AdvoCare settling 'Illegal pyramid scheme' charges with $150M FTC payment
AdvoCare International agreed to pay the Federal Trade Commission $150 million to settle charges that the company operated an “illegal pyramid scheme.”
The FTC announced the settlement this week after filing a complaint in federal court against the company, former CEO Brian Connolly and some of its top distributors. Officials alleged AdvoCare falsely claimed to offer “a life-changing financial solution that would allow any ordinary person to earn unlimited income, attain financial freedom and quit their regular job.”
AdvoCare’s pyramid scheme pushed distributors to focus on recruiting other distributors instead of selling products to customers, FTC officials said in the complaint. To recruit people, AdvoCare and its top distributors told other distributors to make exaggerated claims about how much money average people could make. They also told distributors to make emotional stories about how the company saved them from financial struggles and to make potential recruits worry about missing out of they didn’t join.
However, “the vast majority” of AdvoCare’s distributors actually earn no money or even lost money through the company’s multi-level marketing system, according to the complaint. In 2016, 72.3 percent of AdvoCare distributors earned zero compensation from the company, and another 18 percent made $250 or less.
“Legitimate businesses make money selling products and services, not by recruiting,” said Andrew Smith, director of the FTC’s Bureau of Consumer Protection. “The drive to recruit, especially when coupled with deceptive and inflated income claims, is the hallmark of an illegal pyramid. The FTC is committed to shutting down illegal pyramid schemes like this and getting money back to consumers whenever possible.”
AdvoCare said it cooperated with the FTC’s investigation but disagreed with the commission’s conclusions.
“We strongly disagree with the FTC allegations, but we are committed to abiding by this agreement and moving forward,” CEO Patrick Wright said in a written statement. “The strength of AdvoCare is and always has been our highly-valued health and wellness products, which remain in great demand by our hundreds of thousands of loyal customers.”
In addition to the $150 million payout, the settlement bans AdvoCare from using multi-level marking and requires the company notify its distributors that they will no longer be able to earn compensation based on purchases in their downline but that they can get a refund on unused products, according to the FTC.
AdvoCare said it revised its business model earlier this year to switch from a multi-level marketing model to a single-level compensation plan.
Distributors with “significant losses” may be able to get some of their money back from the FTC, the commission said.