AdvoCare pyramid scheme busted by FTC, fined $150 million
Back in May AdvoCare announced it was terminating its MLM opportunity.
According to the company, the decision was made following “confidential talks with the FTC”.
Today the FTC finally revealed that AdvoCare had been investigated and found to be a pyramid scheme.
The FTC alleges that through it’s pyramid scheme, AdvoCare and former CEO Brian Connolly (right)
swindled hundreds of thousands of consumers who signed up to be “distributors” of its health-and-wellness products.
BehindMLM reviewed AdvoCare in November 2015. We did find a strong retail focus but noted it could easily be rigged by distributors (self-funded “retail”).
According to the FTC’s investigation, that was exactly what was happening across the company.
AdvoCare operated an illegal pyramid scheme that pushed distributors to focus on recruiting new distributors rather than retail sales to customers.
The compensation structure also incentivized distributors to purchase large quantities of AdvoCare products to participate in the business and to recruit a downline of other participants with the same incentives.
The income of AdvoCare advisors was based on their success at recruiting, with the highest rewards going to those who recruited the most advisors and generated the most purchase volume from their downline.
As noted in our review, AdvoCare did have a retail sale verification policy in place. Based on the FTC’s allegations above however, it appears to have been nothing more than lip service.
How AdvoCare distributors set about recruiting was also a regulatory issue.
To recruit people … AdvoCare and the other defendants told distributors to make exaggerated claims about how much money average people could make—as much as hundreds of thousands or millions of dollars a year.
The FTC alleged that distributors were told to create emotional narratives in which they struggled financially before they joined AdvoCare, but obtained financial success through AdvoCare.
Distributors were also allegedly told to instill fears in potential recruits that they would suffer from regrets later if they declined to invest in AdvoCare.
The defendants told consumers that they could realize large incomes by promoting AdvoCare and that their earning capacity was limited only by their effort.
In reality … AdvoCare did not offer consumers a viable path to financial freedom.
In 2016, 72.3 percent of distributors did not earn any compensation from AdvoCare; another 18 percent earned between one cent and $250; and another 6 percent earned between $250 and $1,000.
The annual earnings distribution was nearly identical for 2012 through 2015.
Rather than assert they aren’t a pyramid scheme and clear their name, AdvoCare and former CEO Brian Connolly consented to a $150 million dollar judgement.
Both defendants are also permanently banned from operating an MLM business.
In addition to going after AdvoCare, top distributors Danny and Diane McDaniel (right) and Carlton and Lisa Hardman were also charged with
unlawfully promoting a pyramid scheme, making deceptive earnings claims, and providing others with the means and instrumentalities to do the same.
On October 2nd the Hardmans settled for a $4 million judgement and $100,000 fine.
As part of the Hardmans’ settlement, their residence in Alabama will also be liquidated.
Based on what the FTC has released today and the case not yet appearing on Pacer, it appears the McDaniels have not yet settled.
As part of the AdvoCare’s settlement, the $150 million dollar fine will go towards victims getting “some of their money back from the FTC”.
AdvoCare is also required to honor a 100% refund offer on unused products.
Update 3rd October 2019 – Possibly in violation of the consented settlement order, AdvoCare CEO Patrick Wright has denied the FTC’s pyramid scheme allegations.
Update 10th May 2022 – On May 5th the FTC announced it had returned over $149 million to Advocare victims.
Couple the above with the Vemma case and you’re describing mainstream MLM. Not just the underbelly but the industry as a whole.
No wonder I’m seeing such sour grapes that AdvoCare did not choose to fight this in court.
Imagine what would happen to the industry if they were forced to use a common sense definition of the word “customer” instead of claiming that each and every affiliate that fails to make any real money is one.
One thing this case proves is that those who fail to regulate themselves voluntarily will eventually be regulated against their will. Up to and including having their homes liquidated.
Thomas Ritter, an associate at KT’s law firm wrote an initial impressions piece on the settlement:
thompsonburton.com/mlmattorney/2019/10/02/initial-impressions-from-the-ftcs-settlement-with-advocare/
An interesting point:
The FTC-AdvoCare press conference is available to facebook users here:
facebook.com/federaltradecommission/videos/508585946387892/
The ESPN report mentioned above can be found here:
espn.com/espn/feature/story/_/id/14972197/questions-surround-advocare-nutrition-empire-endorsed-saints-qb-drew-brees
For those who aren’t fans of American Football Drew Brees is one of the best Quarterbacks in the league, more so in 2016 than now perhaps but either way he is a high profile celebrity endorsement.
Why do we have to wait for ESPN to put pressure on the FTC for them to go after pyramid schemes 🙁
Can’t they just… y’know, do their job?
Your answer is right here:
The people hurt by schemes need to report them, squeaky wheels so to speak.
Gotta love the catch 22 of by the time enough victims have reported, the majority of financial damage has likely already been done.
If the FTC went after tiddly little pyramid schemes with a few hundred suckers, that *might* later grow to really big ones causing hundreds of millions in financial damage, they would be rightly castigated for going after the small fish and ignoring the big ones.
If the FTC shut down every single pyramid scheme in existence, big and small, they would be massively overfunded.
And it would be a waste of taxpayer’s money that could have been used to fund nurses or police officers rather than saving wannabe scammers from themselves.
Can’t win. There are no winners in a “lie with dogs and see who can get the most fleas” contest.
@Malthusian… the big, juicy, fat, fish are better to go after than the small ones.
I’d just like to point out that AdvoCare is a DSA member.
Jeffrey Babener wrote an article about the AdvoCare fallout:
worldofdirectselling.com/ftc-advocare-teachable-moment/
Nothing ground breaking or new (like the AdvoCare settlement itself) just more of what we already knew. Mr. Babener does a good job of spelling that out in detail.
How many more mainstream MLM companies will be “Déjà Vu’d All Over Again” by the FTC before this message is clear?