Business

Canadian regulator probing Herbalife

Canada’s top consumer regulator has launched a formal inquiry into pyramid scheme complaints made against Herbalife, The Post has learned.

The inquiry by the Canadian Competition Bureau is tied, in part, to consumer complaints it has received about the controversial Los Angeles-based diet shake seller, sources familiar with the inquiry said.

The Competition Bureau has also interviewed former Herbalife insiders and distributors who believe the company is a pyramid, sources said.

Once a formal inquiry has started, the CCB can apply for “information gathering orders,” one source said.

The Competition Bureau, which is similar in scope to the US Federal Trade Commission — except it can bring criminal charges – declined to comment.

Herbalife did not return emails seeking comment sent Monday afternoon. In the past, the company has said it operates legally.

In addition to complaining about Herbalife itself, an unknown number of Canadians have also contacted the regulator and lambasted several distributors for pyramid activities such as making false income claims, sources said.

Those who were the focus of the complaints include former top Herbalife distributor Shawn Dahl and Online Business Systems, an Internet recruiting system run by Dahl to bring people in as Herbalife distributors, these sources added.

It is not known if Dahl or other distributors are the focus of the inquiry as well, sources said. Dahl did not return a call for comment.

Online Business Systems, also run by Dahl’s wife, Nicole, has taken the place of Global Online Systems, which shut down 10 years ago as the company was criminally convicted in 2004 of breaching the Canadian Competition Act governing multi-level marketing plans and pyramid sales.

The company’s registered directors and Herbalife distributors, Nicole’s mother, Deborah Stoltz, and her aunt, Marilyn Thom, shut down that company, were ordered to pay a $150,000 fine and were prohibited from engaging in pyramid activities.

Stoltz continued to be a money-making Herbalife distributor, a member of the President’s Club, a title reserved for high-sellers, as recently as 2013, according to Herbalife documents.

Stoltz, just prior to the prohibition order, appears to have helped transition Global Online Systems to Online Business Systems, according to Internet screen shots from both companies’ web sites site at that time that show how the company helped clients move their account from one company to the other.

It is possible that the current inquiry is believed to be looking at the possible violation of the existing prohibition order, said a source familiar with the investigation, who added that the inquiry is also “much broader.”

Stoltz and Thom could not be reached.

Under the Dahls, Online Business Systems grew to be much bigger than its shuttered predecessor. It was approved by Herbalife as a so-called business methods company for its distributors, a company memo shows.

The Dahls became the poster couple for Herbalife. The attractive pair appeared on the cover of the company’s magazine, “Herbalife Today,” in 2009, when they reached the coveted Chairman’s Club, a ranking that only the top 50 out of 3.2 million distributors reach.

In videos extolling their upscale Herbalife lifestyle in a suburb of Vancouver, Canada, called White Rock — a picturesque bayside town surrounded by snow-capped mountains — Dahl talked about the inspirational role Nicole’s mother had played in his decision to join Herbalife.

Dahl said his mother-in-law was making $30,000 per month when he joined Herbalife — but he made no mention of her company’s criminal conviction years earlier.

Herbalife CEO Michael Johnson praised the Dahls’ work at Online Business Systems as recently as 2010. But Herbalife began to distance itself from Dahl and Online Business Systems soon after hedge fund activist Bill Ackman launched a $1 billion short against the company and claimed it is a pyramid scheme.

Herbalife has denied it is a pyramid scheme.

Ackman also shone a light on the so-called lead generation practices of companies like Online Business Systems. Among other practices, Online Business Systems sold to new Herbalife distributors for as much as $100 a pop the names of people who signed up for Herbalife’s business opportunity, sources said.

Most of the leads were worthless, distributors told The Post last year.

Under scrutiny, Herbalife finally severed its relationship with the Dahls and Online Business Systems. Shawn Dahl left Herbalife at the end of the June, as The Post exclusively reported at the time.