In response, officials at Herbalife took out the mandrake and poke root, and began to modify some of its claims. But when the FDA published a "Talk Paper" on August 21, 1984, explaining its findings to the public and the press, the company became litigious. Filing suit in federal court against the FDA, Herbalife accused the agency of "false and defamatory statements" and a "corrupt trial-by-publicity." The suit was eventually withdrawn, but not before Hughes had served notice that he would stand his ground.
For a time, the negative publicity generated by this dispute had no effect on the Herbalife juggernaut. By February, when Milton Berle, Donny and Marie Osmond, and comedian David Steinberg hosted the company's fifth anniversary show, sales were climbing to more than $500 million a year. Herbalife had incredible momentum: Suddenly the "Lose weight now. Ask me how" button seemed to be in every mall and grocery store, and the bumper sticker on vehicles from BMWs to pickup trucks. Hughes started collecting L.A. -- style toys: a Mercedes-Benz and a Rolls-Royce, a beachfront house in Maui and a multi-million-dollar Bel Air mansion, purchased in 1984. He married a glamorous Swedish beauty queen who he reportedly met when she passed him a note in a Hollywood disco. The sky seemed the limit: First quarter 1985 sales were up to $228 million, and company officials were predicting sales of $150 million a month by the end of the year.
Then came the March 6 legal action in California. The complaint, filed jointly by the California attorney general and the food-and-drug branch of the state health department, ran 24 pages, and charged Herbalife with 21 different citations of untrue or misleading statements. The company's assertions about "the amazing magic of natural herbs" were "untrue or misleading." Most of the herbs in Herbalife products are "non-effective for the purposes advertised." To promise that Cell-U-Loss could "naturally eliminate cellulite" was "misrepresentation." To claim that Herbalife N.R.G. gave "a natural lift" was unjustified, too, since "defendants misleadingly fail to disclose that one of [the product's] active ingredients is caffeine."
In addition, the company was charged with violating both the state civil code and the penal code in its marketing scheme. Herbalife Journal featured stories headlined "Lady Truck Driver Earned $250,000.00 To Become the Ultimate Lady Executive," or "The Shines -- From a Choice of Bankruptcy and Welfare to an Income of $400,000.00 in Just 12 Months." But it was "untrue or misleading" to suggest that such success was common; "their marketing system," the state charged, "comprises a lottery."
The charges might have been had, but the Senate subcommittee hearings two months later were worse, if only because they were reported coast-to-coast. Some of America's top nutritionists called for government intervention, saying that Herbalife's products contain "ingredients which are useless" and "potentially harmful" and that the company's claims are "fraudulent in the extreme." Worst of all for the company was the testimony of Hughes's former disciples.
Bernard Lehman, a victim of Hodgkin's lymphoma, had been having trouble getting by on his Social Security checks. Then he met an Herbalife distributor who had set up his offices in a local coffee shop. Herbalife's products, Levin was told, would increase his breathing capacity and help his cancer. And if he went on to be come a distributor it could solve his money problems as well.
"As my wife says, we got suckered, because we believed that we could make lots of money," Lehman admitted. He and his wife had both gotten ill on the product, but he decided to become a distributor anyway, because "we thought our own bad reactions to taking the product [were] unusual." Unfortunately, no one would buy it. When he called the company to complain, Lehman testified, Al Levine, in the public relations department, "told me to 'stick it up my ass," reminding him that distributors had no guarantee. He was stuck with $700 worth of product that he couldn't sell.
Cynthia Lee, a 35-year-old widowed mother of two, testified that her late husband had become a distributor to pick up some extra cash, too. Bivian Lee was a veteran of the National Football League, strong as a horse and still in shape, until he started using Herbalife products.
"After a few days, however, he began to complain," his wife reported."For almost two weeks he complained about shortness of breath; he began vomiting after his meals, having diarrhea, and getting chills. When I told him I was worried about him, he said that according to the Herbalife pamphlet it was a normal symptom. 'It's just cleaning my system out,' he said."
In less than one month, he was dead. "I saw him deteriorate from a . . . perfectly healthy man . . ." Cynthia Lee testified. "And it all began when he started taking Herbalife."
From the outside, Herbalife's corporate headquarters in Los Angeles suggests permanence, as if the traumatic spring and summer of 1985 had never touched the company. The building towers at the edge of the San Diego Freeway, a 14-story concrete-and-glass megalith sitting amidst the rental-car parking lots and motels that surround Los Angeles International Airport. A tasteful red metal sculpture proclaims the corporate aesthetic in the courtyard, while the bright green Herbalife logo beams from the top.
Inside the office, however, it is clear that Herbalife is reeling. Some 220 employees were laid off in early May, and another 573 were furloughed after the Senate subcommittee hearings. Signs of the departures are visible in the corridors. A giant Hewlett-Packard computer system sits behind its glass wall, waiting to record the $150 million in monthly sales the company expected this year, but the cubicles that surround it are empty, the desks and phones unused.
Amidst the emptiness, the public stance taken by company executives is relentless optimism tinged with paranoia. Michael Rosen, Herbalife's executive director of marketing and a friend of Hughes's since his Cedu days, thinks of the trauma as "a shock wave that shook the faith of a lot of the distributors," but promises that "the recovery is here."
