Plano-based multi-level marketing company AdvoCare International will pay a $150 million fine to settle with a regulatory agency that says it operated an illegal pyramid scheme where most of its sellers earned nothing.
AdvoCare, which promoted itself as a dietary supplement company, allegedly offered consumers the opportunity to "earn unlimited income, attain financial freedom, and quit their regular job," according to the Federal Trade Commission.
In reality, the FTC claims, the company's top promoters pushed lower-level individuals to recruit new distributors who would buy large quantities of the supplement products and then repeat the process, instead of selling those products to customers. AdvoCare is well-known for its celebrity endorsers, such as New Orleans Saints quarterback Drew Brees, and its sports sponsorships of NASCAR, football bowl games and the FC Dallas professional soccer team.
"Legitimate businesses make money selling products and services, not by recruiting," said FTC consumer protection bureau director Andrew Smith in a statement. "The drive to recruit, especially when coupled with deceptive and inflated income claims, is the hallmark of an illegal pyramid."
In a statement Wednesday, AdvoCare denied that it ever admitted to operating as a pyramid scheme in meetings with the FTC.
"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 prepared 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."
The FTC alleges AdvoCare's compensation plan for recruits required a $59 charge to become a distributor. Once a distributor, they could earn even more income if they became "advisors" by spending $1,200 to $2,400 on AdvoCare products, according to the FTC. Advisors' income was then based on how many recruited individuals below them generated purchases of AdvoCare products.
In 2016, roughly 72% of distributors earned zero compensation and 18% earned less than $250 from AdvoCare, according to the FTC's complaint.
AdvoCare announced in May 2019 that it was revising its business model after "confidential talks" with the FTC. The company said it notified its more than 100,000 distributors that it would drop the multi-level marketing model and begin paying compensation based on actual sales.
Since the revision, the company says it has seen strong sales and continues to invest in its products and work with distributors.
The FTC has permanently banned the company from participating in multi-level marketing and required its top promoters to notify distributors that they will no longer earn compensation from purchases of distributors below them.
The commission also said it may return some lost money to AdvoCare distributors who saw significant losses as a result of the scheme.
