AdvoCare, a dietary supplement company which sells under the brand names Trim, Fit, Spark, and Performance Elite, among others, operates under the multi-level marketing (MLM) business model. People can buy in and become “distributors,” who then buy lots of products from the company and try to sell them to everyone they know.
The company allegedly offered consumers the opportunity to “earn unlimited income, attain financial freedom, and quit their regular job,” according to the Federal Trade Commission (FTC).
There’s a fine and poorly specified line between a legitimate MLM and a pyramid scheme, which is illegal. Multi-level marketing, where every tier of distributor makes an income from the products they sell themselves, is fine. That’s just a scaled down version of an ordinary distribution chain, and in fact it predates the modern retail system. If only way for members to profit is to keep recruiting more people, though, it’s a pyramid scheme.
In May 2019, the FTC advised AdvoCare that they were very, very close to this line. The FTC has since sued AdvoCare, alleging that recruits were required to pay $59 to become a distributor and a further $1,200-2,400 to become “advisors” and recruit others. The FTC’s complaint included statistics from 2016, when 90 percent of AdvoCare’s more than 100,000 active participants earned less than $250 and most (72 percent) earned nothing at all.
“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 settlement in October 2019, AdvoCare agreed to pay a $150 million fine to the FTC. The company is also banned from any further MLM procedures, such as paying distributors to recruit and compensating recruiters by skimming from the profits of those they have recruited. The FTC is investigating ways to use the fine to repay the AdvoCare distributors with the worst losses.