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.