AdvoCare to Pay $150 Million to Settle FTC Charges
AdvoCare and its former chief executive officer agreed to pay $150 million and be banned from the multi-level marketing business to resolve Federal Trade Commission charges that the company operated an illegal pyramid scheme that deceived consumers into believing they could earn significant income as “distributors” of its health and wellness products.
Two top promoters also settled charges that they promoted the illegal pyramid scheme and misled consumers about their income potential, agreeing to a multi-level marketing ban and a judgment of $4 million that will be suspended when they surrender substantial assets.
Speaking from the FTC’s Southwest Regional Office in Dallas, FTC Bureau of Consumer Protection Director Andrew Smith announced, “an important victory in our continuing efforts to root out pyramid schemes and protect consumers.” He then announced a complaint against AdvoCare, former AdvoCare CEO Brian Connelly and four of the company’s top promoters—Carlton and Lisa Hardman and Danny and Dianne McDaniel. Smith said a settlement of charges against AdvoCare, Connelly and the Hartmans had been made. Litigation against the McDaniels continues.
“We have alleged that AdvoCare is a pyramid scheme because the defendants, through their compensation scheme and false earnings claims, pushed Distributors to recruit new Distributors,” said Smith. “To earn the most lucrative rewards, Distributors had to make large product purchases and recruit others to do the same. These purchasing requirements never stopped. To maintain their status and rewards, Distributors had to keep making large purchases month after month, year after year.”
The FTC alleges that the vast majority of AdvoCare Distributors earned little money or lost money. According to Smith, a clear directive was “recruit business builders who recruit business builders who recruit business builders.”
AdvoCare’s Response
Today, AdvoCare International, L.P. (AdvoCare) finalized an agreement with the Federal Trade Commission (FTC), resolving the agency’s multi-year inquiry into the structure of the company’s direct sales business model. While AdvoCare fully cooperated with the FTC during their investigation, we are not in agreement with the agency’s conclusions.
“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,” says AdvoCare CEO Patrick Wright. “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 has always endeavored to remain compliant with FTC regulations, and we will continue to comply with the law. As part of that commitment, the company revised our business model earlier this year from a multi-level marketing model to a single-level compensation plan. Since making that change, our sales remain strong and we continue to invest in new products and to work with our distributors to provide the best possible customer experience.
AdvoCare provides premier health and wellness products to help consumers live a healthier and more nutritionally balanced lifestyle. We remain steadfastly committed to the ethical business practices on which the company was founded. For more information about our products, please visit our website at advocare.com
Corrections to FTC Statements
AdvoCare also wishes to correct statements made by the FTC in their News Conference in Dallas, Texas on October 2, 2019:
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The FTC incorrectly stated in a press conference that AdvoCare had admitted to operating as a pyramid. This is categorically false. AdvoCare forcefully rebutted this charge in its discussions with the FTC. To this day, AdvoCare denies it operated as a pyramid.
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Additionally, the FTC incorrectly stated that AdvoCare is considering additional sales channels such as GNC, Walmart or others. This is absolutely not true as we are not considering retail channels and remain committed to our distributors and customers.
UPDATE: DSA Response
Joseph Mariano, president of the Direct Selling Association (DSA), the national trade association for companies that market products and services directly to consumers through an independent, entrepreneurial salesforce, responded to the FTC Advocare settlement.
We consider today’s announcement by the Federal Trade Commission (FTC) regarding its settlement of inquiries into AdvoCare International, as well as several members of its salesforce, a serious matter. Business ethics and consumer protection are at the heart of DSA’s mission. We will swiftly engage our process and review the FTC order released today to determine our next steps.
We continue to welcome clarity from the FTC and remain in close contact with regulators to seek guidance from regulators. Andrew Smith, Director of the FTC’s Bureau of Consumer Protection is scheduled to speak at our DSA Legal and Regulatory conference next week. The DSA Code of Ethics also reinforces our commitment, requiring member companies and its independent salespeople to adhere to high standards of conduct including strict rules on earnings claims and ensuring companies buy back inventory from anyone who leaves the business.
This year, DSA accelerated its efforts to ensure high ethical conduct by initiating a partnership with the Better Business Bureau National Programs (BBNP) for comprehensive monitoring. The Direct Selling Self-Regulatory Council (DSSRC) monitors the online presence of companies and salesforce members to identify unreasonable or inappropriate product or incomes claims by all direct selling companies, regardless of DSA membership. The DSSRC operates entirely independent of DSA or any direct selling company and already has established a strong track record of success in having companies identify and correct issues, especially those that may be caused by overzealous salespeople.
The announcement of the settlement agreement serves as an opportunity to gain further insights into the FTC’s interpretation of the law and vision of best practices in our industry. Our mutual goal is to eliminate any instance of non-ethical business practices while protecting the millions of people who responsibly engage in direct selling, either as consumers or as sellers who supplement their income through an entrepreneurial venture.
To read more on the FTC’s action against AdvoCare, click here.
