When Darcy LaPier Hughes wandered through her new home on the morning of May 21st, 2000, it might have been easy to take the place for granted. Ms. LaPier, a former beauty queen, had recently embarked on her fourth marriage of the past 10 years, subbing out perennial white guy Jet Li impersonator, Jean Claude Van Damme, and instead opting for the perfectly sun-tanned, ever-coiffed allure of Mark Hughes.
On her walk through the $25 million home—a then-Malibu record—Ms. LaPier could have tried to soak in the 300-feet of Pacific Ocean beachfront, the 7½ acres of prime Los Angeles real estate, or even the wall-mounted TV screen so large that, in all of LA, only Dustin Hoffman could boast of a similarly opulent set up. Given that her walk took place the morning after the couple’s alcohol-soaked birthday bash, held for Mr. Hughes’ beloved 87-year-old grandmother, Mimi, it’s entirely possible Ms. LaPier didn’t get the chance to take in much of anything at all though.
Either way, when Ms. LaPier Hughes first walked into the master bedroom to find her husband, cloaked in a black t-shirt and black bikini briefs, lying back to the door on their four-poster bed, she doubtlessly struggled to fully comprehend what had occurred. Because, yes, her new beau, her always-smiling, irresistibly likable, widely worshipped, tragically flawed new partner was dead. That much was clear. But Mark Hughes’ death also marked the final act in a Horatio Alger-esque tale of triumph and disaster that left a wider, sadder legacy than any tale, real or imagined, ever should.
Hughes’ story begins at age 13, when he went to live with his mother in a small corner of Los Angeles called La Mirada. For a 13-year-old somehow already starting to experiment with alcohol and drugs, it’s really, really difficult to imagine a more harmful move. In joining his mother after his parents’ divorce, Hughes traded the stable home of his father for his mother’s lawless world of self-preservation. Though one can hardly expect 13-year-olds caught in a messy divorce to exercise good judgment, Hughes’ decision to follow his mother seems to belong among the Bay of Pigs, Napoleon’s trip to Russia, and trusting the Trojan Horse in the history of bad decisions.
Hughes’ mother nursed a prescription drug habit with costs running close to $2,000 a year throughout Hughes’ childhood. She would ignore grocery shopping in favor of finding another high, sometimes leaving her children hungry and without options. In 1970, when Hughes’ father and two younger brothers officially left the house and Hughes and his mother moved to La Mirada, it’s unclear Mrs. Hughes’ even tried to maintain the façade of parenthood, instead preferring to let the still pubescent Hughes run wild.
For a kid who, as a friend described, once showed up to the school bus stop with a gallon of red wine and a handful of pills, running wild may have been the worst possible option. He would go on to drop out of high school after 9th grade, with apparently no one to advise him otherwise.
If you came looking for a compelling tale of young genius, of unstoppable talent, and an earnest desire to change the world, Mark Hughes is not your man.
Hughes’ story picks up again exactly where one might expect it: nowhere good. In 1975, the 18-year old Hughes found himself in a far different place than the anarcho-paradise of La Mirada; by then, it was abundantly clear that his mother’s (unintentionally) experimental, hands-off method of parenting never quite clicked. Early that year, Hughes moved to CEDU, a drug rehab institution in the California mountains. As inspiring as a young kid, eager to start his life fresh and voluntarily trying to combat the scary disease of addiction may seem, it’s unfortunately not true. Hughes made the trip following several drug busts as a wayward teenager and never seemed to let the school’s lessons truly sink in.
Still, the trip wasn’t all for naught: while at CEDU, Hughes learned the art of salesmanship. As a kid who dreamt of cash, Hughes’ found himself constantly fundraising at CEDU and, with a 5% commission on every donation raised, finally whetting the appetite of his previously inaccessible monetary dreams. As a former CEDU staff member later remembered, the fundraising program gave Hughes a chance to become a star, projecting his energy and feelings onto everyone around him and quickly becoming among the most successful of fundraisers.
CEDU, which had been short on cash at the time, claims it intended to build character through the fundraising program, but one struggles to imagine the 19 year old Hughes ever achieving star status at a job designed to build character. The single-minded focus on sales that the program instilled in Hughes however, such focus undoubtedly left a mark.
The impact only truly came to light several years later though, after Hughes founded what would become his life’s work: Herbalife, a questionably effective, undoubtedly shady, weight-loss vitamin and milkshake company that would go on to make Hughes more money than most rational human beings would ever know what to do with.
But before even selling his first milkshake out of the trunk of his car—which, more than anything else, may serve as a testament to Hughes’ ability as a salesman—Hughes needed to find a compelling story for his interest in weight loss. He needed to find his pitch. And in due time, he found it. It came—quite literally— from the ashes of the frustratingly poor decision Hughes made 10 years earlier.
Salesman to the core, Hughes knew how to spin a story. The way he told it, the supposed flame that set afire his passion for weight loss emerged from his ultimate tragedy. He connected with audiences naturally and when he told them that he knew just how hard dieting could be, people listened. When he recounted his experience as a child who watched his own mother struggle day in, day out with her weight, people understood. And when he would go on to remark that having lost his own mother to a prescription diet pill overdose at the ripe young age of 19, he knew something had to be done, people believed him. Unfortunately, Hughes never looked those same audiences in the eyes, telling them his whole story was a lie.
Genius, no. Gifted, not quite. But with his well-crafted perversion of the truth, Hughes somehow simultaneously out-lied all the sleazy used car dealers of the world and out-slimed all the mafiosos still dumping bodies in the marshlands of New Jersey. He found a way to take a story concerning his own mother’s tragic struggle with addiction to prescription pain medications and turn it into the foundation of a multinational empire. Even when the coroner’s report and his own father’s statements painted a far different picture than Hughes’, Hughes held fast to the entirely imaginary world upon which he built his success, never allowing the truth to bother him and, incidentally, showing exactly why his salesmanship always succeeded: confidence.
Of course, Hughes’ business ideas never were all that original. He built his company around the idea of Multi-Level Marketing, or MLM, which is better known as the weird group of companies that inspire your friends to try to sell you random household goods. Also notably, every pitch seems to begin with someone saying “This isn’t a pyramid scheme, but–.” As a more technical definition, MLM companies allow individuals to become full scale distributors, each more focused on finding a set of their own distributors than selling their actual products. Ideally, money trickles down into everyone’s pockets, slowly making its way down an increasingly long chain of sellers. Whether it actually works that way is up for debate.
The origin story of MLM, like that of any good scheme toeing the line between immorality and illegality, differs depending on who you ask. Some sources bestow the honor upon the California Perfume Company, known today as Avon Products, and others look to the influence of Carl Rehnborg and the Amway Corporation’s Nutrilite line.
Rife with cultural stereotyping and a vague sense of American imperialism, Rehnborg’s story—where he travels to China for 10 years and sees the impact, at close range, of an inadequate diet—has all the trappings of a good 1920’s tale, but its faux-focus on pseudo health also feels oddly similar to the story Mark Hughes would go on to peddle 50 years later. On a wider scale, Rehnborg’s story develops in much the same way that many MLM companies, Herbalife included, do: one man comes up with a good product, gives it to his friends, and his friends like it so much that they want to bring their own friends in on the magic. Never mind the trust inherent in eating an either unlabeled or never before seen, as in Rehnborg’s case, vitamin, especially one created by an unknown ‘friend of a friend’; as the start up stories go, the hand of Manifest Destiny itself takes control, the product explodes onto the national scene. As more buyers want to sell to more and more of their friends, MLM companies quickly become a self-perpetuating entity, no longer governed by the rules of gravity or diminishing returns.
One should understand: if personified as high schoolers, MLM companies would be the kids who love to tell stories, but never quite seem to tell the truth. Even so, when an MLM company does take off, it can happen in the blink of an eye. Take the explosion of Herbalife itself. It took a mere five years for Herbalife’s sales to soar from $386,000 to $423 million per year. To underscore that point, that’s a sales increase of more than 100,000%. In 1999, the year before Hughes’ death, Herbalife’s retail sales stood at $1.79 billion and the company had expanded into 46 countries. Stretching across the globe, its multinational sales force stood more than a million strong and the company showed no signs of stopping.
MLM companies’ astronomical growth, at face value, looks impossible to believe. But once you look into what their growth actually consists of, the picture becomes far murkier. The US government currently requires distributors to make more money from the selling of the actual products than the recruitment of new members and, unsurprisingly, Herbalife contends that 69% of distributor payments come from retail sales. It’s unclear who actually even makes any meaningful amount of money from the entire enterprise though; even Herbalife itself admits that only 9.85% of distributors make more than $7,354 in a given year. For a company that doles out promotional videos of a distributor who makes more than $100,000 a year driving a Ferrari, something seems a little amiss, but such is life with MLM companies. This, my friends, is the grey area.
The grey area has proven a kind home to the MLM industry over the years, shielding the pseudo-scams from potentially life-threatening government investigations, magazine exposés constantly rediscovering the immorality of the whole thing, and regular people realizing that marketing doesn’t always align with reality. Sure, the rare successful inquiry will take down one corporation or another, but the industry always seems to stand strong.
In December of 2012, billionaire investor Bill Ackman, titan of the hedge-fund world, decided to change that. Or, more or less. Ackman decided to take on Herbalife, one of the industry rearguards, which would make a statement to the wider industry as a whole and, as Ackman seemed to imply, the world would become a more just, safer place.
Ackman’s non-announcement announcement of his decision (more on this in a second) came in a move somehow well-befitting the sliminess of Herbalife. He called a special December 20th session of the annual Ira Sohn Conference, a widely-observed Wall Street event that usually occurs in May, and drummed up as much excitement as he could about it, trying to bring as many news teams as he could without leaking too much information before the big day.
Ackman’s presentation, appropriately entitled “Who Wants to Be a Millionaire?” (lesser known as the age-old question of social agents fighting for a moral revolution) definitely didn’t disappoint. Ackman, along with two analysts, put on a 3½ hour show with a 330-slide powerpoint making their best case as to why Herbalife would fail in the coming months and years. For a man who claims that he never practices before presentations, Ackman did pretty well.
Ackman’s presentation never explicitly mentioned that he had already taken a $1 billion ‘short’ bet—where he makes money as Herbalife’s stock price drops and loses it as the price rises—on Herbalife, but the implication was clear. The market knew that Ackman had a position, one he would go on to fight a very public battle to help support, and that was what mattered. The whole thing reeked of insider trading, but the Sohn Conference always does. No one, including the American legal system, seems to care all that much.
Although it proved the most public of the events, the Sohn conference only stood as the beginning of what became a scorched-Earth campaign for Ackman. Soon after, he mobilized his hedge-fund’s team as a sort of Secret Service-cum-Wall Street type entity, having them traipse around the country to find especially tragic stories of loss and organize guerrilla protests against Herbalife. As the New York Times found, the team also came under fire for starting a government letter-writing campaign where the signees had no memory of ever sending their pleas in. Ah, the joys of Wall Street.
In Ackman’s defense, his firm does now maintain one of the few places for curious consumers to research Herbalife outside of the company’s own website. Ackman’s sleek, well-designed website—with the oddly conspiratorial url factsaboutherbalife.com—opens up with a wall of text about as readable as the iTunes terms and conditions. The text mentions that an investment firm operates the website, but after a quick click to enter the website, the warning can only be found in greyed out text once one scrolls to the very bottom of each page.
The website contains valuable material though: the testimonials, while obviously biased against Herbalife, paint what is really a more complicated landscape than even Ackman wants to admit. In some ways, the testimonials are predictable—‘we didn’t know what we were getting in to,’ ‘no one wanted to buy,’ the list goes on—but others show why MLM’s can be tricky in the legal arena. As victim Susan Fox shared in 2000—before Ackman had a stake in the game—she and her husband found Herbalife while stuck in miserable jobs, enticed by the idea of working from home. And while the optimism streamed down from salespeople, reality set in rather quickly. Interest became a full-time career within minutes, and that was only the beginning. From the moment they first expressed interest in the company, the onslaught of high pressure pitches, nominally optional offers for extra company products and hidden fees meant that both the Foxs’ new job had huge startup fees—they spent $4,000 after just their first conference call—and no easy way to back out.
The Fox’s went on to work 10-11 hour days, constantly mailing out books of information, talking to strangers, and attending seminars all at Herbalife’s advice. The success that Herbalife seemed to guarantee eluded them. The support system that Herbalife promised—a supervisor to bounce ideas off and a distributor network to seek out advice from—collapsed only months after they joined. Just a year in, they found themselves thousands of dollars in debt. They had only sold to friends and relatives, not the legions of waiting consumers ready to buy in. They most they ever received from Herbalife was a check for $3.
The Fox’s are not alone. Ackman’s research, controversial as it was, proved that. And had Ackman intended to act on behalf of those he wanted to protect, spreading the truth they couldn’t make public without the bullhorn of a larger organization, the whole thing might have been excusable. But as former Chairman of the Securities and Exchange commission Harvey Pitt noted, Ackman’s campaign began “to look like an effort to move the [stock] price rather than spread the truth.” Still, there’s no concrete evidence of that, so let’s move on.
If Ackman’s campaign looks like the work of someone blessed with an incomprehensibly strong confidence in himself, that’s because it is. Today’s billionaire carries the same spirit that has guided most of his life, once tellingly leading him to make a $2,000 bet over the SAT with his own father. His father called off the bet the night before the test, but Ackman maintains that his 780—as opposed to the 800 that he had promised—on the verbal section wouldn’t have counted anyways, because he’s “still convinced some of the questions were wrong.”
In the post-2008 era of supposedly more cautious and moral bankers, Ackman stands out. He’s certainly not without his equals though. And with that, we welcome to Dan Loeb and Carl Icahn to the story.
As one might expect, a guy who seems to believe that Manifest Destiny guides his stock picks doesn’t have an abundance of good friends in the industry. But Loeb and Icahn, fellow investors, don’t just dislike Ackman, they hate the guy. Each has their own reason—Loeb cites an outlandish story of conflicting egos, where Ackman destroyed his cycling trip in the Hamptons, and Icahn, in a display of unprecedented machismo, essentially claims that because Ackman sued him for money that Ackman was owed, he doesn’t deserve Icahn’s respect—but the thirst for blood among the two is very real.
Thus, when both Loeb and Icahn announced massive purchases of Herbalife stock—long positions, where they profited if the stock price rose—in the months following Ackman’s Sohn conference, no one seemed to surprised. Loeb ended up making his acquisition first and presented a relatively well-thought out rationale for making the trade. He responded to Ackman’s presentation and, in investing $300 million, at least attempted to separate his personal distaste from business sense.
Still, for a guy who began his career investing in companies and then taking to online investor message boards and attacking unfriendly CEOs, the evidence of a personal grudge shone through in his trade.
Icahn though, who recently graced the cover of TIME magazine as “the most important investor in America,” never even attempted to couch his investment behind sound logic. The earlier lawsuit—which dealt with a mere $9 million, or what accounts to lunch money for the $20.2 billion net-worth Wall Street celebrity—made enough of an impact that Icahn wanted to purchase 17.3% of all Herbalife stock.
Loeb and Icahn’s involvement eventually led to a 52-week high watermark for the Herbalife stock and opened the door to endless ridicule for Ackman. But well before it looked like Ackman had hemorrhaged cash, before the entire financial industry tried to decry Ackman’s investment as a complete disaster, the relationship between Icahn and Ackman had already led to what might be the funniest and most telling occurrence about Wall Street in recent CNBC history.
It all began when Icahn went on CNBC and essentially called out Ackman for hiding behind altruism as opposed to the raw desire for profit with his short of Herbalife. The next day, Ackman went on CNBC to defend himself against Icahn’s claims and Icahn decided to call into the show. Within seconds, CNBC became Bravo 2.0, land of the surreal and impossible. Trading floors all over New York stopped in their tracks, incredulous at the spectacle of two billionaires verbally boxing on national television.
As the two sparred back and forth, Icahn and Ackman revealed the very real fervor with which they disliked each other. But the conversation became the stuff of legend once Icahn revealed the way he views his competition: “I’ve really sort of had it with this guy Ackman,” he said. “He’s like the crybaby in the schoolyard. I went to a tough school in Queens, and they used to beat up the little Jewish boys. He was like one of these little Jewish boys, crying that the world was taking advantage of him.”
Two years later, the dust has settled around the whole situation. Loeb and Icahn cashed out their investments long ago, each making a pretty penny and walking away with what one can only assume to be a clear conscience. Or, at least, an even larger than their already larger than life ego. Either way, the Herbalife episode remains but a footnote in their respective careers.
Ackman, however, lingers on. Accounting for legal fees and the like, his bet only began approaching the black around January of 2015. But he insists that even an astronomical drop in the stock price of Herbalife couldn’t convince him to sell; he wants to see the company run into the ground, to reach the mythical stock price of 0, or he wants to see nothing at all.
His campaign no longer carries the same gravity that it once did. His bet’s become old news and nobody really seems to care about the moral impetus he wants to attach to investigations of the company. Even he, to a certain extent, moved on. His fund, Pershing Square Capital, posted gains of 40.17% in 2014. The financial media crowned him the #1 hedge-fund of the year.
True motives aside, it should be recognized that Ackman plans to donate $10 million to TheDream.US, a charity designed to provide scholarship money to immigrants under temporary relief from deportation. He claims that the donation will serve as a precursor to the larger injection of $200 million he plans to give once Herbalife is officially dead.
And despite its slow withdrawal from media coverage, Ackman’s bet may yet prove prescient. When asked about it in January, Ackman’s response proved telling though, underscoring some of his more fundamental motives. In an interview with USA Today, he joked that “If I could have started [the short] in 2014 [after Loeb and Icahn drove up the share price], I would look like a genius.”
Ackman’s idea of genius shares little resemblance with that of the distributors he’s trying to save. The promise that lured them in, that gave them the inkling of hope, that shielded them from the bright, blinking indicator signs that seems so obvious from the outside, starts and ends with the mystique of Mark Hughes.
Just three months before he passed away, Mark Hughes stood on a very big stage for a very big presentation. Looking more like an actor than a diet shake mogul, Hughes sported an immaculate haircut and a better tan. On his lapel, he proudly wore the badge that made so many of his disciples believe in him: “Lose Weight Now, Ask Me How.” An audience of 4,000 rose and fell with his every word; after 20 years of existence, Herbalife looked more like a cult than an alternative to Weight Watchers.
From the audience, Paco Perez watched Hughes shed a tear as he promised to take Herbalife around the world. Emotion swelled up inside the former bellboy turned distributor. It was a moment he’ll never forget. “The dream has helped so many people like me,” he said. It’s unclear whether he lost any weight.