FTC moves for summary judgment on SBH’s fraud liability
In its ongoing case against Success by Health and owner Jay Noland, the FTC has moved for summary judgement with respect to liability.
As summarized by the FTC, their case against SBH and Noland is as follows:
For over two years prior to the Court’s Temporary Restraining Order, Defendants promised financial freedom to convince consumers to join, and continue sinking money into, two pyramid schemes.
Beginning in July 2017, Defendants’ Success By Health (“SBH”) pyramid sold coffees, teas, and nutraceuticals.
When that scheme started to collapse, Defendants, in October 2019, launched a VOZ Travel pyramid (also part of SBH) that promised to one day provide a travel-booking platform.
In both pyramids, Defendants told members (called “affiliates”) that their success depended not on their ability to find, and sell products to, ultimate users, but instead on buying products and recruiting new affiliates to buy products from SBH.
Consequently, affiliates entered an endless chain of recruitment, in which they could recoup their costs only by enrolling new affiliates.
As in any pyramid scheme, the vast majority of affiliates must be, and were, losing money at any given time.
Led by serial pyramid scheme promoter Jay Noland, the Individual Defendants took $1.7 million for themselves while 6,957 affiliates earned $2.4 million in rewards, despite spending over $8.4 million on Defendants’ products and training—not to mention thousands on expenses not paid to SBH.
Because there is no genuine dispute regarding any material fact, each Defendant is liable as a matter of law for deceptively promoting the SBH and VOZ pyramid schemes and violating two FTC rules mandating that they offer or provide refunds in certain contexts.
The FTC goes on to allege;
SBH used deceptive sales and recruiting tactics
Defendants lure consumers to enroll as affiliates with promises that if they work hard and follow “millionaire maker” Jay Noland’s instructions, they can replace their job income in six months and become financially free—reaping a perpetual stream of million-dollar yearly payments—in just 18 months.
Once enrolled, Defendants tell affiliates that achieving financial freedom requires recruiting new affiliates and purchasing excessive inventory, rather than selling SBH products to ultimate users.
This is your classic affiliate autoship recruitment scheme, as identified by BehindMLM in our 2018 Success by Health review.
The FTC, through their own investigation, would confirm BehindMLM’s analysis two years later.
The “Four Steps to Success” Omits Retail Sales.
Defendants promote “Four Steps to Success” to “Hit the Ground Running as a new SBH Affiliate.”
Yet the four steps do not mention sales to ultimate users.
Instead, they tell affiliates to
(1) “get started” by buying products (preferably $500 or $1,995 packs),
(2) “be a product of the product” by setting a monthly auto-order of at least $60 ($500 if seeking “financial freedom”),
(3) build a team (i.e., recruit), and
(4) duplicate their own efforts by teaching their team to do the same.
For the third step, Defendants tell affiliates to recruit two new affiliates within 48 hours if they seek financial freedom.
“[D]uplication,” is the “key to long term success as an SBH Affiliate.”
Defendants also highlight a “Power of Ten” “success strategy” in which “Affiliates need to get ‘my 10’ Affiliate Team Members” and teach new recruits to “do the same.”
Affiliates achieve the full “Power of Ten” by recruiting 10 affiliates as their “Tier 1,” each of whom recruit 10 as the first affiliate’s “Tier 2,” and so on through Tiers 3-5.
Defendants say this will pay $1,173,500 per month when each affiliate in the 10×10 spends $500 per month.
As with any MLM autoship recruitment scheme, the end-result is that ultimately the products are irrelevant.
Don’t just take my word for that though;
Noland admits the obvious: the products are, in fact, irrelevant. Shortly before launching SBH, Noland claimed he could “plug any company or product into [his] process, and you can be free financially if you want to be.”
Similarly, he told SBH affiliates not to complain about not receiving products because they could just “sell the vision” (i.e., the business opportunity).
Unsurprisingly, Defendants’ undermining of sales to ultimate users is reflected in the data.
Offline and online sales to non-affiliates are rare.
SBH, Noland and executives lured consumers into SBH by falsely promising financial freedom
Defendants tell consumers that there are three types of affiliates, those looking to:
(1) supplement their income,
(2) “replace [their] income (no more job),” and
(3) obtain “financial freedom.”
The choice is “yours,” id., but if you seek financial freedom and “pay close attention,” you are “going to be able to get out of that job in about six months” and attain financial freedom in 18 months.
It is undisputed that Defendants told recruits (falsely) “several people” are “achieving Financial Freedom already with our company.”
Defendants consistently use the term “financial freedom” to refer to a “fabulous level of wealth beyond completely replacing a job income.”
They admit to using images of yachts and cars, piles of cash, and exotic vacations to make the point.
As the Court found, financial freedom, at minimum, means earning income greater than one’s current job income.
Defendants also tout Noland’s (fictitious) wealth as attainable for affiliates.
At one recruiting event, Noland rhetorically asked: “Jay, just please tell me how you created a financial freedom life to where your son before he was born was already retired? And his kids are retired, and his kid’s kids are retired? . . .
[I]t’s going to be somebody that walks in here for the first time, 18 months from now will never have to work again.”
Noland, now 52, went on to claim he was “financially free, completely time and money free since I was 36” and had not “had to work a job . . . since I was 27.”
Privately, Defendants did the same. Scott Harris told a recruit, “You’ll make $100k+ in 2018.”
He told another he wanted “serious guys who want to make $100K a month in 3 years or less,” adding, “[m]illions will be made” with 10 hours per week to replace one’s job income.
Thomas Sacca told a recruit that it “literally only takes 2-3 folks catching the vision to create millions!!”
Scott Harris was, among other roles, President of SBH. Thomas Sacca was Chief Sales Officer and Chief Visionary Officer.
After joining due to deceptive marketing claims, SBH affiliates contunued to be subject to unsubstantiated financial freedom hype
Consumers pay a $49 annual membership fee to become an SBH “affiliate.”
Defendants then bombard affiliates with claims that they can attain financial freedom by working hard and following instructions.
For example, Noland gave affiliates a “reasonable expectation” of replacing their job income in six months by being “result-oriented and focused,” adding if they “just applied [his system], without fail, you should be able to be financially free in 18 months.”
Defendants highlight that SBH will make affiliates millions, calling the program a “literal golden goose.” They ubiquitously call Jay Noland the “Millionaire Maker.”
Noland, in turn, promises to create “1,000 millionaires” through SBH.
He titles many of his videos, “Millionaire Mentorship.” During one such session, he told his online audience to each type, “I’m going to be a millionaire in SBH.”
Close to 100 did, including Thomas Sacca, who wrote, “Millionaire thru SBH!! Guaranteed!”
Similarly, Noland frequently dangles his own purported wealth as a carrot.
He boasts that he “made more [money] than most people will make in 10 lifetimes, or maybe even 20.” He regularly claims to own homes and warehouses.
Noland claims to have turned down multiple $100,000 speaking gigs because they were inferior to his “residual income.”
He also touts giveaways to family, friends, and others totaling “a couple million per year.”
These claims are all false. Noland now admits he has a negative net worth and does not remember the last time it was positive.
Far from unfathomable riches, he swore under oath to the IRS that he had “major losses” in each of his pre-SBH companies.
Rather than sitting on a perpetual income stream, he urged the IRS to remove huge tax liens so that competitors could not use them to “discredit” him.
Rather than being financially free at the age of 36 (in 2004), Noland was “living on credit cards” in 2005 and 2006.
In 2007, the IRS said he owed $187,000; he still owes about $180,000.
Rather than owning properties, he owns none at all.
Scott Harris also gets a serving for knowingly lying about Noland’s fictional success and wealth.
Harris, who passed the big lie along, purposefully avoided questions that would have easily shown the emperor had no clothes.
When someone queried Harris on verification of Noland’s claims, he allegedly responded, “It’s not my business to ask things like that.”
SBH and its executives openly pushed recruitment over retail
The focus on recruiting starts right when an affiliate joins. At one event, Noland predicted dire consequences for any new affiliate who did not recruit someone within 48 hours:
“Soon as I bring you in, you better put somebody in in 48 hours, or I am almost never going to talk to you again.
Guess what will happen if you go slow? More than likely you’re gonna die. More than likely, you’re gonna quit.”
Along the same lines, Noland explained the “most important thing” is to recruit inviters—people who will continue the recruitment chain.
Defendants’ “Bootcamp” slide deck bluntly tells affiliates: “You Have To Get Great At RECRUITING.”
Defendants’ internal talks show their focus on recruiting is deliberate.
In one frank text series of messages from Noland to Harris and Sacca, Noland made clear that “RECRUITING” is the “MAIN FOCUS”.
Need you guys to get people RECRUITING. That has to be the MAIN FOCUS. No Recruiting = No Residual Income. As Sr. Field Advisors, your #1 Job is to move the field to build.
Scott, you and Tommy buckle up hard today with each other and get people moving. RECRUIT and REPORT.
You two need to personally start RECRUITING your asses off as well. Lead.
SBH’s employees and affiliates all march to this recruiting drumbeat.
SBH’s then-director of sales, Robert Mehler, explained that while retail sales could help affiliates “make some extra, part-time money,” “recruiting is key” and affiliates should build a “10x10x10x10x10.”
To the extent that Defendants promote sales to non-affiliate ultimate users, they do so as a recruiting or “confidence-building” strategy, and consistently urge converting those customers into affiliates.
Success by Health’s policies promoted inventory loading
Inventory loading in MLM is commonly characterized by affiliates on autoship accumulating garage loads of unsold product.
Prior to a Florida event, Scott Harris told affiliates they should max out credit cards and take out loans because attending “is what it takes . . . to make it to the top.”
Thomas Sacca boast(ed) consumers “are using multiple credit cards to get to Icon (rank) because they . . . see the value”
As alleged by the FTC with supporting evidence, this was essentially Success By Health’s business model.
Not only do Defendants encourage excessive buying (untethered to ultimate-user demand), but they also lack any policies to ensure that affiliates’ inventory ends up in the hands of ultimate users rather than accumulating in affiliates’ garages.
For example, Defendants’ no-refund policy (see infra p. 16) leaves consumers who are unable to sell their personal inventory with no option but to take losses.
Defendants also have no policy that affiliates must resell or use products they purchase or that they maintain a minimal number of retail customers.
With respect to retail compliance, Jay Noland is on the record admitting that “SBH has no compliance policies”.
VOZ Travel, like SBH, was a pyramid scheme from inception
Defendants’ business struggled in 2019. In late August, their accountant, Crystal Roney, sent Jay Noland “internal reporting” showing SBM’s net operating income for the year was negative.
SBH product sales had plummeted nearly 33%.
Roney warned Noland he needed an “income run.” Noland turned to what he knows best.
Noland is reported to have stated;
I build pyramids, man. . . . That’s what I do. I build some little pyramids. Except I’m at the top of the ones I built.
VOZ, a discount travel themed opportunity, was announced in October 2019.
The program required enrollees (“Elite Travel Affiliates” or “ETAs”) to buy $1,000-2,795 “packs” to access a (never-completed) travel platform and earn rewards by recruiting others to buy packs.
Even as their efforts to launch the scheme collapsed, they pushed affiliates to keep recruiting others to pay money to SBH.
Ultimately, Defendants took in $1 million from ETAs, but never provided any product or service, and had no ability to do so.
SBH caused widespread financial destruction among its affiliates
Complaints from top earners aside, the majority of Success by Health affiliates lost money.
SBH’s own data shows that over 94% of affiliates did not earn enough rewards from SBH to recoup the money they paid to SBH.
Excluding the Defendants, SBH has 6,957 affiliates who earned $2,174,301 in commissions ($312 per affiliate), and $261,640 in product credits ($38 per affiliate).
Affiliates purchased $8.4 million in SBH products and trainings to earn those payouts.
Less than 6% of affiliates (420), received more money from SBH than they paid to it, and that “lucky” few received, on average, a net $227 per month.
Only 11 affiliates netted more than $10,000, and based on their tenure with SBH, is an average of $1,581 per year for each of them—a far cry from the $1,173,500 per month Defendants promised.
The 273 affiliates who pursued SBH for over 18 months—the time to reach “financial freedom”—had a net loss of $2.0 million; only 11 had a positive net.
Data from affiliates’ actual experience shows nearly all lost money.
Sworn testimony from 12 affiliates, 11 of them “Founders” show they each lost money.
Collectively, the 12 pursued SBH for 125 months, paid SBH $38,177 for “training” and $103,924 for memberships/products, incurred $53,511 in SBH-related expenses, earned $45,491 in SBH rewards, earned $20,177 from reselling SBH products, and personally consumed $13,334 in SBH products.
Together, they lost $123,195.
Even affiliates who oppose the Court’s injunction did abysmally.
The 106 unique affiliates for whom Defendants submitted statements to the Court earned incurred a collective loss of -$908,103.
I know I shouldn’t be laughing at people’s financial ruin but just on the affililiates who wrote in to support a pyramid scheme they collectively lost a million on, how?
The top 5 most successful of Defendants’ hand-picked supporters netted just $2,556 each on an average, annualized basis.
How on Earth do you get to that level of delusion?
The results are not much better for Defendants’ supporters by adding information about their retail sales and expenses.
The FTC subpoenaed 19 affiliates, 5 did not respond (each one of Defendants’ 106 supporters).
Taking the 9 who gave meaningful data, along with Defendants’ purported expert/affiliate who testified under oath, the 10: paid SBH $52,827 for “training” and $232,337 for memberships and products, incurred $73,285 in SBH-related expenses, earned $242,631 in rewards from SBH, earned $248,804 from reselling SBH products, and personally consumed $85,941 of product.
Over their collective 212 months in SBH, they netted on average, $93.50 per month (or, $36 per month by excluding the top affiliate).
And here’s the end-result of all of this:
Affiliates’ testimony reinforces what the data shows: Defendants prey on consumers and push them to turn over what savings they may have and go deeper into debt.
The results are devastating.
One affiliate quit her job of 27 years to follow Noland after being cleared to become a SBH “Founder,” only to lose $10,000, have to quit, and struggle to make half of what she did before at a new job.
Other examples submitted as evidence by the FTC detail “life savings gone”, “$47,180 lost, family ties severed” and “sold home to go “all-in with SBH, ended up bankrupt”.
By contrast, the Individual Defendants did great. They paid $5,690 to SBM (net of product credits), yet received $1.7 million from it, far more than anyone else.
Defendant Thomas Harris is on the record acknowledging, “a pyramid scheme would be (where) only the people at the top can make money”.
Stopping recruitment commissions killed off what was left of Success by Health’s business
As part of the granted injunction, recruitment commissions were stopped but affiliates were still able to purchase SBH products.
Finally, post-TRO, with recruiting incentives gone, only 45 of the 106 proDefendant affiliates made a SBH purchase, demonstrating the lack of actual personal use, or retail demand, for SBH products.
The 45’s collective spending on products also dropped from $772 per day pre-TRO to $236 per day post-TRO.
The push for summary judgment
In their motion for summary judgment, the FTC put forth:
The undisputed facts prove that
(1) SBH and VOZ were pyramid schemes,
(2) Defendants promoted those schemes using false claims that affiliates could reasonably expect to earn substantial income (including financial freedom) by following Defendants’ instructions,
(3) Defendants provided affiliates the means and instrumentalities to violate the FTC Act,
(4) Defendants violated the Merchandise Rule by failing to timely ship products or provide refunds, and
(5) Defendants violated the Cooling-Off Rule by failing to offer a three-day right of rescission on sales taking place at events.
Additionally, the undisputed facts establish that the Corporate Defendants are all liable for these violations because they are a common enterprise, and the Individual Defendants are all liable because they directly participated in, had authority to control, and had knowledge of the Corporate Defendants’ unlawful acts.
Citing multiple violations of the FTC Act, the FTC is seeking ‘summary judgment as to liability against all Defendants on all counts.’
The FTC’s motion was filed on March 12th. It is supported by one hundred and forty-nine exhibits of supporting evidence.
The SBH defendants have an opportunity to respond to the motion, after which the FTC can file a reply.
This will likely take a few months, after which the court will issue an order on the motion.
If summary judgment is granted, the case will have been all but decided in the FTC’s favor.
Update 12th September 2021 – The FTC was granted liability summary judgment on September 9th.