Despite Critics and Lawsuits, Herbalife Has Made Mark Hughes Wealthy If Not Healthy

Diamonds sparkle from his gold ring and his Cartier watch. His cuff links are custom-made and his blue pinstripe suit cost $1,500 at Bijan, the exclusive clothier on Rodeo Drive in Beverly Hills. He tools around Los Angeles in his Toyota or his Mercedes or one of his two Rolls-Royces. He lives in a $7.3 million mansion in Bel Air that once belonged to singer Kenny Rogers, and he vacations at his beachfront home in Maui. Last year when he married his second wife, Angela Mack, 23, who was a 1981 Swedish beauty queen, his 300 guests, including 30 flown at his expense from Sweden, were entertained by comedian David Steinberg, Wayne Newton and Doc Severinsen with the Tonight Show orchestra. He is a multi-millionaire who says he doesn’t know how much money he possesses. He is 29 years old and he never finished the ninth grade. His name is Mark Hughes, and he is as handsome as a movie star and glib enough to sell sand to the Saudis.

But Mark Hughes isn’t in the sand business. With the fervor of a tent-show preacher and the glitz of a TV huckster, Hughes, the founder, chief executive officer and self-proclaimed guru of Herbalife International, is selling two things that everybody wants: health and wealth. The way he’s doing it, however, has tangled his mushrooming company in lawsuits and caught the attention of law officers who smell fraud.

Herbalife is a diet plan based on various herbal pills and powders. Under the basic Herbalife diet, users supplement their one daily 1,000-calorie meal with two glasses of skim milk spiked with the company’s “protein powder” and a dozen herbal tablets. The company hints—it is careful not to promise too much too concretely—that this plan can reduce weight, increase energy and cure maladies ranging from asthma to bee stings to venereal diseases. That is the health half of the Herbalife formula. The wealth part comes from marketing the Herbalife paraphernalia (which costs a user about $300 a month) to friends and acquaintances and getting those friends and acquaintances to sell it to their friends and acquaintances and on and on and on.

Thus far the chain has worked very well for Hughes. Herbalife has found plenty of customers, many of them possessed with a kind of messianic zeal and eager to sport buttons and bumper stickers bearing the company slogan: “Lose weight now/Ask me how!” More than a million Americans use Herbalife products, Hughes claims, and more than 700,000 of them have earned money selling them. One dedicated Herbalife devotee is Bill Merrill, 32, a former L.A. building contractor. Two years ago when he began following the Herbalife diet, Merrill says, he suffered from allergies and asthma. But after three months on the regimen, he claims his chronic sneezing and wheezing ceased. “I can’t tell you what did it,” he says with typical Herbalife reticence, “but in my layman’s estimation, I attribute it to the herbs.” A true believer, Merrill quickly went into the Herbalife business and just as quickly prospered. After recruiting 80 people to work pushing the products, he now makes $5,000 a month and thinks that’s just the beginning. “I’m not exceptional,” he says. “There’s a lot of others making a lot more. I wanted to be a millionaire by the time I’m 35, and this is the vehicle that’ll do it.”

Not everyone who has studied Herbalife products is as enthusiastic as Merrill. In 1982 the federal Food and Drug Administration sent the company a “Notice of Adverse Findings,” declaring that one Herbalife product contained two herbs—mandrake and pokeroot—considered unsafe for human consumption. “Mandrake,” claimed the FDA, “was once used by American Indians as a suicide drug.” Herbalife removed both herbs, but that didn’t end its legal problems. Last November the Canadian Department of Health cited the company for 24 violations of that country’s Food and Drugs Act in a case scheduled to come to court this week. Meanwhile, in California, the state attorney general and the district attorney of Santa Cruz County filed a joint lawsuit against Herbalife last month, charging that the company made false health claims about its products and has used an illegal “endless chain”—in other words a pyramid-style scheme—to market them.

To critics, the Herbalife plan is simply a much hyped and very expensive method of losing weight by eating less and going to the bathroom more. “The Herbalife weight-loss products are primarily laxatives and diuretics,” says Dr. Varro Tyler, dean of the School of Pharmacy at Purdue University and a consultant in the field of herbal medicines. “There are risks in taking these products habitually without medical supervision.” Indeed the FDA and the California Department of Health have received complaints that Herbalife products cause nausea, diarrhea, stomach cramps and headaches. Herbalife has even admitted in its internal literature that its products can cause “adverse reactions” in up to 25 percent of users. “That’s just the bad in the body’s system leaving,” says Merrill, echoing a line used by Hughes in his pitches to Herbalife believers.

Not surprisingly Hughes defends his products. They are, he says, “the highest quality.” How does he know that? He tests them himself with the help of his staff, none of whom are trained nutritionists. “After we develop a product,” he says, “we test it on ourselves. Normally we will get a group of people together and have them start using the product. Then we put it out.” To Hughes the lawsuits against Herbalife are inspired, at least in part, by competitors. “If people are skipping two meals a day and getting healthier, they’re hurting the food and medical industries. There is no doubt we’re getting some pressure from out there.”

Hughes is a natural salesman who was working as a professional fundraiser at an age when most kids are earning pocket money mowing lawns. He was born in 1956 to a troubled family. His parents separated before he was born and divorced before his first birthday. His mother lived on welfare payments, suffered from “emotional problems” and fought her battles with obesity and tension by gobbling amphetamines and sleeping pills. In the ninth grade Hughes dropped out of school and began using drugs himself. “I was a little delinquent,” he says. “I got in trouble with the law.” At 16, he was sent to Cedu, a private residential school for troubled youngsters in Running Springs, Calif. There, he thrived. “I learned how to work hard,” he says, “and I felt people really cared for me.”

Part of his rehabilitation required him to raise money for Cedu by selling raffle tickets, and Hughes quickly distinguished himself as Cedu’s best salesman. He sold hundreds of raffle tickets door-to-door in L.A. and was soon, at 17, drumming up corporate contributions. Later, he says, he even cadged a $500 check out of former Gov. Ronald Reagan. “The approval there [at Cedu] was based on how much funds you raised,” he says. “There was a lot of pressure, and I wanted to be the best right away.”

Hughes was 19 and still working for Cedu when his mother died of a drug overdose, an event that has now become part of Herbalife legend. “This tragedy left him with a vital interest in nutrition,” reads an account in Herbalife Journal, the company’s official organ, “and a fervent desire to find a product that would enhance and build health while allowing an individual to take weight off sensibly and safely.” But Hughes’ first wife, Kathryn Perry, 27, who helped him found the company, holds a more jaundiced view. “He wanted to make money,” she says. “He really didn’t care about helping people. If the business hadn’t succeeded, he would have gone into real estate.”

Perry met her future husband at the beach in 1979. She was a college student then, and he was selling an herbal weight control product put out by a company called Golden Youth. “He sold himself to me,” she says, “and I fell for it.” She quit school, moved in with him and helped him as he struggled to set himself up in a health products business. Together they attended a sales meeting of Pro-Vita, a now-defunct weight-loss program. They bought samples of Pro-Vita’s powder and pills and then hired a manufacturer to knock off a similar line of products, which Mark dubbed Herbalife. “Herbalife ended up being basically a copy of Pro-Vita,” says Perry. “The herbs were Mark’s gimmick.”

That gimmick, financed in part by Perry and her parents (they no longer have a financial interest in the company) and hyped by Mark’s genius for salesmanship, was an instant success. In its first year, 1980, Hughes says, the company grossed $2 million; in its second, $10 million; in its third, $58 million. Now Herbalife reportedly takes in more than $500 million per year. Hughes owns 54 percent of the company and in addition pays himself five percent of gross sales, or well over $1 million a month. Still, says Perry, it isn’t enough. “Nothing was ever enough for him—money, clothes, cars. He was obsessed with the money. He’d sit up in the bed with papers and pens and calculators, working out interest rates and finances. The sad thing is, it didn’t seem to make him happy. It was as if somehow having all the money would make his childhood all right. But I didn’t see that happening.”

Mark and Kathryn divorced in January 1984. Now Kathryn Perry (she married actor-producer Ben Perry last year) has been edited out of Herbalife’s company history and out of Hughes’ company biography. Today Hughes downplays her role in the founding of the firm. She was, he says, merely “an employee—my first secretary.” Hughes also denies her portrayal of him as a man propelled solely by greed. “The goal when I started the company wasn’t to become a multimillionaire,” he says. “I’m not saying I didn’t want to make a lot of money, because I did. But primarily my goal was to get people on sound, basic nutrition.” As he says that, in his syrupy salesman’s voice, the light is sparkling off the diamonds on his gold ring and his Cartier watch.

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