![\"EOG\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2014\/05\/EOG.jpg\")
<\/a><\/p>\nTim Geithner is set to get rich with book sales and lectures. <\/strong>For an opposing view on Geithner’s “brilliance” at saving the world, read the latest Atlantic:<\/span><\/span><\/p>\n Too Cautious to Succeed: How Tim Geithner Failed at What Mattered Most<\/strong> For the piece, click here.<\/a><\/strong><\/p>\n The sad part is that all Obama’s appointments to the various regulatory agencies, from the SEC\u00a0 to the Justice Department on, have all been far too cautious. That well may be his real legacy. Years of no change. No improvement.<\/p>\n Don’t bother reading Piketty’s best-seller tome.<\/strong><\/span> His two main points:<\/p>\n + The rich are getting richer faster than everyone else. Hence the “income equality” gap will continue to increase. This is a bad thing. (It’s not.)<\/p>\n + To narrow the gap, you need an internationally-enforced wealth tax. (Which will never happen.)<\/p>\n To my brain, the last thing governments should do is to reduce the incentive to get rich. That incentive creates jobs and wealth. Fortunately, we’re living in “Start-Up” world. Start your thing and join the 1%. That’s the incentive. Governments should encourage that — which most English-speaking places do — not aggressively tax it, as Piketty suggests. Yuch!<\/p>\n Larry Summers wrote a review of Piketty’s book. Click here.<\/strong><\/a><\/p>\n Latest tips.<\/strong><\/span><\/p>\n + Google Apps works spectacularly for a group of people working together on the same project. You get a combination of Microsoft Office and Dropbox storage — for free. It’s the best deal on the Internet.<\/p>\n + Change your eBay password. eBay got hacked.<\/p>\n + Back your work up NOW. I prefer an Apricorn external hard drive. (See right hand column.) The cloud usually works.<\/p>\n + I don’t have a solution for Adobe’s Flashplayer crashing regularly. Does anyone? I’ve tried everything.<\/p>\n + Google Search: 15 hidden features. Some really useful: Search only one site, check airline flight status, find local film showings, do calculations, do conversions and get weather. And do the famous barrel roll.\u00a0 Click here.<\/strong><\/a><\/p>\n + Start a “junk” email address today. Use it for online buying and signing up. When your inbox begins to fill with junk, change it. Never use your private email address for anything other than family and friends. You can get free email addresses on Google. Once you start to receive spam, you can never stop it — except by killing that email address.<\/p>\n + Best tips on bicycling safely in New York City, or any other city. Click here.<\/strong><\/a><\/p>\n Is Herbalife a pyramid scheme?<\/strong> I’ve watched several presentations saying it is. And several saying it’s not. I haven’t bet either way. Nor have I made up my mind. Had I played it intelligently — by riding the bumps and grinds, I could have made a fortune.<\/span><\/span><\/p>\n Hence I was fascinated to read a piece by a law professor in the latest Atlantic Magazine<\/em>:<\/p>\n \u00a0Is Herbalife a Pyramid Scheme?<\/strong> Is Herbalife, the global nutrition company, a pyramid scheme? Its shares have lost about a fifth of their value in recent months, as news has spread that regulators are investigating whether the company broke the law. But this question is surprisingly hard to answer. It is, ultimately, an inquiry not only about markets, but also about human psychology.<\/p>\n Herbalife is a direct-selling company. That means you cannot buy its protein shakes and nutritional supplements in stores. Instead, Herbalife distributes its products exclusively through a network of 3.7\u00a0million \u201cmembers\u201d in about 90 countries. Members buy Herbalife products in bulk, and can then either consume them or try to resell them. They are paid based on a \u201cmultilevel-marketing model,\u201d meaning that their compensation comes not only from the products they sell, but also from bonuses related to sales by new members they recruit: the more Herbalife protein shakes that members you\u2019ve signed up buy, the more money you make. There\u2019s a catch, however: you and your recruits need to buy several thousand dollars\u2019 worth of shakes and supplements before these bonuses kick in. The risk is that if you don\u2019t drink or resell the shakes you buy, or return them within a specified window of time (90 days for the first purchase), you will be stuck with them. Herbalife\u2019s net sales last year were $4.8\u00a0billion; its market capitalization is about $6\u00a0billion.<\/p>\n Fundamentally, Herbalife targets our cognitive weaknesses, though which weaknesses is a subject of debate. The company\u2019s executives extol the benefits of bringing together members in groups called \u201cnutrition clubs\u201d\u2014social gatherings encouraged by the company where shakes are consumed and healthy lifestyles discussed. They say that Herbalife serves people who otherwise would succumb to fast food or vending-machine candy, and that its member networks\u2014in addition to acting as a distribution system\u2014offer support and positive reinforcement for people trying to lose weight.<\/p>\n In contrast, Herbalife\u2019s critics deride the company\u2019s products as overpriced and say Herbalife is exploiting poor people, who are tricked into paying thousands of dollars for products they will not be able to sell or want to consume. They say Herbalife is targeting groups who are easily victimized by false promises of riches.<\/p>\n The Herbalife drama stars many of the world\u2019s top investors, and they sharply disagree. The hedge-fund manager David Einhorn kicked off the argument on a conference call in May\u00a02012, when he asked Herbalife\u2019s president, Des Walsh, how many sales were made outside the company\u2019s network, to nonmembers. Walsh\u2019s unsatisfying response, as summarized later on the company\u2019s Web site\u2014\u201cWe don\u2019t track this number and do not believe it is relevant\u201d\u2014drew fire from more hedge-fund managers. Bill Ackman, the head of the hedge fund Pershing Square, bet more than $1\u00a0billion against Herbalife by shorting its stock in late 2012.<\/p>\n Ackman has led the charge against the company, accusing it of deceiving recruits with wealth-soaked testimonials when in fact only a tiny fraction of members make money. \u201cThere is no profitable retail opportunity here,\u201d Ackman told me. \u201cIn order to get people in, they have to mislead them.\u201d Pershing Square\u2019s investors will profit if Herbalife collapses, but Ackman has promised to donate his cut to charity.<\/p>\n Herbalife is fighting back. Its CEO, Michael Johnson, lambasted Ackman for \u201cfalse and misleading statements.\u201d Several prominent investors have supported the company, most notably Carl Icahn, who began buying Herbalife stock just hours after Ackman announced his huge short position and now owns a 17\u00a0percent stake. Icahn has called Ackman a \u201cliar\u201d and \u201cthe crybaby in the school yard,\u201d and has labeled Ackman\u2019s claims \u201ccomplete bullshit.\u201d<\/p>\n The biggest fireworks went off in March. First, a front-page story in The<\/i> New York Times<\/i> revealed that Ackman had lobbied public officials and contributed funds to anti-Herbalife advocacy groups, actions that Herbalife officials alleged were improper. Then, two days later, Herbalife publicly confirmed that it was being investigated by the Federal Trade Commission.<\/p>\n Both sides continue to smear each other and dig in their heels, as I learned from several recent conversations. Ackman told me, \u201cI am 100\u00a0percent convinced that Herbalife is a global pyramid scheme. We think it is a criminal operation.\u201d Herbalife\u2019s chief financial officer, John DeSimone, told me in response, \u201cI am 100\u00a0percent convinced Bill Ackman is wrong. I think he has gone beyond the legitimate role short sellers play and crossed an ethical boundary.\u201d Both promised, \u201cMore evidence is coming.\u201d<\/p>\n Plenty of pyramid cases are easy to resolve. A simple chain-letter-like arrangement, whereby new recruits pay cash upstream hoping to get more cash from their own downstream recruits, is manipulative and blatantly violates the law. The same is true of multilevel schemes that require large up-front payments for sham products. Conversely, Tupperware, which compensates its independent sales force based on carefully tracked retail sales, appears legitimate.<\/p>\n But what about cases in the middle, where people are motivated partially by wanting to consume a product and partially by the prospect of receiving money by building their own network? Regulators struggle with these grayer areas, where fraud can be camouflaged. The legal tests are confusing and inconsistent. Jeffrey Babener, a leading lawyer for multilevel-marketing firms, says they are like Supreme Court Justice Potter Stewart\u2019s test for pornography: \u201cI know it when I see it.\u201d<\/p>\n Consider the so-called 70\u00a0percent rule, an industry standard based on a 1979 finding that Amway was not a pyramid scheme in part because it required distributors to sell at least that percentage of the products they received each month. Herbalife\u2019s version is limited to products a member \u201cholds for resale.\u201d But how are regulators to determine how many of the shakes in various members\u2019 basements are for resale versus personal use? Bill Keep, the dean of the College of New Jersey\u2019s business school and a leading expert on pyramid schemes, is skeptical about Herbalife\u2019s approach: \u201cWhat does this mean? It could vary from 0 to 100\u00a0percent.\u201d<\/p>\n Even one of the most obvious tests for an illegal pyramid scheme\u2014whether a business is \u201cunsustainable\u201d\u2014is problematic. Simple chain letters and the like inevitably fail when the pool of new recruits evaporates. But the risk with established companies is different: not so much that they will die, but that they will commit fraud while they are alive. Herbalife\u2019s pyramid structure, whatever you might think of it, has been sustainable. The company has been in business for 34 years. Even though each year the company loses about half the people who have qualified for bonuses, it has so far been able to replace them. Ackman and Herbalife officials disagree about whether it can continue to do so.<\/p>\n Certainly, some Herbalife recruits have received unrealistic promotional materials from top distributors, such as the video of a member named Doran Andry driving a red Ferrari and talking about his nearly $100,000-a-month income. The company recently began disclosing financial information to prospective members; in 2013, only 704 U.S. members received more than $100,000 a year (not a month) from the company, and the vast majority received less than a few hundred dollars. But even now, Herbalife\u2019s disclosures do not differentiate revenues from profits, or say how expensive it is to run a distributorship.<\/p>\n When I asked Walsh, Herbalife\u2019s president, about member expenses, he was even more evasive than he had been in response to David Einhorn two years ago. He talked about which shakes he drinks (cookies \u2019n cream at breakfast, mint chocolate at lunch), how much he weighs, and what his marathon times have been. But here is what he said about expenses: \u201cWe don\u2019t have visibility, but for a substantial part of our distributors there are only nominal expenses. These are independent businesspeople; their expenses are proprietary to them. We don\u2019t have access to that information.\u201d<\/p>\n The murkiest part of Herbalife\u2019s distribution system, which accounts for much of the company\u2019s growth, is the nutrition club. John DeSimone, the CFO, praised the clubs and told me he wished people would pay more attention to their advantages: \u201cThe clubs benefit the community. It\u2019s a weight-loss regimen tied to a social dynamic.\u201d Attendance can be expensive, but for some people, the psychological benefits of the meetings might make the cost worthwhile.<\/p>\n Ackman isn\u2019t persuaded. He says, \u201cNutrition clubs are simply a recruiting venue for Herbalife to reach low-income distributors.\u201d Pershing Square officials have also criticized nutrition clubs outside the United States, where Herbalife has reported substantial increases in sales. Last year, Herbalife members in Venezuela confronted currency restrictions and severe economic turmoil, yet Herbalife, citing the growth of nutrition clubs, reported that its sales in Venezuela shot up 87.6\u00a0percent. Some information suggests that in Mexico, the company\u2019s second-biggest market\u2014with an estimated 40,000 nutrition clubs\u2014Herbalife accounts might have been used by drug leaders to launder money. (An Herbalife spokesman told me that in 2013 the company\u2019s board of directors responded to allegations about money laundering in Mexico by hiring a third-party investigator, who found no support for the claims.)<\/p>\n Herbalife discloses little detail about its operations in Venezuela, Mexico, or elsewhere. In its financial filings, Herbalife warns that it gives \u201cno assurance that our members will\u00a0\u2026 comply with our member policies and procedures.\u201d Company officials say they audit about 2\u00a0percent of Herbalife\u2019s retail sales, focusing on what they call \u201chigh-risk transactions.\u201d They could collect details about members\u2019 expenses, as well as records of every sale, purchase price, name, and address. Currently, they do not.<\/p>\n The Herbalife saga illustrates another cognitive weakness: the bias against short sellers. People like Ackman who bet against companies have long been vilified because they seem to be trying to do harm. Yet short sellers play an important role in the markets. They can afford due diligence that regulators often cannot. Research suggests that short sellers help make markets fairer and more efficient by identifying fraud and introducing information that corporate executives otherwise would not disclose. If Pershing Square did not have a concentrated financial incentive to investigate Herbalife, we would know a lot less about the company today.<\/p>\n DeSimone, Herbalife\u2019s CFO, told me he doesn\u2019t oppose short sellers generally, but he thinks Ackman has gone too far. Des Walsh says Ackman has waged \u201can orchestrated campaign to demonstrate misinformation and lobby at all levels to present a biased and non-fact-based theory about a legitimate 34-year-old company. We believe this is fundamentally wrong.\u201d<\/p>\n Certainly Pershing Square should not be permitted to violate lobbying or political-contribution rules, just as short sellers should not be allowed to sabotage a company\u2019s products to drive down the stock. But Ackman has not been accused of breaking the law, and says Herbalife has outspent his fund eight to one on lobbying.<\/p>\n The Supreme Court\u2019s decisions in Citizens United <\/i>and subsequent rulings permit corporations to spend vast resources trying to influence the political process. If corporations can exercise such free-speech rights, why is it \u201cfundamentally wrong\u201d for the people who short corporations\u2019 shares to do the same?<\/p>\n This is SO stupid, but so funny.<\/strong><\/span><\/p>\n Be careful what you buy online. A friend just spent $95 on a penis enlarger.<\/p>\n They sent him a magnifying glass.<\/p>\n The instruction manual said, “Do not use in sunlight.”<\/p>\n No sunlight.<\/p>\n<\/a><\/p>\n
\nMore than any other American, he personifies the era when we lost our nerve when it came to reining in the size and concentration of Wall Street’s banks.<\/p>\n
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\nWall Street’s $6 billion mystery: Big investors are making opposite bets about the company’s future.<\/p>\n