AdvoCare Fined $150 Million; FTC Calls It A Pyramid Scheme
AdvoCare International, a multi-level marketing company known for endorsements by professional athletes and other celebrities, will pay $150 million to settle government claims it's an illegal pyramid scheme where most of those selling its products earned nothing or lost money.
The Plano, Texas-based provider of diet supplements and energy drinks offered consumers the chance to "earn unlimited income, attain financial freedom, and quit their regular job," according to the Federal Trade Commission. But the agency contends AdvoCare pressured sellers to bring in new distributors to purchase large amounts of the supplement products.
Those new recruits were charged $59 to become AdvoCare distributors, at which point they could potentially earn more if they became "advisers" by spending $1,200 to $2,400 on its products, the FTC said. But an adviser's income depended on how many recruits purchased AdvoCare products.
Legitimate businesses make money by selling products and services, but it's an illegal pyramid when it "depends on recruitments to pay out" and involves overblown income claims, Andrew Smith, the FTC's consumer protection bureau director, said in a news conference.
"The defendants promoted AdvoCare as a life-saving opportunity, yet more than 90% of its distributors in the U.S. earned less than $250 a year," he said.
AdvoCare denies it is a pyramid scheme.
"We strongly disagree with the FTC allegations, but we are committed to abiding by this agreement and moving forward. The strength of AdvoCare is and always has been our highly-valued health and wellness products, which remain in great demand by our hundreds of thousands of loyal customers," AdvoCare CEO Patrick Wright said in a statement. "We will continue to stand behind our distributors, employees and customers and to uphold our values of integrity and transparency, as we have for over 25 years."
AdvoCare is known for its dozens of pro sports endorsers. They include New Orleans Saints quarterback Drew Brees, the company's national spokesperson; Kansas City Chiefs quarterback Patrick Mahomes; and Becky Sauerbrunn, a defender on the U.S. women's national soccer team.
Under a settlement with the FTC, AdvoCare is permanently banned from multi-level marketing. The agency also said the company would return some money to distributors. In addition to AdvoCare, the FTC complaint names former CEO Brian Connolly and four individual distributors.
The FTC order does not put AdvoCare out of business, said Smith, who noted that the company can continue to sell its products to one level of distributors, who then would sell to consumers.
The company in May said it would change its operating model following "confidential talks" with the agency. AdvoCare said it had informed its more than 100,000 distributors that it was shelving the multi-level marketing model and would start paying based on actual sales.
The settlement contains echoes of one reached by the FTC three years ago with Herbalife, which paid $200 million to settle claims it misled buyers and sellers of its nutritional supplements. In that agreement, the FTCof calling the business a pyramid scheme.
Smith urged consumers considering a multi-level marketing pitch to look for signs of an illegal pyramid scheme, including:
- Would your compensation depend on your recruitment of others?
- Are you required to purchase specific amounts of product to stay eligible for compensation?
- Beware of unbelievable earnings or lifestyle claims.