AdvoCare will pay $150 million penalty for operating pyramid scheme
PLANO, Texas - The Federal Trade Commission is punishing Plano-based AdvoCare for operating a pyramid scheme.
Investigators say it deceived people into believing they could earn a significant income.
The company and its former CEO will have to pay $150 million for misleading people about how much money they could earn selling AdvoCare products. Two top promoters are also on the hook.
This investigation started in November 2016.
The FTC said it’s not challenging the products themselves, or the people endorsing them.
Investigators were solely focused on AdvoCare’s "multi-level marketing model."
An attorney with the FTC said several hundred thousand people in Texas alone fell prey to the operation.
AdvoCare is a North Texas-based company whose "health and wellness" products are endorsed by big name athletes, like Dallas Cowboys tight-end Jason Witten.
And while the success of the products isn't being called into question, AdvoCare International, headquarted in Plano, is in big trouble with the FTC for allegedly operating an illegal pyramid scheme.
“Defendants promoted AdvoCare as a life-changing opportunity claiming that consumers could earn millions and millions of dollars working part-time from home," FTC Bureau of Consumer Protection Director Andrew Smith said.
Those defendants include AdvoCare’s former CEO and two top promoters, Danny and Diane McDaniel, who were seen in a promotional video claiming that AdvoCare changed their life, earning them some $33 million since joining in 1997.
According to the FTC, people paid AdvoCare thousands of dollars to buy inventory and become “distributors,” but the FTC found that AdvoCare rewarded distributors not for selling product, but for recruiting other distributors to spend large sums of money pursuing the business opportunity.
That push to recruit is a classic sign of a pyramid scheme.
“And then once you were at the advisor level, you had continual purchasing requirements as well,” FTC attorney Aaron Haberman said.
“They were caught up in this drive to recruit, recruit, recruit, buy more product,” Smith added.
The complaint found that a majority of "distributors" lost money.
Those who didn't made between a penny and $250.
In a statement, AdvoCare said:
“We strongly disagree with the FTC allegations, but we are committed to abiding by this agreement and moving forward,“ adding that, “the company revised our business model earlier this year from a multi-level marketing model to a single-level compensation plan.”
Which means AdvoCare can still sell its products to a retail store, for instance, who in turn sells those products directly to the consumer.
The FTC said its working to reimburse affected consumers, but added that the process could take some time.