Success By Health a $7 million pyramid scheme, alleges FTC
Earlier today, someone claiming to be an “industry observer” tried to convince me that affiliate autoship wasn’t a problem within Success By Health.
No idea if it’s a coincidence or not, but later the same day it emerged the FTC had filed a pyramid scheme lawsuit against the company.
In a complaint initially filed under seal, the FTC alleges Success By Health (dba Success By Media) robbed consumers of “more than $7 million”.
Of that amount $1.3 million was used to enrich executives James “Jay” Dwight Noland (owner, right), Lina Noland (Jay’s wife), Scott Harris (President) and Thomas Sacca (Chief Visionary Officer).
According to the FTC;
less than 2 percent of participating consumers received more money from the defendants than they paid to them, and that those lucky few averaged less than $250 per month.
This is in contrast to Success By Health’s promise of financial freedom. According to the FTC Success By Health
told affiliates that “the masses” could earn more than $1 million each month in sales commissions.
However, the marketing materials allegedly failed to disclose that to achieve that level of commissions, an affiliate would have to recruit more than 100,000 affiliates working underneath them, the vast majority of whom would be losing money at any given time.
Another income claim made by Success By Health was that
affiliates likely can replace their job income in six months and become financially free (and never have to work again) in 18 months by working hard and following Defendants’ instructions.
On the money side of things Success By Health’s marketing set a “5 year goal” of capturing
1% of the world coffee market in 5-7 years, which will result in $24 billion in annual revenues.
The FTC’s investigation into Success By Health revealed that since its 2017 launch, the company’s annual revenues were yet to exceed $5 million.
The FTC alleges these claims, when weighed up against reality constitute violations of the FTC Act.
In line with BehindMLM’s own Success By Health review, which found an abundant emphasis on recruitment over retail, the FTC states
Defendants have been operating a pyramid scheme since SBH’s inception in or about July 2017.
Most SBH Affiliates have lost money in the program.
SBH’s commission plan emphasizes and incentivizes recruiting new Affiliates over selling products to ultimate users or consumers outside of the organization.
SBH’s business practices also make it unlikely that Affiliates can meaningfully earn money by selling products to outside customers.
“Outside consumers” being retail customers.
In describing one “cash promotion,” Jay Noland declared that the goal was “to get you focused on what you should be focusing on right now, which is new people getting into the company.
SBH’s director of sales told Affiliates that retail sales were a “great way to make some extra, part-time money, to make some quick quick money,” but emphasized that “recruiting is key” and that Affiliates should spend their time building a “10x10x10x10x10.”
Similarly, one top SBH Affiliate said she would “gloss over retail” at a recruiting event in order to spend more time on the purported lucrative benefits of recruiting.
Those Success By Health affiliates that attempted to retail the company’s products, at the recommended minimum 50% markup cost, found they were competing against the company itself.
On the side, Success By Health sold its products to the general public at the same wholesale pricing affiliates were paying for it.
Defendants actually encourage Affiliates to tell their own customers that they can buy products cheaper directly from SBH.
SBH’s retail script directs Affiliates to tell customers, “I need you to help me out by buying at least a bag or two of coffee from me one time at Retail Pricing.
If you like it, I will show you how to get it at Wholesale Pricing from then on.”
The focus of recruitment within Success By Health meant that
the vast majority of purchases from the SBH website or from Affiliate Websites are made by Affiliates.
How Success By Health interacted with its affiliates internally is also under fire, with the FTC alleging they were exposed to
high-pressure sales tactics to force Affiliates to buy expensive consumer goods and services, including SBH products and tickets to future training events, without informing Affiliates of their legal right to cancel those transactions.
Tickets to these events cost $200 to $3500 (travel and accommodation extra), with the events held three to four times a year.
In one cited and particularly egregious example,
With just hours remaining in one monthly sales period, Jay Noland pushed any Affiliate with $500 in monthly sales over the prior 30 days to make an additional $14,500 in purchases in the final four hours, which would qualify the Affiliate for SBA1 status for the following month.
Noland added: “You can do it. It’s just in your mind . . . . Listen to me. You can go in, order you a case.”
In light of this, inventory loading appears to have been a common problem throughout Success By Health.
Harris told Affiliates at the end of another monthly sales period to buy products to achieve Business Affiliate status.
He acknowledged receiving complaints from Affiliates who already had $1,000 in unsold merchandise in their house.
Instead of addressing those complaints however, Harris bizarrely congratulated the affiliates and encouraged them to buy more still.
If you got $1,000 [in products] in your house, congratulations. If you got 4 or $5,000 worth, congratulations. If you got more than that, congratulations.
Mr. Noland and I used to carry around 10, 15, 20, $25,000 or more in products.
In order to fund thousands of dollars in purchases, Success By Health recommended affiliates
max out credit cards, borrow from family, take loans from banks, and sell or mortgage their homes.
Another disturbing and seemingly non-public aspect of Success By Health was its Million Dollar Contracts.
In that “contract,” Affiliates agree that they are “100% committed to my goals and dreams” and that “[f]or the next 18 months I’m willing to do whatever it takes to make my dreams a reality.”
Affiliates then commit to maintain a $500 monthly auto-order from the company for at least 18 months, to attend “all SBH Corporate trainings and events no matter what,” and to “ask at least 4 people a day to join my business at least 5 days a week for at least 18 months,” among other things.
Basically a promise the affiliate’s will be millionaire, in exchange for signing up for a monthly $500 autoship for 18 months.
Needless to say Success By Health’s representations were baloney. Oh and selling products to retail customers naturally wasn’t part of the contract.
As previously disclosed, the vast majority of Success By Health affiliates lost money.
Those that did manage to earn commissions were then met with the challenge of actually getting paid.
As one undercover FTC agent found out, getting Success By Health to pay out earned commissions was a struggle.
An FTC investigator used an undercover identity to enroll in SBH and then made sales and purchases that should have entitled him to commissions.
He never received those commissions, and the company did not respond to his email inquiry regarding the missing commissions.
How widespread this problem was is not clear.
Refunds was another point of contention brought up by the FTC.
Section 14 of Success By Health’s Terms and Conditions
states that all product purchases are nonrefundable “for any reason whatsoever” and prohibits consumers from seeking credit card “chargebacks”.
The terms and conditions state that anyone who dares chargeback Success By Health is liable for “three times the amount of each chargeback or $1,000—whichever is greater.”
In one video posted to Facebook, Jay Noland threatened to report to the police any Affiliate who requested a chargeback on a product for which he or she had received a commission—even if the Affiliate had not received the product.
Noland didn’t wind up reporting anyone to the police, but Success By Health did sue nine affiliates in Nevada.
The reason for the lawsuit? The affiliates collectively were seeking twelve chargebacks.
There’s also another “Confession of Judgment” clause, which permits Success By Health
to confess a judgment in any court against a consumer who “dispute[s]” a credit card payment or obtains a reversal of a credit card transaction “for any reason.”
The same section defines the confessed judgment amount as three times the amount of each reversed or disputed charge or $1,000— whichever is greater—plus the amount of the original charge, along with collection costs, court costs, and attorneys’ fees.
Success by Health affiliates who dared questioned or complained about these policies, including shipping delays of up to 60 days”, were threatened with “legal action or removal from the company”.
In attempt to cover themselves, at least as far as income claims go, Success By Health did include the usual pseudo-compliance
income is not “guaranteed,” that “results may vary,” and that any explanations of the SBH commission plan that show lucrative results are “simple theoretical examples.”
Emphasizing the pseudo-compliance nature of such disclaimers, you also then had Jay Noland running around telling people
“theoretical examples” of lucrative income are only “theoretical” because “you haven’t done it yet.”
The FTC’s complaint alleges six count violations of the FTC Act and Code of Federal Regulations.
Those counts are as follows:
- Illegal Pyramid;
- Income Misrepresentations;
- Means and Instrumentalities (providing affiliates with marketing materials that contain false and misleading representations);
- Failure to Seek Consent or Offer Cancellation;
- Failure to Provide Cancellation or Refund; and
- Failure to Notify Consumers of Cancellation Rights.
The FTC is seeking
- a preliminary injunction with respect to Success By Health;
- a permanent injunction covering “any future violations”;
- relief including rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies; and
In a separately filed lawsuit, the FTC has also gone after Jay Noland for breaching a previous injunction.
The previously granted injunction pertains to Noland settling BigSmart pyramid scheme allegations back in 2002.
As per the Success By Health case docket, a Temporary Restraining Order was granted against Success By Health on January 13th.
According to the FTC, the TRO in place temporarily shuts down Success By Health and “freeze(s) the assets of the company and its executives”.
A hearing is scheduled for January 27th, at which the appointment of a Receiver, discovery and “other equitable relief” will be fleshed out.
Update 28th January 2020 – A preliminary injunction hearing has been scheduled for February 12th.
Update 14th February 2020 – The preliminary injunction hearing went ahead as scheduled. The matter has been taken under advisement.
Update 29th February 2020 – On February 27th a preliminary injunction was granted against Success By Health and Jay Noland.