Is AdvoCare International operating a pyramid scheme? The Federal Trade Commission (FTC) said so in its lawsuit against the company, its former CEO Connolly, top promoters Danny and Diane McDaniel and distributors Carlton and Lisa Hardman.
AdvoCare is selling weight-management and sports performance products using a multi-level marketing strategy. The company is based in Plano, Texas.
Details of the settlement agreement between AdvoCare and FTC
On Wednesday, the FTC announced the AdvoCare together with the other defendants agreed to settle its allegations against them and agreed to pay a monetary judgment of $150 million. The defendants did not admit or deny any of the consumer watchdog’s accusations.
Additionally, they waived any claim that they may have under the Equal Access to Justice Act, and all their rights to appeal or challenge the validity of the settlement agreement, which was approved by the court.
Furthermore, AdvoCare and its fellow defendants agreed that they will no longer engage, participate or assist in advertising or operating a multi-level marketing program. They will also stop misrepresenting the possible sales, income or profits of participants in a business venture.
FTC’s allegations against AdvoCare
In its complaint, the FTC alleged that AdvoCare operated an illegal pyramid scheme that deceived consumers into believing they could make significant profits as distributors of its products.
According to the FTC, the company enticed consumers to become distributors by telling them that they can “earn unlimited income, attain financial freedom, and quit their regular job” by recruiting.
But in reality, most of its distributors did not make any profit or lost money. New recruits were charged $59 to become AdvoCare distributors. The company did not provide distributors a doable path to financial freedom.
In a statement, Andrew Smith, Director of the Bureau of Consumer Protection at the FTC, commented, “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. The FTC is committed to shutting down illegal pyramid schemes like this and getting money back for consumers whenever possible.”