Advocare entered into a $150 million settlement with FTC in 2019. The payouts announced last week are the proceeds of that settlement minus the administrative costs.
FTC had accused AdvoCare of misleading consumers by telling them they could earn significant income acting as independent distributors for the company, which sells a variety of dietary supplements. FTC alleged in the complaint that AdvoCare had, “[F]alsely claimed to offer a life-changing financial solution that would allow any ordinary person to earn unlimited income, attain financial freedom, and quit their regular job. In reality, the FTC alleged, the vast majority of AdvoCare distributors either earned no money or lost money.”
Fitting the definition of a pyramid scheme
According to the complaint, the AdvoCare business model incentivized distributors to sign up additional distributors rather than focus on selling products to consumers. Getting that balance right—with the emphasis on selling products to end users—is what distinguishes a legal multi level marketing setup from an illegal pyramid scheme. In a pyramid scheme, also known as a Ponzi scheme after one of its early practitioners, only the very first participants stand to make any profit.
The FTC complaint further alleged that AdvoCare required distributors to purchase large amounts of products on their own account. AdvoCare did not admit any wrongdoing when reaching the settlement with FTC.
“AdvoCare and the other defendants told…
