the charge has languished.)

The best news for Herbalife in 2014 was a 4,400-wordNew York Times article on March 10, which catalogued the sometimes covert and clumsy efforts of Ackman’s contractors and subcontractors to dredge up victims. Several cookie-cutter consumer complaints—26 of them, according to a later Wall Street Journal article—had been written to the Connecticut attorney general George Jepsen, for instance, but Jepsen told both papers he’d been unable to substantiate a single one. When the Times tracked down the letter signers, some claimed not to remember having written them. One of Ackman’s paid political consultants had met with Latino and African-American community leaders to discuss the Herbalife threat without disclosing her connection to Ackman, and another had herself written a complaint to the FTC, again without disclosure.

To Ackman’s political consultants, their activities may have looked like a conventional, if cynical, “Astroturfing,” where a client’s agenda is made to look like a grassroots movement. In the context of a short-selling campaign, however, such conduct began to resemble securities fraud. The SEC has held that if you make claims about a company you’re trading in and then falsely publish them under someone else’s name, that can be market manipulation, even if you believe the claims to be true.

The Times article may have had a lasting impact on perceptions of Ackman’s battle—drawing attention to the potential excesses of activist short-selling—but its market impact was short-lived. That’s because three days later Herbalife disclosed that the FTC had opened a formal investigation into whether it was a pyramid scheme. Its stock plummeted 17% before ending the day down 7.4%, at $60.57.

Herbalife shares were further pummeled in April when, in the space of six days, it was reported that the company was under investigation by both the U.S. Department of Justice and the Illinois attorney general. The bad news for longs got still worse in November, when Herbalife announced its third-quarter results. After 19 straight positive quarters, the company missed on both earnings and volume guidance. Its stock fell nearly 30% over the next two days, to $39.78.

Herbalife blamed the poor results on foreign currency fluctuations and the short-term impact of some new distributor rules. Ackman hailed the news as showing that Herbalife had exhausted its mature markets and that its modest efforts to curb fraud were crippling its ability to do business.

Given its dire state, he predicted, banks would refuse to replace Herbalife’s $1.15 billion revolving credit line when it expired in early 2016.

After the Times article exposed the scale and organization of Ackman’s campaign, Herbalife went shopping for a communications strategist to lead a coherent response strategy. In August it hired Alan Hoffman, a former deputy chief of staff to Vice President Joe Biden, as executive vice president for global corporate affairs. (Hoffman had previously worked closely with Terrell McSweeney, another former high-level Biden staffer who is now an FTC commissioner.) Then, in October, Herbalife hired former FTC commissioner Pamela Jones Harbour to head its 550-employee compliance department. Each hire represented a vote of confidence for the company, as had, in late 2013, the additions of two eminent Hispanics to the board: former surgeon general Richard Carmona and former undersecretary of state for human rights Maria Otero. (In April 2015, former comptroller of the U.S. Air Force Michael Montelongo also joined the board.)

The year ended on an important up note for the company. In December a Los Angeles federal judge approved the settlement of a class action against Herbalife that had been brought on behalf of all 1.5 million U.S. distributors who had worked for it since 2009.

Company critics had been projecting damages in the $700 million to $1 billion range, but now the case was going away for just $17.5 million, of which $5 million would be awarded to the attorneys. Though 93% of class members were personally notified of the suit, just 0.5% filed claims—embarrassingly meager even by class-action standards.

The dismal result underscored the recurring question: Where were the victims? While Ackman had produced numerous individuals who appeared to have been taken to the cleaners by unprincipled distributors, at the statistical level the evidence just wasn’t jelling. (A group of 18 objectors—16 of them supplied by a Waukegan, Ill., activist who has been helping Ackman find victims—is appealing.)


After his original presentation, Ackman put on three more. But the sequels were largely duds, or worse, in the market’s eyes.

In the second, in November 2013, four victims were interviewed. But they all described being victimized by a lead-generation business. It was one of just two that still existed in 2012, accounting for less than 1% of the company’s revenue, according to Walsh. In fact, the victims all said they’d been burned by an outfit that, as it happens, had been banned by Herbalife two weeks before Ackman’s attack. (The outfit was run, however, by a distributor who had also headed Newest Way to Wealth a decade earlier. At a minimum, it could be argued, the company should have been watching him like a hawk.) Herbalife finally banned all lead selling or buying in June 2013.

The third presentation, in April 2014, alleged that Herbalife’s methods of doing business in China violated Chinese law, which forbids MLMs. A tough slog, the presentation struck some as peripheral to the pyramid-scheme allegation. They saw it as “thesis creep,” which, as one major investor commented to me, “is one of the worst things you can have in this business.”

At the last event, in July 2014, Christine Richard made a presentation on nutrition clubs. By this time she’d left Indago to form her own boutique, whose sole client was Ackman. After visiting more than 240 nutrition clubs in several countries, she said, she had concluded that naive, often undocumented immigrants were being defrauded into something resembling indentured servitude by predatory, distributor-led, company-countenanced training programs. Trainees were allegedly being induced to generate artificial business for an existing nutrition club—dragging friends and family to show up, while shelling out money to pay for their shakes.

“I’ve really sort of had it with this Ackman guy,” Carl Icahn told CNBC.

About two hours into the presentation, Ackman became choked up as he spoke of his own family’s humble immigrant past. Wiping away tears, he said: “I’m a huge beneficiary of this country, okay? Michael Johnson is a predator, okay? This is a criminal enterprise, okay? I hope you’re listening, Michael. And it’s time to shut the company down.”

Richard’s research was disquieting. But Ackman had fatally overhyped it, promising it would deliver the “death blow.” As soon as it became clear that there was no smoking gun, the stock began to rise. It ended the day up 25%, at $66.77—the stock’s largest single-day jump ever.

Richard’s presentation was “nonsensical,” Des Walsh asserts. “The beauty of clubs is you could go in and sit in a corner and see for yourself. When you see police officers and firemen and the neighborhood barber, and mothers from the neighborhood come in with their babies … she would know it’s not true.”

As part of its response to the FTC inquiry, the company commissioned two documentary filmmakers to make a movie about nutrition clubs. The hour-long film, previously unreported, depicts owners and participants at nine clubs in Miami, New York, and Los Angeles. Herbalife claims that it gave the documentarists a list of 30 clubs in each city and then let them proceed from there on their own. The movie shows grateful patrons, thankful for the life-transforming weight loss they’ve achieved, and salt-of-the-earth club owners, from many ethnic groups, grateful to Herbalife for giving them a prideful alternative to washing dishes or cleaning other people’s apartments. More than once, individuals thank Herbalife for saving their lives.


This year, so far, momentum has continued in Herbalife’s favor. The company resumed hitting its numbers in the first quarter of 2015. Then, in March and again in April, the Wall Street Journal reported that Manhattan federal prosecutors had interviewed some of Pershing Square’s contractors, probing possible false statements made to state attorneys general and in research underlying Ackman’s China presentation.

“As far as I know,” Ackman told me, “nothing ever came of it. We certainly have never received any subpoenas, and the DOJ has not expressed any interest in interviewing any of us about any of that stuff.”

Ackman counterpunched in April, stating at a conference that senior Herbalife executives had “hired or are looking to hire their own criminal defense counsel”—an allegation Herbalife categorically denies. The company’s lawyers fired off another letter to the SEC alleging market manipulation—its third. At the same time, however, Herbalife disclosed in May that federal prosecutors had recently sought information from the company, certain distributors, and others regarding their business practices.

In April a consortium of banks extended Herbalife’s revolving credit facility, notwithstanding Ackman’s prediction that they wouldn’t. (“I think I was effectively correct,” says Ackman. The banks required a paydown of debt, extended the loan for only a year, and imposed more onerous terms. “The banks want out … in the worst possible way.”)

Herbalife CFO DeSimone says the company wanted a temporary credit arrangement until the overhang of the FTC probe lifted, when it would be able to negotiate better terms. “If the banks wanted to get out,” he says, “they could have done so and been fully paid in March. Instead, all 10 banks—plus a new one—unanimously approved extending the deal. It was a huge vote of confidence for the company.”

Herbalife’s latest quarter, announced Aug. 5, brought still more positive numbers, sending the stock up 24% over the next three days, to $60.77. Now, after marketwide China-related corrections, it’s trading in the mid-50s.

For him to break even on his bet, Ackman estimates, the stock has to dip to the low 30s. Meanwhile he is paying about $100 million annually to maintain his position, he acknowledges. The Herbalife short position represented a 3.7% loss for Pershing Square for the first six months of this year, the fund reported last month.

At times during our conversations, Ackman seemed to be preparing for the possibility that the FTC might clear Herbalife on the top count: the pyramid-scheme rap that started the whole ball rolling. Still, he never betrayed a hint that he might pull out.

Which all makes one think back to that bomber’s ejection seat standing so temptingly in the corner of one of Ackman’s conference rooms. What would it take for him to push the red button at this stage?

The truth is—and Herbalife hates to admit this—Ackman’s campaign has already forced a number of positive changes at the company: Herbalife has finally banned lead-generation businesses; it has upgraded its buyback policy to best in class; it has enhanced its disclosures and disclaimers; and it has taken more responsibility for its nutrition club training programs. It is quite possible that the FTC, thanks to Ackman’s pressure, will soon order additional consumer protections.

The problem for Ackman is that improving the company wasn’t the goal. The goal was to destroy it. So for him all these small victories add up to failure: a loss of money and a loss of face.

That, in turn, makes one wonder whether hedge fund managers with outsize egos, reputations on the line, and billion-dollar stakes make the best regulators. And whether, on the basis of their private, closed-door deliberations, they should be sentencing public companies to death.

A version of this article appears in the September 15, 2015 issue of Fortune magazine.

Leave a comment

Posted by on September 25, 2015 in African American News


Tags: ,

The surprising benefits of reading before bed

3986164316_9c49f5310c_oViviana Calderón/flickrReading before bed can reduce stress by 68%.

We’re all commitment-phobes. We scan, we skim, we browse, but rarely do we read.

Our eyes ping-pong back and forth from facebook posts to open chat boxes, unclicked emails to GIFs of dancing cats, scanning for keywords but barely digesting what we see. Average time spent on an online article is 15 seconds.

In 2014, the Pew Research Center revealed that one-quarter of American adults hadn’t read a single book in the previous year.

And that’s a shame because those who read consistently exhibit significantly greater memory and mental abilities at all stages in life. They’re also better public speakers, thinkers and, according to some studies, better people in general.

Cracking open a book before you go to bed could help combat insomnia, too: A 2009 study from researchers at University of Sussex showed that six minutes of reading reduces stress by 68% (more relaxing than either music or a cup of tea), thus clearing the mind and readying the body for sleep.

The reasoning, per psychologist and study author Dr. David Lewis is that a book is “more than merely a distraction, but an active engaging of the imagination,” one that “causes you to enter an altered state of consciousness.”

It doesn’t matter if your book of choice is by James Patterson or James Joyce, fiction or fact, so long as it you find it fully absorbing. Because when the mind is engaged in a world constructed by words, tension evaporates and the body relaxes, paving the way for sleep.



Tags: , , ,

Microlending Success Starts with a Smile

PAFF_081915_MicrolendingSmile_newsfeatureThe economist Muhammad Yunus was awarded a Nobel Peace Prize in 2006 in recognition for his pioneering work in microlending – making small loans available to people living in poverty.

Yunus believed that entrepreneurs in rural, impoverished areas needed the same things as any other business—capital to get their small businesses started and growing. These entrepreneurs are frequently unable to get loans through traditional banking institutions. Through microlending, someone in Montana can help finance a small $500 loan so that an aspiring tailoring business in Tajikistan can invest in buying more sewing machines.

Like a typical bank loan, microlenders expect to be repaid with interest, although it’s typically at much lower interest rates than traditional banks. There’s no guarantee that lenders will recoup their investment.

Stanford University psychological scientists Alexander Genevsky and Brian Knutson wanted to investigate the factors that led people to put their money on the line for total strangers.

They designed two experiments to explore the underlying neural mechanisms associated with the decision to lend. Their findings, published in Psychological Science, suggest that positive emotional cues – such as a smiling face in a photograph – may be one of the most effective ways to increase the success of a microlending campaign.

In the first study, Genevsky and Knutson used a massive dataset of 13,500 real microlending campaigns from Kiva, an Internet-based international microfinance organization. Through Kiva, lenders can fund loans in $25 increments, but the borrower only receives the money if the full requested amount is successfully raised within 30 days of the initial loan request.

Online volunteers evaluated the emotional impact of borrowers’ photographs from the Kiva website. Volunteers categorized the emotions displayed by borrowers’ facial expressions (i.e., whether the person was happy, sad, calm, fearful, angry) as well how strong their emotional reaction was when viewing the borrower’s photo.

The text used for each campaign was analyzed separately for the total number of positive and negative emotional words.

Only borrowers who appeared “happy” in their photographs received a bump in funding. On average, borrower requests with “happy” photographs received $5.15 more per hour than requests with “sad” photographs and they achieved their full funding in 7.6% less time.

To find out whether this positive reaction to happy facial expressions was related to activation in specific neural circuits, a different group of 28 participants came into the lab for a neuroimaging study.

These participants were scanned as they chose whether or not to lend to borrowers. During each trial of the microlending task, participants first viewed a photograph of a borrower from an actual Kiva loan page along with the text of their loan request. Participants were only shown photographs of borrowers who had received the highest and lowest emotion ratings from the Internet study.

The neuroimaging results showed that brain activity in an area called the nucleus accumbens (NAcc) was associated with the decision to lend money. The nucleus accumbens is involved in reward processing and motivation, and previous research has also indicated that it is activated when people engage in charitable giving.

This suggests that some of the same neural processes that underlie charitable giving are also involved in microlending. Moreover, this suggests that minor changes to a borrower’s profile — such as smiling in photographs — can elicit the strong, positive emotions that encourage people to give.

“Specifically, the findings imply that small, inexpensive modifications of affective features of loan requests (e.g., using smiling photographs) may have a more pronounced impact on loan-request success than more costly changes related to constructing a compelling narrative or even requesting fewer resources,” the researchers conclude.



Genevsky, A., & Knutson, B. (2015). Neural Affective Mechanisms Predict Market-Level Microlending.Psychological Science. doi: 10.1177/0956797615588467


Tags: ,

5 Countries That Brought In Europeans To Whiten Their Populations



After the trans-Atlantic slave trade was officially abolished toward the end of the 19th century, many whites felt threatened and feared free Blacks would become a menacing element in society. The elites spent a great dealing of time mulling over how best to solve the so-called Negro problem. A popular solution that emerged during this period was the ideology of racial whitening or “whitening.”

Supporters of the “whitening” ideology believed that if a “superior” white population was encouraged to mix with an “inferior” Black population, Blacks would advance culturally, genetically or even disappear totally, within several generations. Some also believed that an influx of immigrants from Europe would be necessary to successfully carry out the process.

Although both ideologies were driven by racism and White supremacy, whitening was  in contrast to some countries that opted for segregation rather than miscegenation, ultimately outlawing the mixing of the races. This, however, was just a different means to the same end as these nations also imported more Europeans while slaughtering and oppressing the Black population.

Here are 5 of the several counties that adopted a whitening policy and what happened as a result.


1. Brazil

Brazil’s whitening ideology gained support from two scientific racist beliefs that were prominent during this time. One being Social Darwinism, which applied Darwin’s theory of natural selection to a society or race, and the other being Aryanism, the belief that the “white” Aryan race was superior to all other cultures. By combining these two ideas, a certain portion of the Brazilian power elite believed, from roughly 1880 on, that the nation could be “whitened” and thus “improved” if whites were encouraged to mate with Black

To further ensure that Brazil became whiter, a series of laws were passed prohibiting the immigration of Black people to the country.  In 1945, the Brazilian government issued a decree favoring the entrance of European immigrants in the country: “In the admission of immigrants, the need to preserve and develop, in the ethnic composition of the population, the more convenient features of their European ancestry shall be considered.”

Because Brazil’s racist miscegenation agenda, lighter skin became valued more among Brazilians of African heritage, and darker-skinned individuals sought lighter-skinned partners, since the surest way to gain upward mobility is to possess whiter skin than your parents.


2. Cuba

At the dawn of the 20th century, Afro-Cubans enthusiastically joined the struggle for independence against Spain in hopes of building a nation based on racial democracy.  However,  the U.S. military presence in Cuba from 1898 to 1902 and again from 1906 to 1908 propped up and defended a racist ruling class, who pursued policies that actively sought the “whitening”  or Blanqueamiento of the nation.

The power elites promoted interracial marriage and the Cuban government created immigration laws that invested more than $1 million into recruiting Europeans, mostly from Spain, into Cuba in order to whiten the state and excluding Blacks from every aspect of national life.  A ban on “non-white” immigration was also implemented.

Despite the massive investment in European DNA, many of the immigrants did not stay in Cuba and came solely for the sugar harvest, returning to their homes during the off seasons. Although some 780,000 Spaniards migrated between 1902-1931, only 250,000 stayed.

By the end of the 1920s, Blanqueamiento as a national policy had effectively failed. It did, however cause lasting damage by shifting the demographics of Cuba and solidifying the social and economic marginalization of Afro-Cubans.

girl with jamaican flag painted on her face

3. Jamaica

After the abolition of slavery in Jamaica (Aug. 1, 1834), many plantation owners feared an impending shortage of labor. Apparently the newly freed  and well experienced Africans on the island were not good candidates for a paid labor force.

Consequently, the former slave owners sought new measures in an effort to solve this problem. One solution was the establishment of a European settlement by Lord Seaford, then-owner of Montpelier Estate and Shettlewood Pen which were located in Westmoreland, in the parish of St. James. More than 1,000 Germans were brought to Jamaica with the promise of being granted housing, land and employment.

The white migration never amounted to much, because mixing with the Black population and migration to the U.S.  depleted much of its population. Moreover a century of in-breeding had a degenerative effect on what’s left of the population. However, many Jamaicans in Seaford Town and German Town in Trelawny carry heavy European features such as blue eyes, blond hair, freckles and white skin, as a result of the German genetic influences.


4. South Africa

The apartheid system was designed to maintain white domination in South Africa, and the assisted immigration laws implemented during White rule, reflected that ideology.  However the ground work was laid well before the apartheid system was officially put in place.

In 1820 the British authorities persuaded about 5,000 middle-class British immigrants  to leave Great Britain and settle on tracts of land that were being violently disputed by the Zulus and the Boers. The idea was they were supposed to provide a buffer zone, but the plan was unsuccessful because within three years, almost half of the settlers had retreated to the towns to pursue the kind of jobs they had in Britain.

From 1870 onward, there was large-scale immigration to South Africa following the discovery of gold and diamonds.  In the Transvaal, the site of the gold discoveries, the white population expanded eightfold.

In 1948, while European South Africa was facing food and housing shortages, rampant inflation an unemployment the government ramped up state-assisted immigration from Europe in what Prime Minister Smut said was an effort to ensure South Africa’s economic and industrial expansion, and to ensure the maintenance of Western civilization.

Following the implementation of the apartheid regimes immigration program, Europeans, primarily from Britain, arrived at three times the rate as they previous did. Meanwhile native Africans were being murdered, forcibly removed from their land, and immigration laws were being used to arrest those who were found in  “white designated” areas for more than 72 hours.

Although the Europeans declared South Africa a white man’s country during apartheid, immigrants from Taiwan, South Korea and Japan were considered honorary whites in the country. They were granted the same privileges as white people for the sake of maintaining diplomatic relations with the respective nations.


5. Australia

Australia’s natives have been victims of oppression in many ways and for various reasons for nearly 200 years. Their land had been taken over by European settlers, and later on they were forced to assimilate into white society.

AO Neville, the Chief Protector of Aborigines from 1915 to 1940, inspired by the same eugenics propaganda that informed the Blanqueamiento in Latin America, attempted to use miscegenation to breed the blackness out of the Indigenous population. Following the Second World War authorities began a slow shift away from biological assimilation to one of cultural assimilation.

From 1869 until well into the 1970s, thousands of indigenous children under 12 years of age were removed from their families to be absorbed into the white community.

To reinforce attempts to whiten Australia, the Australian government’s first act was to pass the Immigration Restriction Act. Often referred to as the ‘White Australia policy’ this effectively banned non-white migration for 50 years and offered money and jobs to immigrants with European ethnicity.

When the European invasion began in 1788, Australia’s aboriginal population was about 750,000.  In 1933, the population fell to its lowest levels. Today, more than 20 million people live on the continent, but the indigenous people make up less than 2.4%, or 563,000.

Afrikaner Politics in South Africa, 1934-1948 By Newell Maynard Stultz

Read more:


Tags: , , , ,



Born a slave in the waning months of the Civil War, Anthony Overton became the first African American to own a major conglomerate.  His vast business empire included the Overton Hygienic Manufacturing Company, The Half-Century Magazine, Douglass National Bank, The Victory Life Insurance Company, The Great Northern Realty Company, and the Chicago Bee.

Overton was born on March 21, 1865 in Monroe, Louisiana to Anthony Overton and Martha Deberry Overton. During Reconstruction, Overton attended public school in Monroe before the family moved to Kansas in the 1870s.  In 1881, Overton graduated from South Side High School in Topeka. Shortly afterwards he opened his first business venture, a fruit and grocery store in Topeka.  Money earned from the business allowed Overton to graduate with a Bachelor of Law degree from Washburn College in Topeka in 1888.  The same year, he married Clara Gregg. The couple had four children: Eva, Mabel, Frances, and Everett.

In 1892 Overton was elected a municipal judge in Topeka. Overton and his family left Topeka and moved to Kansas City, Missouri in 1898 where with the family savings of $2,000 he founded the Overton Hygienic Manufacturing Company in 1898. The company initially sold one product, baking powder, but eventually branched into cosmetics, perfumes, and toiletries appealing to African American woman.

The Kansas River Flood of 1902 almost brought the demise of the company, engulfing the Kansas City manufacturing district and destroying Overton’s business. After recovering from bankruptcy, Overton resumed manufacturing and selling products although now to a nationwide and eventually an international market that included Egypt, Liberia, and Japan.

In 1911, Overton moved his company to Chicago, Illinois to access a larger market.  Within two years the company manufactured 62 products and had a sales staff of 32 full time employees as well as over 400 door-to-door sales people. In 1916, Overton founded a variety magazine, The Half-Century, partly to promote the company’s products. It appealed to educated black women but also promoted the early civil rights efforts of the National Association for the Advancement of Colored People (NAACP).

In 1925 Overton founded the Chicago Bee and relocated the newspaper to the Chicago Bee Building, a three story structure which also housed the Half-Century Magazine, apartments, and eventually Overton Hygienic.  By 1927, the cosmetic business alone employed 150 people in clerical and manufacturing positions, most of whom were black women.  The cosmetics company was valued at more than one million dollars and Overton by that point was the most successful black businessman in the nation.

Overton’s other businesses included the Victory Life Insurance Company which he ran from 1922 to 1932 and the Douglass National Bank (1923-1932), the second nationally chartered black-owned bank in the United States. With the founding of the bank, Overton became the principal competitor of Jesse Binga whose Binga State Bank in Chicago was the largest black-owned bank in the nation.

Overton was an active participant in the Chicago Urban League, the YMCA, and Alpha Phi Alpha Fraternity. He died in Chicago on July 2, 1946 at the age of 81.  When Overton Hygienic went out of business in the early 1980s, the city of Chicago took over the building, operating it as a public library.  It was added to the National Register of Historic Places on April 30, 1986.

John N. Ingham and Lynne B. Feldman, eds., African-American Business Leaders: A Biographical Dictionary (Westport, CT: Greenwood Press, 1994); Victoria Sherrow, ed., Encyclopedia of Hair: A Cultural History (Westport, CT: Greenwood Press, 2006); “Anthony Overton,” The Journal of Negro History 32: 3 (July 1947); Jessie Carney Smith, Millicent Lownes Jackson, and Linda T. Wynn, eds., Encyclopedia of African American Business (Westport, CT: Greenwood Press, 2006).


University of Washington, Seattle



Tags: , , , , , , , , ,

Little Known Black History Fact: The History of Barbeque

The word barbecue and the open-fire cooking technique came from the Caribbean amongst the Taino people around the late 17th century. The word barbecue itself means “sacred fire pit.” The unique way to cook meat spread into Spanish, French and American cultures when slaves were brought from the Caribbean.

In the Southern United States, barbecue initially revolved around the cooking of pork. Prior to the American Civil War, Southerners consumed five pounds of pork for every one pound of beef they consumed. Plantation owners regularly held large and festive barbecues, including “pig pickin’s” for slaves. Because of the poverty level in the South during that time, every part of the pig was eaten immediately or saved for later. During the Great Migration, many of the southern slaves moved to northern cities, taking their cooking techniques like barbecue along, which quickly spread across the country.

The true origin of barbecue has been debated in several cultures. Some believe it was born through a tribe in Guyana, while others believe it was a Haitian practice. In western culture, it was said that the word barbecue was a combination of words from an advertisement for a bar, beer, and pool available at a local establishment; hence the word bar-beer-cue.

As the popularity of the barbecue technique spread, the distinction between regional cooking became more about what parts of the pig and cow are barbecued, how it’s present and most important, the flavors of the sauce and how and when the sauce is applied. The main regions identified in the U.S. that determine unique flavors have been broken down into several styles: Memphis, Tennessee, North Carolina, Kansas City and Texas.

July is National Grilling (or Barbecue) Month and National Hot Dog Month, mainly due to the popularity of summer cookouts and consumption during the 4th of July holiday.




Built to Last: the boomerang is the opposite of throwaway design. Nicholas Shakespeare tries to catch its appeal

From INTELLIGENT LIFE magazine, March/April 2015

When I was 11, my grandmother gave me a boomerang. In a book about her travels to Australia, she wrote of how, in the Barossa Valley, she had gripped an Aboriginal spear that was intended to pass through the body with one thrust. “I was more sure than ever after handling these weapons that Nicholas should not have one.” In Melbourne, she fingered a boomerang, but after testing its hard edges she worried that I might do “untold damage” to my siblings. The Aboriginal owner held a demonstration, throwing it across the road, but the boomerang dropped short on its return flight and “a car belonging to a local inhabitant purposely swerved to run over it and break it in half.” Not a woman normally motivated by guilt, my grandmother was moved to buy a replacement, which she presented to me.

This bent-arm-shaped piece of dark wood, with strange motifs burned into it, soon became a cherished object—like its twin in a television series, “The Magic Boomerang”, which, when thrown by the 13-year-old hero, made time freeze for the length of its flight. It is why, ever since I was a boy, I have felt the emotion Andrei Sinyavsky captures in “A Voice from the Chorus”: “Whenever one sees Australia on the map one’s heart leaps with pleasure: kangaroo, boomerang!”

Boomerangs are not exclusive to Australia: Howard Carter found a throwing-stick in Tutankhamun’s tomb. But Australia claims the longest unbroken association—from the evidence of a returning boomerang found in South Australia’s Wyrie swamp, at least 9,000 years. Clearly, the original was so unimprovably adapted to its purposes that the design had not altered a smidgeon by the time the first recorded European set eyes on one, several millennia later, in 1802. He was a French-born ensign in the New South Wales corps, Francis Louis Barrallier. This is his description: “It is composed of a piece of wood in the form of a half circle which [the natives] make as sharp as a sabre on both sides, and pointed at each end. They throw it on the ground or in the air, making it revolve on itself, with such a velocity that one cannot see it returning towards the ground; only the whizzing of it is heard.” The sound was possibly caused by a hole in one end, so that the boomerang whistled like a hovering hawk, scaring flocks of ducks or cockatoos to fly low and tangle themselves in nets stretched across a lagoon.

As with birds, so with men. “A bomb-shell thrown amongst a company of soldiers cannot create a greater consternation than the flight of a boomerang towards a group,” wrote the missionary Lancelot Threlkeld in 1859; “…it rips up the individual when it strikes, as though done with a knife.”

Fashioned from a hardwood such as mulga or mangrove, about two inches wide and two feet long, curved on top, flat beneath, and either plain or decorated—the engravings often etched by a wallaby tooth, and filled with ochre and pipeclay: no other object crosses so satisfyingly the boundary between indigenous and Western culture, and yet retains its mystery—that of something which spins out of sight and comes back.

The earliest scientist to analyse its aerodynamic properties, the 19th-century explorer Thomas Mitchell, when he first observed the flight of a boomerang, and examined the weapon, exclaimed, “The savage who invented this, in whatever time, was gifted by the Creator with a knowledge which He has withheld from civilised man.”

The boomerang looks simple, but, as Mitchell saw, it is not. Its significance is wide-ranging, says Gaye Sculthorpe, curator of the British Museum’s forthcoming exhibition on Australian indigenous art—which will travel, boomerang-fashion, to the National Museum in Canberra. “It’s a really effective weapon or tool, perfectly shaped for diverse purposes.”

A weapon to attack enemies, or to hunt birds and wallabies, a boomerang’s hard edges may also be used as a fire-making tool to rub over a soft beantree and cause a spark. It can function as a ceremonial object, employed to beat out time in secret initiation ceremonies, or as a toy for Aboriginal children to light and hurl, flaming, through the night sky. It has appeared in advertising slogans to encourage returning customers—like the 1960s Boomerang Trips promoted by Qantas/BOAC between Australia and England. It has lent its name to a butter, a brandy, a cigarette paper, a football club. It can be an object of kitsch, a porcelain plate for nibbles—but also an enduring patriotic symbol. The parliament in Canberra is modelled on two boomerangs, suggestive of the intermingling of pre- and post-colonial cultures (for an equivalent, picture Britain’s Houses of Parliament shaped like an oak leaf). More than anything, the boomerang is an example of the constant interaction between the sacred and secular aspects of Aboriginal life.

Even today, more than two centuries after its introduction to Europeans, not all of its ritual meanings and purposes can be explained. But a couple of things may be said with confidence. First, no two boomerangs perform in an identical way. Second, a good one returns to its owner. Regrettably, I never was able to emulate Frank Donnellan, an expert thrower from Sydney who caught his boomerangs blindfolded. I caught mine only once or twice. The last time I hurled my boomerang, above a thicket on Wimbledon Common, it did not come back, and I never found it.

Indigenous Australia: Enduring Civilisation British Museum, London, April 23rd to Aug 2nd

Nicholas Shakespeare is the author of “Priscilla” and a literary critic for theDaily Telegraph. He spends part of the year in Tasmania


Tags: ,


Get every new post delivered to your Inbox.

Join 438 other followers

%d bloggers like this: