95% of Success By Health’s revenue was non-retail
On January 13th, as part of a TRO granted to the FTC, the court appointed a Success By Health Receiver.
On February 10 the Receiver filed her first report on the business.
Success By Health’s Nevada Office
The same day the TRO was granted, FTC and Receivership agents visited Success By Health’s Henderson, Nevada office.
This address I believe was used by Success by Media, a company owned by Jay Noland.
Success By Media’s professional production team provides you or your company with everything you need to be seen and heard.
Access to the office occurred at approximately 1:45pm. At the time the only person present was Robert Towns, Director of Media at Success by Media and a Success By Health affiliate.
The Receivership agents sought to interview Towns, however he “declined to provide substantive information”.
Before leaving, Towns handed over office keys.
Later that same day the Receivership agents attempted to contact Yaquilin Lizaola, an administrative assistant.
Lizaola declined to answer the Receivership agents’ questions.
The FTC were then invited into the premises. Together, the agents discovered there were no computers on site.
Security system drives were imaged by the FTC but not removed. Five additional external storage devices were relinquished to the FTC.
Very little documentation was found on the premises.
The only documents recovered consisted of several receipts from a recent SBM event, various event and product brochures, and several invoices for business-related expenses.
Success By Health’s Kentucky Office
At around 5pm on January 13th, two Receivership agents assisted by local police and Success by Health’s landlord, gained access to the company’s Winchester, Kentucky office.
The office was initially empty, however two Success By Health affiliates “arrived later”.
Both were given a copy of the TRO, contact information for the Temporary Receiver, and a questionnaire drafted by the Temporary Receiver related to the location of documents and information.
Both declined to be interviewed or to fill out the questionnaire.
As with the Nevada office, no actual computers were found onsite.
The Receiver did note however that
computer equipment, a printer, and e-mail printouts addressed to “warehouse(at)successbymedia(dot)com” suggested that a computer had been present at some point.
The Receiver has since sent an email to above address, requesting production of the computer believed to have been removed.
To date she hasn’t received an answer. Nor has Success by Health or Nolan produced the computer.
The offices contained SBM products, shipping supplies,shipping invoices, marketing materials, and other similar items (the inventory is discussed in more detail below).
The common area contained pallets of inventory.
Success by Health’s landlord believed most of the inventory had been sitting around “for over a year”.
The Receivership Agents also visited storage space held in Noland’s name.
A fishing boat and fishing gear belonging to Noland was seized.
Success By Health’s Offices may have been cleared out
Corporate offices without at least one computer seems pretty inconceivable these days. Yet that’s exactly what the Receivership found at both of Success By Health’s listed offices.
It wouldn’t be until January 28th that Success by health provided the Receiver with a list of devices.
Turns out there was a computer at the Kentucky office but it was indeed removed.
The list also includes two company-owned iPads and a company-owned iMac Pro desktop computer, none of which were present in the Henderson, Nevada location, and which the Temporary Receiver has not yet obtained or reviewed.
Aside from the two companyowned laptops formerly in Mr. Noland’s possession, the Individual Defendants all use personal devices in connection with the business (in most instances, a MacBook Pro and an iPhone), and Mr. Noland also uses a Dell laptop.
Together, the Individual Defendants have nine personal devices used in connection with the business.
As of February 10th, arrangements to image these devices “have not yet been made”.
The only devices turned over to the Receiver are two company laptops in Jay Noland’s possession.
As part of the granted TRO, Success By Health is required to turn over pretty much anything to do with the company.
The Receiver notes in her February 10th report that she’s
encountered considerable difficulty in obtaining documents and electronic data from the Defendants.
It wasn’t until after two weeks that Success By Health granted the Receiver “meaningful access” to the electronic data.
And as of February 10th, ‘several requests remain outstanding‘.
Access to some of Success by Health’s corporate email addresses was provided on January 27th.
By January 30th the Receiver had access to thirteen accounts, however six remain unaccounted for.
Discussions are continuing between the Receivership and Success by Health’s attorneys.
The Receiver isn’t ready to file an affidavit of non-compliance just yet, but notes the option is on the table.
Success By Health kept poor corporate records
As is common with subjects of MLM related regulatory busts, Success By Health’s record-keeping left a lot to be desired.
After numerous requests, the Receiver was granted access to the company’s official DropBox account.
The DropBox account contains an “SBM Storage Team Folder” with voluminous files, primarily video files, audio files, and materials used at training events.
Based on the documents and data made available to the Temporary Receiver to date, the Receivership Entities do not engage in any corporate formalities.
Although Mr. Noland testified at his deposition that a Board of Directors exists, there are no documents related to its composition, notices of meetings, minutes or agenda items related to such meetings, or resolutions passed by a Board of Directors.
There are also no business plans or internal budgets.
The company does not have a Chief Financial Officer, and does not have a system for tracking invoices or amounts payable.
What was paid out was done so by Jay Noland, directly from Success By Health’s bank accounts.
The company appears to have at least two Intuit QuickBooks accounts that may track expenses.
However, the Temporary Receiver has not been granted access to these accounts, despite her requests.
The lack of invoicing system made it difficult for the Temporary Receiver to collect a complete list of current liabilities.
Almost half a million seized
So far the Receiver has identified and seized funds in several bank accounts.
As of February 10th, $440,538 had been seized in accounts belonging to Success By Media and Enhanced Capital Funding Corp.
Another $169,107 has been identified in payment processor accounts.
Owed commissions will not be paid
Success By Health used Affili8’s cloud services to track some of its operations.
Analysis of these services revealed Success By Health had $603,870 in liabilities at the time it was shut down.
Of that amount $233,345 is payable in commissions. $213,035 is attributable to product manufacturing expenses.
A revised list of liabilities the Receivership will actually pay reduces the total amount to just $62,594.
Neither affiliate commissions or product manufacturing expenses made the list.
Success By Health operated as a pyramid scheme
Analysis of financial records checked for accuracy and reliability, show that Success By Health took in $6.1 million dollars.
Of that amount, 95% are attributable to affiliate purchases. Just $250,491 of the $6.1 million Success By Health took in is tied to retail sales.
Put differently, 95% of the money earned by SBM was earned from people who wanted the opportunity to recruit new Affiliates and sell products as opposed to just purchasing coffee and nutraceuticals for personal consumption.
From those figures, it’s pretty clear that retail activity was not significant within Success By Health’s MLM opportunity.
Success By Health Management paid themselves more than affiliates
The FTC has calculated that between January 2017 and July 2019, 4913 Success By Health affiliates qualified for commissions.
These Affiliates received $1,028,378 – approximately 19% of the money received by SBM.
Success By Health’s marketing suggested that 50% of company-wide sales revenue was paid to affiliates.
In contrast, 26% (~$1.58 million) was paid to
- Enhanced Capital Funding, owned by SBH owner Jay Noland
- Arcadia Integrated Solutions, owned by SBH President Scott Harris
- Moringa Revolutions, owned by SBH Chief Visionary Officer Thomas Sacca
An example provided by the Receiver reveals Jay Noland drew up a $500,000 ten-year and 15% annual royalty contract, between Success By Media and Enhanced Capital Funding – two companies Noland owned.
These royalty payments were supposedly for ‘the formula (or formulas) to certain coffee, tea, and healthy product mixes‘.
So far however
the Temporary Receiver is unable to locate any licenses for a vendor containing a reference to these formulas – SBM does not make these products itself.
Nor has the Temporary Receiver seen any communications by and between SBM and its vendors that support the idea that Enhanced Capital Funding’s secret formulas are being used to prepare any of SBH’s products.
Noland, through Enhanced Capital Funding, also charged Success By Media $304,889 to use “affiliate software”.
It is not clear from the documents supplied to the Temporary Receiver how, or if, SBM pays to utilize this software.
At this juncture it is unclear if SBM has received any value for these payments.
Jay Noland moved to Uruguay, and pretended it was a Success By Health expansion
Last year Jay Noland moved he and his family to Uruguay. Success By Media footed the bill, under the guise of a Success by Health expansion into the country.
These costs include paying tens of thousands of dollars for the family to rent their apartment there, as well as furnishing it, and buying a $145,000 2020 Range Rover.
In contrast to Success By Media funds Noland spent on himself and his family relocating,
information supplied by SBM indicates that through the end of 2019, Uruguay had produced only one customer – who purchased a $49.00 SBM Affiliate membership.
Success By Health isn’t profitable with a legal business model
The Success By Health Receiver acknowledges that the business is “potentially profitable”.
It has high margins, its employee costs are small, and – setting aside potential refund exposure and a few large unpaid vendors – the business cash flows.
The problem is Success By Health’s model hinges on “making promises … that are unrealistic and unobtainable”.
Specific examples by Jay Noland the Receiver cites include:
During one seminar, Noland stated, “Over two million people are part of my team, and every time they do something, I make some money…
What if all I did during the course of the year was just made one dollar off of the efforts of two million people, what would that pay me?”
According to Defendants’ Response and Objection to the TRO, the total number of Affiliates as of January 13, 2020, however, is only 6,754 (of whom only 5,003 actually earned commissions).
In other words, statements about the scale of the business … mislead potential Affiliates about the potential opportunity they are purchasing.
Two other frequently made representations by Noland also appear inaccurate:
(1) that SBH makes millionaires;
and (2) that the commission structure allows Affiliates to quickly make back their initial investment.
For example, in one of his commission explanation videos, Mr. Noland states: “$173,500 a month . . . is it possible? Yes. Does Jay have anybody in his networking doing it? Yes. Yes. . . . If that thing goes one more tier, you’re now not just a millionaire, you’re a millionaire a month.”
None of this is accurate.
None of the records supplied by SBM indicate that any Affiliate earned $173,500 in any month – or even over the course of a year. Nor has any person been made a millionaire by SBM.
The Receiver notes that Jay Noland himself received less than $1 million from Success By Health over three years.
Of that amount, just $20,092 was tied to commissions.
Despite Noland’s lofty marketing presentations, Success By Health’s own tax records reveal
272 Affiliates earned commissions of $500 or greater in 2019; this equals approximately 4% of Affiliates.
It is important to note that the commissions represent gross, not net, income.
In other words, the commission amounts do not take into account the amounts the Affiliates spent purchasing the products or attending associated training events.
One Success By Health affiliate who made $15,000 in 2019 agreed to speak the Receiver.
The affiliate stated that once Success By Health training event costs were factored in, he actually lost money that year.
Again, although SBH markets its Affiliate opportunity as a mechanism to replace a person’s income, or become financially free, the reality is that the vast majority of Affiliates lose money and even those that do make money, make a very small amount in comparison to the marketing promises made by SBM.
Ultimately, the Receiver concluded that Success By Health ‘can not be operated without violating the TRO.‘
That is to say that, without the scamming, Success By Health is not a viable business.
The inaccurate marketing statements, the organization of the commission system, and the movement of large amounts of cash to the insiders strongly suggests that the business is structured in such a fashion that prevents Affiliates from realizing the promoted business opportunities.
In light of that reality – and in view of the fact that 95% of SBM’s customers are persons who purchase not just products, but also the Affiliate membership opportunity to sell additional products and earn commissions – the Temporary Receiver believes it would be inadvisable to continue operations pending the outcome of the case.
Jay Noland filed his response to the Receiver’s report on February 19th.
In his response, Noland objects to the understated value of Success By Health.
In their own response, the FTC notes Noland did
not object to the Temporary Receiver’s conclusions that … “the business attains profitability by making promises to its Affiliates that are unrealistic and unobtainable” and that she “does not believe that the business can be operated without violating the TRO.”
There’s also some doubt raised on Jay Noland’s personal wealth claims.
As per an unsigned financial statement filed on January 24th, Noland represents he’s worth -$28,000 (negative, that’s not a typo).
At his February 5 deposition, he confirmed under oath that the assets and liabilities on that financial statement were accurate and he could not recall a time he had a positive net worth.
On February 11th Noland submitted a revised and updated financial statement, however the -$28,000 net worth amount remained the same.
In a documents filed on February 19th, Noland now claims ‘his “personal net worth as of January 31, 2020” was $94 million’.
This is supposedly based on some Canadian lawsuit that’s been going on for over ten years and, as the FTC puts it, ‘baseless and fanciful valuations of the Receivership Entities‘.
Pending a decision on the Success By Health preliminary injunction, possibly next week, stay tuned…
Update 29th February 2020 – On February 27th a preliminary injunction was granted against Success By Health and Jay Noland.