(WTVF) — Texas-based dietary supplement company AdvoCare was ordered to pay $150 million to resolve charges that the company operated an illegal pyramid scheme, which deceived customers who believed they could earn a significant income as "distributors" of its products.
According to the Federal Trade Commission, AdvoCare pushed distributors to focus on recruiting more distributors rather than retail sales to customers. These distributors were also incentived to purchase large quantities of AdvoCare products in order to participate in the business.
“Legitimate businesses make money selling products and services, not by recruiting. The drive to recruit, especially when coupled with deceptive and inflated income claims, is the hallmark of an illegal pyramid.” said Andrew Smith, Director of the Bureau of Consumer Protection. “The FTC is committed to shutting down illegal pyramid schemes like this and getting money back for consumers whenever possible.”
As a result of the settlement, the company, its former CEO Brian Connolly and top promoters Danny and Diane McDaniel are permanently banned from multi-level marketing.
The McDaniels settled charges that they promoted the illegal pyramid scheme and misled consumers about their potential income. The FTC said consumers were led to believe they could earn unlimited income, attain financial freedom and quit their regular job, but in reality, most earned no money or lost money.
In 2016, 72.3 percent of distributors did not earn any compensation from AdvoCare, 18 percent earned between one cent and $250 while 6 percent earned between $250 and $1,000. According to the FTC, the annual earnings are nearly identical for the years 2012 through 2015.
