In November 2011, after seven years of litigation, the Commercial Court in Belgium ruled that Herbalife operated as a pyramid scheme. The non-profit organization Test Aankoop initiated the case. It argued Herbalife violated the WPMC (market practices act) by operating a pyramid scheme. Herbalife filed a defamation counterclaim against Test Aankoop.
Mark Hughes founded Herbalife in 1980. He reportedly began selling products from his car's trunk. Hughes often said his product line originated from his mother Joanne's weight loss struggles. He attributed her early death to an eating disorder and poor weight loss methods. Hughes aimed to change global nutritional habits.
Hughes died in 2000 from an accidental overdose of alcohol and doxepin, an antidepressant, despite Herbalife's success. Michael Johnson now serves as Chairman and CEO.
The Belgian court's analysis focused on Herbalife's revenue structure. It examined how the company primarily compensated its distributors. Comparing retail and downline commissions, the court noted that income from the distribution network was significantly higher than income from an equal number of retail customers.
Compensation likely derived primarily from recruiting new distributors, rather than from product sales or usage. Most purchases occurred at a 25% or 35% discount. This indicated Herbalife gained the largest portion of its profit from distributors. Selling to a distributor was considerably more profitable for a supervisor than selling directly to a consumer.
Herbalife argued that distributor product purchases qualified as retail sales, claiming distributors eventually sold these products to retail customers. This argument failed. Herbalife sought to shift the burden of proof onto Test Aankoop, requiring the non-profit to demonstrate that distributors sold internally purchased products to retail customers.