Doran Andry

Chairman’s Club Member da_1

Dates of Herbalife Distributorship: 1992 – present

Status in Herbalife: Chairman’s Club

Business Methods: Lead Generation, Nutrition Clubs, Recruiting Scripts, Training Materials

All statements in this report are made pursuant to Pershing Square’s disclaimer, available at http://factsaboutherbalife.com/disclaimer/.

BACKGROUND ON HERBALIFE-RELATED BUSINESSES

  • In the late 1990s, Andry and other distributors formed Newest Way to Wealth (“NWTW”), an Herbalife lead generation business [1]. In 2002, Andry, NWTW and Herbalife were sued in a class action in federal district court in Los Angeles.  Plaintiff alleged that Herbalife and NWTW constituted a pyramid scheme and that the defendants were committing fraud and securities fraud by making deceptive earnings projections and omitting and misrepresenting the risks inherent in the business.  The case was settled for $6 million in 2004.

o The case is Jacobs. v. Herbalife International Inc., et al., No. 02-01431 FMC (C.D. Cal.).

o Archived websites relating to NWTW can be viewed at: http://web.archive.org/web/20010202022400/http://becashhappy.com/; http://web.archive.org/web/20010602023941/http://cashnowandforever.com/index2.html; and http://web.archive.org/web/20020214000039/http://quickcashnow.com/register/regns.html.

  • In the wake of the NWTW litigation, Andry started a new lead generation business called Financial Success System (“FSS”).

o Financial Success System International LLC was registered in Nevada on September 17, 2003 (Entity Number: LLC14174-2003, registration attached as Exhibit A) and was registered in California on May 28, 2004 (Entity Number: 200416710178, registration attached as Exhibit B). Both registration filings list Andry as the “manager.”  Both filings also use the address 4209 Seashore Drive, Newport Beach, CA  92663, which we believe is linked to Andry.

o FSS-America, LLC, which was registered in Nevada on June 18, 2004 (Entity Number: LLC13573-2004, registration attached as Exhibit C), and also listed Andry as the manager and used the address 4209 Seashore Drive, was dissolved on December 21, 2012, one day after Pershing Square’s presentation at the Ira Sohn Investor Conference. This business appears to have been dissolved voluntarily.

  • FSS was merely a continuation of NWTW under another name.  Indeed, around the time NWTW was being dismantled, a website affiliated with FSS, ebusinessforyou.net, featured a form on its front page that enabled FSS members to transfer their NWTW domains to FSS:

http://web.archive.org/web/20030321140910/http://www.ebusinessforyou.net/

o Paperwork related to the domain transfer, which demonstrates the involvement of both NWTW and FSS, is attached as Exhibit D.

o Around the same time, the websites referred to above were transferred from NWTW to FSS. Archived versions of the websites before and after transfer are attached as Exhibit E. Also included in Exhibit E are IP look-ups showing that becashhappy.com and cashnowandforever.com were registered to Andry’s businesses or family members.

 

  • H B International Group, Inc. is registered in Nevada (Entity Number: C22773-1995, filed 12/22/95, attached as Exhibit F) and California (Entity Number: C1977207, filed 8/19/96, attached as Exhibit G). The California filing names Doran Andry, Joyce Andry, Kimiko Andry, and Shizuko Rodger. The filing also uses the address 4209 Seashore Drive. We believe this business operates as the parent company to Doran Andry’s Herbalife-related businesses.
  • Ignite Global Communications, LLC is registered in California (Entity Number 200414210124, filed 5/18/2004, attached as Exhibit H). The filings names Doran Andry as its agent for service of process, and uses the address 4209 Seashore Drive.

PRIMARY SOURCE DATA ON BUSINESS PRACTICES

Lead Generation Materials

  • FSS offers a wide variety of recruiting tools to Herbalife distributors, including decision packs, recruiting scripts, video and audio recordings, and more.
  • Step 1: An advertisement for a vaguely-described business opportunity directs an unwitting consumer to a website affiliated with FSS in order to learn more. The website required the potential recruit to provide his or her name and contact information and studiously avoids any mention of Herbalife.

  • Step 2:  The potential recruit provides his or her contact information and orders a “free” decision pack.  An FSS member begins the recruitment process by calling to confirm the potential recruit’s order.  FSS provides its members with scripts to use during this call.
    • One such script, attached as Exhibit I, tells FSS members to present themselves as a “personal business coach” offering a “home based business program,” and instructs FSS members to tell potential recruits they can earn thousands of dollars with little effort.  The script also guides members on how to avoid and deflect questions and concerns from potential recruits, including by telling potential recruits that it will cost only “$68 to get started.”  The script also instructs members to tell potential recruits that “our business is absolutely exploding right now.”
  • Step 3:  The potential recruit receives the decision pack.  A photograph of the front and back of the FSS decision pack is below:

o The table of contents for the decision pack reads as follows:

o The decision pack includes a video, excerpts of which are available at https://vimeo.com/85539178, https://vimeo.com/85539181, and https://vimeo.com/85285345, which prominently features Andry and his brother Donte, is replete with highly deceptive income testimonials, downplays the cost of pursuing the Herbalife business opportunity and begins the effort to push new recruits to order large volumes of Herbalife products in order to qualify as a Supervisor immediately.  Such orders, of course, generate an illusion of retail demand for Herbalife products and provide revenue to Herbalife and members of the distributor’s upline.

o Another video included in the decision pack tells recruit they do not need money, time, skill, confidence, or industry knowledge to be successful with Herbalife and FSS:

  • Step 4:  The decision pack directs the potential recruit to a “second package” website for more information:

http://free2ndpack.com/

In “step 4,” the website links to an audio clip, available at https://soundcloud.com/hlfaudio/biz-comparison-excerpt, of an individual named Joseph McLendon purporting to explain the difference between opening a McDonalds franchise and starting an Herbalife distributorship.  In a series of highly deceptive statements, McLendon tells potential recruits that while the average income from a McDonald’s franchise is $240,000 per year, the average annual income of an Herbalife President’s Team member is $611,094 per year.  McLendon appears to have drawn this figure from Herbalife’s 2006 Statement of Average Gross Compensation, which provides gross revenue figures that do not account for expenses.  Furthermore, the odds of a new distributor reaching the President’s Team are exceedingly low.  Indeed, according to Herbalife’s Statement of Average Gross Compensation of U.S. Distributors in 2012, available at http://opportunity.herbalife.com/Content/en-US/pdf/business-opportunity/StatementAverageCompensation2011EN.pdf, only four one-hundredths of one percent of Herbalife distributors in the U.S. earn even $250,001 per year in payments from Herbalife, while 88% of those distributors earn $0 per year in payments from Herbalife.

o The “second package” website also includes a presentation, available at https://app.box.com/s/xmjegmubse2umazw1ryr, about “Marketing and Compensation” with FSS.  The presentation tells recruits that “The Position Determines the Pay” and pressures recruits to order large volumes of Herbalife products in order to qualify as a Supervisor as quickly as possible.  The presentation tells recruits “It’s not so important HOW you get to Supervisor what’s important is THAT you get there.”

  • Step 5:  An FSS member calls the potential recruit to confirm receipt of the decision pack and to pressure the consumer to sign up as an Herbalife distributor and a member of FSS.  FSS provides the FSS member with a script for this call as well.  That script, attached as Exhibit J, directs members to tell potential recruits that FSS offers “a proven step by step system just like a McDonald’s Franchise without the high start up costs.”  The script also encourages members to press potential recruits to purchase a $199 “Success Business Package” to get registered with Herbalife and for access to FSS business tools and trainings.  If potential recruits are “skeptical” or have “objections,” the script directs members to tell them that FSS is “absolutely incredible” and “has totally change my life.”  If the potential recruit says that he or she only wants to consume the products, the script shows members how to press them to start a business.  The script even shows members what to do “If they CANNOT afford anything Today.”

Nutrition Club Materials

    • As Pershing Square explained in its December 20, 2012 presentation at the Ira Sohn Investor Conference entitled “Who wants to be a Millionaire?”, Herbalife nutrition clubs are businesses operated by Herbalife distributors that purport to be daily consumption centers but operate in practice as recruitment centers.
    • In an FSS training video on how to operate an Herbalife nutrition club, available at http://vimeo.com/85560883, Andry tells FSS members that they can make millions of dollars in “passive, residual income” (i.e., income purely from recruiting rewards) and could make tens or even hundreds of millions of dollars by working for 3-5 years and by following his approach.
        • In that video, Andry showed a spreadsheet, attached as Exhibit K, that projects the number of clubs, total revenue, and net income that a distributor supposedly can achieve by starting with 1 proprietary nutrition club and by following Andry’s system.  The projections are startling.
        • Andry projects that in 10 years, a distributor can have 27,475 nutrition clubs operating in his downline, a total revenue of nearly $1.4 billion, and a net income of $55.8 million.

       

        • Andry’s other projections are as follows:

       

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Clubs 3 27 228 1,282 4,432 8,043 12,074 16,629 21,772 27,475
Revenue $411,575 $1.2 mm $6.7 mm $32.4 mm $128.8 mm $308.5 mm $533.9 mm $786.1 mm $1.1 bn $1.4 bn
Net Income $31,191 $103,071 $348,311 $1.4 mm $5.3 mm $12.4 mm $21.5 mm $31.6 mm $43.0 mm $55.8 mm

  • Another FSS presentation on nutrition clubs, available at https://app.box.com/s/fmx71wq47drlz3rk43qb, tells recruits that success is “All About Duplication” and shows recruits that the key to earning “more income” and achieving a “better lifestyle” is to recruit Supervisors.  The concept of “duplication” appears throughout distributor recruiting materials and appears to be little more than a euphemism for pyramidal recruiting.

  • Another FSS presentation on nutrition clubs, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/Starting-Nutrition-Club.pdf, tells new club operators that “the end goal is not how many $4.00 Services they sell each day as that is not the way for them to achieve their financial goals.  Rather, it’s upgrading a Consumer to become a Customer and eventually a Distributor.  And ultimately having Distributors become Operators who will duplicate the Nutrition Club method.”

  • An FSS checklist for starting a nutrition club, attached as Exhibit L, puts considerable pressure on the new club operator to purchase a variety of business tools and to pay for a variety of FSS trainings and Herbalife events.[2]
  • Andry conducts trainings at the Wellness Works Nutrition Club in Costa Mesa, CA.
    • In a video of one such training, available at http://www.youtube.com/watch?v=2BjqMF7_aXk (uploaded in October 2012) and http://factsaboutherbalife.com/category/doran-andrys-chairmans-club-member-2/, Andry tells recruits they can make $100,000 or more per month by following his system.  He further tells recruits to disregard people telling them that they are “in too late,” and that they should press on even if they have “hit the bottom.”  He explains that in order to make “$5 million a month,” recruits “need to learn how to teach people how to teach people what to do.”  In subsequent parts of the same video, Andry continues to make deceptive income claims, encourage recruits to continue investing money despite their inability to earn any income, and emphasize recruiting.
    • The Wellness Works websites states that the company is owned and operated by, among others, Andry’s brother Donte.  See http://cmwellnessworks.com/.
    • Wellness Works is registered in California (Entity Number: 201104210174, registration attached as Exhibit M ), and Donte Andry is named as the agent for service of process.
  • Andry also conducts trainings for The Nutrition Coach, a complex training system for operating Herbalife nutrition clubs.
    • The Nutrition Coach is part of Andry’s business Ignite Global Communications, LLC.  A template member agreement for independent contractors wishing to provide health and wellness services at The Nutrition Coach, attached as Exhibit O, describes The Nutrition Coach as “a D.B.A. of Ignite Global Communications,” and requires all payments from the independent contractor to be made to Ignite Global Communications.
    • In one series of videos, available at http://www.youtube.com/watch?v=IVVfnoHUw9M (uploaded in February 2012), Andry again explains that a “very, very important” objective of starting a Nutrition Club is to “build a pool of people from your consumer group that you’re gonna recruit into what?  Duplicating what you’re doing.”  Later in the video, Andry says, “Guys, where your money’s made is not serving smoothies.  Where your money’s made is having hundreds or tens or thousands of distributors around the globe who are working.”[3]  Andry also tells distributors to “manufacture confidence” and “fake it ‘til you make it” in trying to recruit new distributors into the scheme.  Speaking about potential recruits, Andry tells the distributors, “They don’t know what you don’t know.”
    • Distributors at The Nutrition Coach refer to Andry as “our great mentor.”

Miscellaneous Recruiting Materials and Other Business Tools

  • FSS markets a variety of other training materials, scripts and other business tools to help FSS members recruit new distributors into the scheme and pressure their downline distributors both to recruit and to order large volumes of products.
  • One FSS script, attached as Exhibit P, helps FSS members pressure new recruits to purchase large volumes of Herbalife products in order to qualify as a Supervisor immediately.
  • Another script, attached as Exhibit Q, shows FSS members how to pressure new distributors to attend (and pay for) Herbalife events.  The script encourages members to tell new recruits that Andry attended an event in Barcelona shortly after signing up as an Herbalife distributor and that as a result he earned $350,000 in his first year.
  • An FSS training presentation, available at http://factsaboutherbalife.com/wp-content/uploads/2012/12/FSS-HOM.pdf, is replete with deceptive income testimonials.  The presentation also emphasizes recruiting by telling recruits to “Duplicate for Income” and leads recruits to believe they will earn tens of thousands of dollars with Herbalife.

  • FSS also operates Herbalife Success University, an intensive training system for FSS members.

    • In an interview of Doran Andry featured on a website run by Arriba! Wellness Centres in the United Kingdom, Andry recognizes that “[a] lot of people do share the, uh, Emiko and myself, our story, um, they’ve been using that like a rented three-dollar mule, like I would encourage our entire organization to do.”  This clip is available at https://soundcloud.com/hlfaudio/rented-mule, and the full interview is available at http://www.hbitl.net/Training3.0/Retailing/retail2/Nutrition_Clubs130510.asp.
    • In a subsequent clip from the same interview, Andry tells other distributors the key to his success:  “At the end of the day, what everybody must remember is that our business—we’re not in the shake-serving business, we are in the network marketing business.  What I mean by that is that whether we’re doing internet leads, whether we’re doing newspaper ads, whether we’re doing weight-loss challenges, whether we’re doing shake parties, and in this case, a weight loss challenge, at the end of the day, what we are is we’re Herbalife distributors and we’re in the network marketing business.”  https://soundcloud.com/hlfaudio/networkmkt2.

Links to Other Senior Distributors

Clockwise from top left:  Doran Andry, Anthony Powell, various senior distributors including Donte Andry, the Tsutukawas and the Bergs.

o   In addition, in 2007 and 2009, the iOffice website, which was registered to President’s Team member Michael Burton [link to iOffice domain registration], hosted training materials, guides and recruiting scripts that were copyrighted to FSS.  Examples are available at:

http://web.archive.org/web/20090206035727/http:/theioffice.com/web/system/ext/theIOffice/inc/mediaupload/OnlineTP_DailyLeadProcess.pdfhttp://web.archive.org/web/20090306152120/http:/theioffice.com/web/system/ext/theIOffice/inc/mediaupload/New1stPk_v.prelaunch.pdfhttp://web.archive.org/web/20070213072439/http:/www.theioffice.com/system/fss/theIOffice/inc/mediaupload/2Getting%20Equipped%20Producers%20USA.pdf.

One of the guides encourages members to “[u]pgrade your FSSiOffice Membership.”

o   Moreover, the domain www.FSSiOffice.com is registered to Andry.  Link to FSSiOffice domain registration.

o   Also, the Internet Movie Database lists Michael T. Burton as executive producer of FSS’s Decision Pack video.  See http://www.imdb.com/title/tt1018821/fullcredits?ref_=tt_ov_st_sm.

  • Andry is also linked to former Chairman’s’ Club member Shawn Dahl through an individual named John Rydell, who is in the business of building websites for Herbalife-related businesses.
    • A real estate business called Newport Global Strategies, LLC, which is linked to Andry (see below), uses the address 999 Corporate Drive, Ladera Ranch, CA  92694.
    • The address 999 Corporate Drive is also the registered address of Rydell Company LLC, F3 Labs Inc., and Networx Online LLC, which are managed by or tied to John Rydell.  (Registrations are attached as Exhibits S, Exhibit T and Exhibit U.)
    • Rydell owns the IP address 198.47.93.211, which is used by a number of websites associated with Income at Home and Online Business System (businesses affiliated with Dahl).  (IP Look-up and Reverse IP reports are attached as Exhibits V and Exhibit W.)
    • In 1999, when Andry qualified for the Chairman’s Club, Herbalife featured him and his wife Emiko on the cover of Herbalife Today, a magazine published by Herbalife.

Links to Herbalife Corporate Leadership

  • In 1999, when Andry qualified for the Chairman’s Club, Herbalife featured him and his wife Emiko on the cover of Herbalife Today, a magazine published by Herbalife.

  • Herbalife has awarded Andry the Mark Hughes Bonus—a large, discretionary bonus that Herbalife awards to top distributors—at least twice.  In 2007, Andry’s award was $1,034,684.32.

  • Herbalife has featured Andry as a speaker at numerous events sponsored by Herbalife, including multiple events in the past few months:
    • For example, Andry was featured at an event on the Herbalife Chairman’s Club Tour as recently as December 17, 2013 in Kansas City, Missouri:

Other Businesses

  • Newport Global Strategies, LLC is registered in California (Entity Number: 200814310246, filed May 22, 2008, registration attached as Exhibit X),  and the business type is “real estate investment.”  The filing lists Doran Andry as the manager and uses the address 4209 Seashore Drive.
  • 4209 Seashore, LLC is registered in California (Entity Number: 200911210178, filed 4/21/2009, registration attached as Exhibit Y), and the business type is “real estate investment.”   The registration filing lists Andry as the “manager” and also uses the address 4209 Seashore Drive.
  • Andry also ran two charities, the Foundation for the Prevention of Childhood Obesity (Entity Number: C3094354, registration attached as Exhibit Z) and the Doran and Emiko Family Foundation (Entity Number: C3094355, registration attached as Exhibit AA).  The status of both charities is “SUSPENDED.”

[1] The process of lead generation involves luring potential recruits to provide their name and contact information, and

[2] A list of Nutrition Clubs that are affiliated with FSS (which may not be complete) is attached as Exhibit N.

[3] This clip is available separately at https://vimeo.com/85539041.