Pershing Square Seeks Meeting with Herbalife (HLF) Compliance Chief
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Pershing Square Capital Management today invited Pamela Jones Harbour, newly appointed Senior Vice President of Global Member Compliance & Privacy, at Herbalife (NYSE: HLF) to meet face-to-face to discuss the significant compliance challenges that confront Herbalife.
“Based on our extensive investigation over the past three years, we believe Herbalife operates the largest and best-managed pyramid scheme in the world,” writes Pershing Square Capital Management Senior Counsel David Klafter. “Your job will be an enormous undertaking, especially given the lax attitude toward compliance that has existed at Herbalife in the past. You may find yourself at the fulcrum of choosing between protecting consumers or protecting the Company. Based upon our research, we do not believe you can do both. We are ready to meet anytime, anywhere.” (pages 1-2, 5)
According to Herbalife, Ms. Harbour’s new role will be to lead a global compliance team of nearly four million distributors across 91 markets and to “develop and enhance policies and infrastructure that ensure effective education, training and mentoring programs for the nearly four million independent Herbalife members worldwide, underpinned by robust and consistent monitoring and enforcement procedures.”
Herbalife’s compliance efforts to date have been virtually non-existent. Enforcement of rules purportedly designed to encourage retail sales and discourage inventory-loading is essentially non-existent. Herbalife also has repeatedly refused to collect its distributors’ retail receipts, which distributors are contractually required to create, maintain and provide to the Company upon request, even after Pershing Square offered to pay the cost of doing so. Herbalife has made only the weakest of excuses for its failure to track and report retail sales.
“Viewed against the backdrop of Company’s long history of lax or nonexistent compliance programs, the arrival of someone with an enforcement and consumer protection background is long overdue,” remarked Klafter. (page 11)
Because of the critical importance of independence for a compliance position and the undue influence that senior distributors and senior management of Herbalife have exerted over compliance efforts in the past, the invitation requests that Ms. Harbour come without other executives of the Company.
The full letter:
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