Plano-based AdvoCare International and its former chief executive officer will pay $150 million to settle charges that the company operated as an illegal pyramid scheme, the Federal Trade Commission announced on Wednesday.
The FTC complaint was filed against the company, former CEO Brian Connolly, distributors Carlton and Lisa Hardman, and the company’s top two promoters Danny and Diane McDaniel in the Eastern District of Texas. The complaint alleges the company and individuals falsely claimed to offer a financial solution for any person to earn unlimited income and quit their regular job.
Connolly and the McDaniels are permanently banned from multi-level marketing, the FTC said.
The settlement order also requires notification of all distributors about the lawsuit and settlement. AdvoCare participants and advisors will no longer be able to earn compensation from purchases of distributors; some participants will receive some money back from the FTC; and if participants quit the business altogether, AdvoCare will give a 100 percent refund on unused products.
Danny and Diane McDaniel settled charges that they promoted the illegal pyramid scheme and misled consumers about their income potential through deceptive earnings claims and providing others with the means to do the same, the FTC alleged. The two promoters also agreed to the ban, in addition to a $4 million judgment.
“Legitimate businesses make money selling products and services, not by recruiting,” said Andrew Smith, director of the Bureau of Consumer Protection. “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.”
AdvoCare advisor income was based on the success of recruiting individuals, instead of actual retail sales, the FTC said. The highest rewards went to those who recruited the most, which in turn, generated the most purchase volume from their recruitments, the FTC stated in the filed complaint. Participants that joined AdvoCare initially were charged $59, and to become advisors, had to spend between $1,200 and $2,400 to purchase the company’s products.
The FTC stated that AdvoCare did not offer consumers a viable path to financial freedom, and that 72.3 percent of distributors did not earn any compensation from AdvoCare. Another 18 percent of distributors earned between one cent and $240, while 6 percent earned between $250 and $1,000. The annual earnings distribution was identical for 2012 through 2015.
AdvoCare named a new CEO, Brett Blake, in 2017, who aimed to increase the company’s distribution footprint. But Blake didn’t stay with the company for long, lasting less than a year as the top executive. Connolly and former COO Reid Ward then served as co-CEOs until Patrick Wright was promoted from senior vice president of International Sales to CEO in May.
“We strongly disagree with the FTC allegations, but we are committed to abiding by this agreement and moving forward,” said Wright in a prepared statement.
For more business news in DFW, please visit www.bizjournals.com/dallas.