Ex-L.A. Mayor and Governor Wannabe Villaraigosa Joins Embattled Herbalife

Monday, September 09, 2013
Antonio Villaraigosa (photo: Susana Bates)

Back in June, when then-Los Angeles Mayor Antonio Villaraigosa mused about his desire to be governor of California one day, he told KPCC’s Larry Mantle, “"I'm going to tell you something. I will never have a job like this.”

Well, certainly his next job was nothing like the job he had. Last week, Villaraigosa signed on as a senior advisor to Herbalife Ltd., a company that has been publicly accused of running a pyramid scheme and using its 60% Latino workforce to target poor Latinos. The company is also in the middle of a stock battle between billionaires and is being scrutinized over the safety of its nutritional supplements.       

Brent Wilkes, national executive director of the League of United Latin American Citizens, called for an investigation of the company by the Federal Trade Commission (FTC) two months ago and told the Los Angeles Times he was surprised that Villaraigosa would sign on with them. “I have to believe in my heart he would not have taken this gig if he realized so many Latinos were being defrauded by the company because they sign up thinking they’re going to make money and they end up losing money instead,” he said.

Most of Herbalife’s distributors make little or no money, a fact that hedge fund investor Bill Ackman bet $1 billion would eventually sink the company’s stock. Ackman shorted the stock in December, which immediately plunged 21%. But then the stock took off and has almost doubled year to date.

Sensing blood in the water, billionaire investor Carl Icahn—a shareholder activist or ruthless corporate raider, depending on your point of view—announced in February that he had acquired 16% of Herbalife’s stock and the company would shortly be in play. George Soros bought 5 million shares and Dan Loeb made a bundle jumping in and out of the stock. Ackman accused Icahn of making his Herbalife purchase as a personal attack on him.

While billionaires padded their bottom lines—at least, most of them—the New York Times was investigating Herbalife’s compliance with regulations and industry standards after metal shards were found in its Formula 1 nutrition shake in 2011. The newspaper was quick to point out that there is no evidence that any of the contaminated product reached consumers, but cited internal company documents from a whistleblower that raise questions about how Herbalife reacted to the metal problem.

Instead of destroying the product already produced on the line where contamination was found, the company reportedly tested it and let the good stuff through. The New York Times published a timeline of the various production line failures that caused metal to end up in the supplement over the course of two weeks in January 2011, and the company’s suspect responses to them.

While food safety lawyers told the Times that industry standards require all the product be destroyed, industry lawyers, like Christopher S. D’Angelo, chairman of the product liability group at the law firm of Montgomery McCracken Walker & Rhoads, say, “If the product meets specs and standards, there’s no reason why it can’t be sold.”    

The New York state attorney general, the U.S. Food and Drug Administration and the Securities and Exchange Commission have all been involved in discussions about the company, but no agency has taken action.

Herbalife was founded in 1980 and is headquartered in Los Angeles. The company distributes its products in more than 80 countries, but has had its troubles overseas. A court in Brussels, Belgium, declared Herbalife a pyramid scheme in 2011. It is the only country to do so.

Governor Jerry Brown is up for re-election in 2014 and would be the presumptive favorite in a Democratic primary. So Villaraigosa, also a Democrat, probably has some time to think over what his next job might be if the Herbalife gig doesn’t work out.

–Ken Broder  


To Learn More:

Herbalife Safety Issue Draws Scrutiny (by William Alden and Andrew Ross Sorkin, New York Times)

Latino Leader “Disappointed” Villaraigosa Joined Herbalife (by Stuart Pfeifer, Los Angeles Times)

Former L.A. Mayor Antonio Villaraigosa Joins Herbalife as Advisor (by Stuart Pfeifer, Los Angeles Times)

L.A. Mayor Villaraigosa Wants to Run for Governor (by Catalina Camia, USA Today)

How Ackman's Herbalife Bet Inflamed Wall Street Passions (by Jennifer Ablan and Matthew Goldstein, Reuters)

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