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Herbalife, A $40 Million Cocaine Bust, and Why the DEA Should Investigate the Company Immediately

An abstract prepared by 10/10 Research

23 October 2016

The Rabbit Hole Goes Deeper Than Most Think

We bet you didn’t know that one of Herbalife’s top distributors and top earners; a Colombian national named Socrates Valencia that the company almost never mentions or talks about publicly, was arrested in connection with the seizure of $40 to $50 million of cocaine by federal officials in the 1980’s. 1 Mr. Valencia and a gentleman named Mr. Tomas Troncoso were sharing a taxi. In the trunk of the taxi was their suitcases, which combined contained “25 kilos of cocaine”. Mr. Troncoso was later found to have another 36 kilos of cocaine in his Edgewater apartment. At the time, it was reported as “the largest amount of cocaine ever confiscated in New Jersey”.

What if we also told you Socrates’ brother and fellow Herbalife distributor, Arquimedes Valencia, registered a domestic business corporation in 1994 with someone who “collected drug money for the Cali cartel,” according to the New York Times. When this individual was stopped on the Spain Brook Parkway by authorities in the 1990’s, he “told the police that money and records” found on his person were “part of his work as an independent distributor of Herbalife International health‐ care products”? 2

What if we told you that as recent as 2012, individuals in Brazil were charged with laundering money through ‘weight loss clubs’ and what if we told you that just last year, a current member of Herbalife’s Board of Directors was revealed to be a named defendant in a money laundering complaint in Brazil? Today, in our first public research note ever, 10/10 Research wants to blow open an angle to potential fraud at Herbalife that has yet to be investigated by short sellers or the media. We think the DEA needs to investigate Herbalife immediately based on the evidence we will put forth today; if they aren’t already investigating the company.

A $40 Million Cocaine Bust

Back in the 1980’s, in conjunction with the above mentioned $40 million cocaine bust, Socrates Valencia was arrested with a man by the name of Tomas Troncoso, per the New York Times. Mr.

1 http://www.nytimes.com/1985/01/03/nyregion/the‐region‐2‐held‐in‐jersey‐in‐cocaine‐

seizure.html 2 http://www.nytimes.com/1995/10/30/nyregion/cali‐drug‐cartel‐using‐us‐business‐to‐launder‐ cash.html?pagewanted=all

Troncoso was found to have $1 million in cash in “small bills” in his luxury apartment in Edgewater at the time. 3

Did you know that just a couple of years after this seizure of 134.2 pounds of cocaine and after Valencia was released from prison in 1985, Valencia then decided to become a Herbalife distributor? Would you believe that Mr. Valencia has also apparently found tremendous success with Herbalife over the last 30 years? You would be hard pressed to find anyone that thinks 134.2 pounds of cocaine doesn’t speak to a serious and direct connection to major cocaine producers.

Socrates Valencia appears to still have very close ties to the company, despite the company not mentioning him at Extravaganzas and touting his success like it does with other successful distributors. Mr. Valencia appears to have been a donor to the Herbalife Family Foundation in both 2011 and 2012 4 . We have found a litany of photographs and documents that tie Valencia to Herbalife.

We believe Socrates Valencia is either now a current President’s Team member or a current Chairman’s Club member. We can’t figure out which it is. Perhaps the company can weigh in on the situation and clarify. Regardless, Mr. Valencia’s involvement with the company can’t be disputed.

Here’s a recent picture of him with Zac Tartol, nephew of current board member John Tartol.

ith Zac Tartol, nephew of curre nt board member John Tartol. Those inclined to search YouTube

Those inclined to search YouTube and Google for Mr. Valencia can easily find numerous associations to Herbalife. This website shows a slew of photographs linking Valencia and his brother to Herbalife as recent as 2015. We would encourage regulators and sleuths at home to cache these pages, as we expect them to be taken down quickly.

3 http://www.nytimes.com/1985/01/03/nyregion/the‐region‐2‐held‐in‐jersey‐in‐cocaine‐ seizure.html

4 http://www.herbalifefamilyfoundation.org/document.doc?id=38

We believe that Mr. Valencia’s brother, Arquimedes Valencia, still currently lives in New York based on his Facebook profile and what appears to be his son’s Facebook profile. Unlike Socrates, Arquimedes seems to be unaffected and unrestricted on where he lives.

Even more interesting? Arquimedes Valencia opened a domestic business corporation in 1994 5 with a man by the name of Hector Gualteros.

in 1994 5 with a man by the name of Hector Gualteros. Hector Gualteros was t

Hector Gualteros was then arrested in 1995. The NY Times stated that Gualtero was part of a group that laundered “about $4 million in six months” for the CALI Drug Cartel. The Times wrote in 1995:

Inside a black 1985 Chevrolet Camaro a state police trooper discovered $40,000 in small bills, postal money orders worth $16,000 and records of extensive financial transactions with Colombia. The driver, Hector Fabio Gualteros, told the police the money and records were part of his work as an independent distributor of Herbalife International healthcare products.

Agents with the State Organized Crime Task Force and the Federal Customs Service placed Mr. Gualteros under surveillance, eventually monitoring 22 telephone lines, 8 beepers and 13 fax lines. In weeks, their suspicions were confirmed.

As described in court papers and interviews, the ring collected drug money for the Cali cartel and paid it to small New York City companies exporting costume jewelry and watches. Cash was often left in brown paper bags.

Seven companies that received the drug money were identified in court papers as High Top Enterprises, Almar Sales, Axelrod Inc., Proyectos Z Corp., Ruby International, AAA Watch and Royal Watch Company, but none was charged with wrongdoing because officials concluded they were unaware of the scheme. Some of the companies were in nondescript

5 http://www.nycorporatelist.com/corp/2208809.html

offices on Broadway and Seventh Avenue, while four other companies receiving such tainted cash were in Miami and Los Angeles.

The investigation ended earlier this year with the arrest of six people, including Mr. Gualteros and Libardo Moncado, a Colombian importer, who was arrested on a trip to Miami. All pleaded guilty in Federal Court in Brooklyn. Prosecutors said Herbalife was not implicated.

Records show that payments were directed to the companies by coded fax and beeper messages from Cali bosses in Colombia. The authorities say the operation laundered about $4 million in six months.

Maybe things have changed since the mid 1990’s, Herbalife is likely to say. We find this unlikely and we’ll explain why.

First, let’s recap:

Mid 1980’s – Valencia caught with Troncoso with $40 million in Cocaine in New York and leaves the United States to move back to Colombia.

Late 1980’s – Socrates becomes a Herbalife Distributor with his New York based Brother Arquimedes

1990’s ‐ Arquimedes sets up Corporation with Partner (Hector) in New York. Hector gets caught with a group laundering “$4 million over six months”, according to the New York Times. He claims money on his person is related to his work as an independent distributor of Herbalife International health‐care products.

Obviously, Socrates and Arquimedes must be doing pretty poorly given their connection to some very serious Federal crimes. Moreover, Herbalife, as a publicly traded NYSE company surely had to (or now has to) cut ties with them given their knowledge of these serious Federal crimes.

WRONG.

Today, Socrates Valencia is within the Herbalife coterie of top ranking President’s Team or Chairman’s Club members.

More importantly, he is close friends with Herbalife Board Member John Tartol (picture below) and Chairman’s Club Member Susan Peterson (pictures below).

Life is good for Socrates and in directly Arquimedes, as seen fr om their social
Life is good for Socrates and in directly Arquimedes, as seen fr om their social

Life is good for Socrates and indirectly Arquimedes, as seen from their social media accounts, which show luxury homes, pools, vacations, dirt bike trips and dinners.

as seen fr om their social media accounts, which show luxury homes, pools, vacati ons, dirt
Did we mention Socrates also owns his own soccer team? Equally, things are good for

Did we mention Socrates also owns his own soccer team?

Did we mention Socrates also owns his own soccer team? Equally, things are good for his

Equally, things are good for his Son with their “Nutrition Club Business” also as seen from his Twitter page https://twitter.com/socrates1693. It contains pictures of Christian Louboutin shoes, Extravagant vacations, buying high end watches, drinking Champagne and telling the typical MLM stories of how much he sacrificed made this “all worth it”.

So, what continues to fund Socrates Valencia’s lavish lifestyle ? The answer here appears to

So, what continues to fund Socrates Valencia’s lavish lifestyle? The answer here appears to be many Herbalife Nutrition Clubs being run through his Company “Professional De Bienstar”. See http://centralwellnessclubs.com and http://clubcentraldebienestar.com/

These clubs are described as a “System of Central Wellness Clubs” and they exist across Panama, Colombia, Peru, Ecuador, Costa Rica and Mexico.

“ System of Centra l Wellness Club s” and they exist across Panama, Colombia, Peru, Ecuador,

Central Wellness Club’s website, which shows a “Bienstar” lecture taking place, also lists a Sunrise, Florida mailing address.

place, also lists a Sunrise, Florida mailing address. Given that Valencia moved out of the United

Given that Valencia moved out of the United States in the 80’s related to a major federal crime, does the Federal Government know that Socrates is now involved with selling/operating and deriving financial benefit from nutrition clubs based in the United States (Florida)? You can see pictures of his presence in South Florida through another Valencia relative’s Twitter account https://twitter.com/rogervalencia and a link to their video promos for the Central Wellness Clubs.

It Isn’t Just a 1980’s or 1990’s Problem

This angle of the Herbalife story doesn’t get nearly the media attention that it deserves.

For example, little to no media coverage in the U.S. took place when in 2012, six people were arrested in Brazil for running a money laundering ring out of what appear to be Herbalife affiliated “weight loss” clubs. 6

Here’s a photo from the bust of the Herbalife containers that were used to hold drugs.

of the Herbalife containers that w ere used to hold drugs. Here also is a DEIC

Here also is a DEIC slide talking about the involvement of the Herbalife brand in the bust.

6 http://www.aranoticia.com/2012/12/ultimas‐policia‐civil‐apresenta.html

http://www.alagoas24horas.com.br/573990/desbaratada‐quadrilha‐que‐usava‐clinicas‐como‐fachada‐para‐

trafico‐de‐drogas/

Then there’s information obtaine d through FOIA request, includi ng anonymous tips to the FBI

Then there’s information obtained through FOIA request, including anonymous tips to the FBI dating back to the 1980’s that the company “smuggles cocaine and heroin into the United States”.

Did you also know that current Herbalife board member Pedro Cardoso has been “linked to

Did you also know that current Herbalife board member Pedro Cardoso has been “linked to a money laundering scheme” and was charged with money laundering by Brazilian prosecutors in a complaint from 2008? 7

According to a 2014 comment letter 8 filed with the SEC, when the company was made aware of this criminal complaint naming a board member as a defendant, the company “commenced a responsive and full investigation”.

Herbalife then played judge and jury, telling the SEC that “reports of criminal allegations of money laundering and/or embezzlement against Mr. Cardoso appear entirely without basis”. They then stated that their investigation is “currently ongoing”.

When the SEC asked the company about this current Board Member and lawsuit 9 , the company answered in May of 2015 that it did not think the circumstances surrounding this Director were material, based on the fact that Mr. Cardoso had not been served a copy of the lawsuit and because

7 http://finance.yahoo.com/news/herbalife‐director‐linked‐money‐laundering‐142920084.html

8 https://www.sec.gov/Archives/edgar/data/1180262/000119312514442965/filename1.htm

9 https://www.sec.gov/Archives/edgar/data/1180262/000119312515165176/filename1.htm

the company had been “advised by [their] Brazilian counsel that the statute of limitations will also expire at year end.”

What’s Really Going on at Herbalife?

For years, it has been speculated by critics that Herbalife could have a layer of fraud to it that usurps and transcends the pyramid scheme allegations of late. Specifically, the company’s success in countries like Mexico and Colombia and the immense amount of undocumented cash that trades hands at the over 40,000 nutrition clubs between the two countries could make for a perfect environment for wrongdoing involving cash.

In theory, Herbalife makes for a great vehicle for money laundering. Signing up as a distributor is easy and requires little documentation. It’s probably very easy to set up fake accounts under a main distributor, giving the cash a chain of individuals to work its way up and through, while the top distributor uses “cash purchases” of product below him to collect recruiting rewards. 10/10 Research’s internal estimates lead us to believe that between 40% and 60% of cash invested by top distributors can then come back to them. The fact that Herbalife recognizes revenue in local currencies and pays out to distributors using U.S. dollars could make the company an obvious target for those wanting to take local currencies acquired through questionable means and turn them into fresh U.S. legal tender.

We suspect this small, yet weighty, collection of evidence is only the tip of the iceberg. We believe these revelations about one of Herbalife’s top distributors and a Board Member should lead media and investigative journalists to introduce a line of questioning regarding potential money laundering at the company that we think the DEA will be very interested in

Consider the following:

Colombia in the 80’s and 90’s supplied 90% of the Cocaine that came into the U.S.

When Pablo Escobar was killed the Medillin Cartel collapsed and the the Cali Cartel took over, they too however soon collapsed and the power moved to the Sinaloa Cartel in Mexico.

From the late 1990’s to present, Mexico supplies 80% of all Cocaine bound for the United States.

In the early 2000’s, the Herbalife Nutrition Club concept was conceived in Mexico.

In 2013 Herbalife had 37,000 Nutrition Clubs in Mexico. To put that in perspective, Burger King at the time had 449 locations, McDonalds 397 locations and Starbucks 403 locations in all of Mexico. Mexico in 2013 had a population of 117 million people. Herbalife has at least one Nutrition Club for every 3,162 people in Mexico. Burger King in contrast has one location for every 260,579 people, McDonalds one location for every 294,710 people and Starbucks one location for every 290,323.

For the media and those interested in following down a path that we think could lead to more answers, we humbly submit the following questions for you to ponder:

1.

Should the DEA contact and speak to current and former members of Herbalife’s compliance department to ascertain whether or not complaints regarding the illegal laundering of money have been reported to the company?

2. Will the company itself come out publicly and answer the following questions:

a. Has the company been contacted by, or corresponded with, the DEA over the last four (4) years?

b. Has the company ever been made aware of money laundering concerns?

c. Is the company aware of Valencia’s past?

d. In the company’s history, how many total compliance complaints have been lodged having to do with potential illegal money laundering and how many have been acted on?

e. What is the current status of both Pedro Cardoso and Socrates Valencia within the company?