Posted October 5, 2019

Advocare to Pay $150 Million to Settle Charges of Operating a Pyramid Scheme

AdvoCare International, the marketing company that sells Spark energy drink, as well as other nutrition products and supplements, has agreed to settle FTC charges that it operated an illegal pyramid scheme. As part of the settlement, the company will be permanently banned from conducting multi-level marketing and will pay $150 million for consumer refunds.

According the FTC's complaint, Advocare promised consumers that by becoming an Advocare distributor and selling the company's products, they could "earn unlimited income, attain financial freedom, and eliminate the constraint of traditional employment." However, the complaint notes that the majority of Advocare distributors did not earn any compensation from Advocare. In 2016, for example, 72% of distributors did not earn any compensation; just 18% earned between one cent and $250, and 6% earned between $250 and $1,000.

The company charged consumers $59 to become a distributor. Distributors could then recruit other consumers to become distributors and earn wholesale commissions ranging from five to twenty percent of purchases from their recruits. For greater potential earning, distributors had to become "advisors," which required paying a distributorship fee and meeting certain AdvoCare product purchase requirements, measured as personal and group volume. Consumers typically spent between $1,200 and $2,400 purchasing AdvoCare products to reach the "advisor" level. According to the FTC, "When these distributors' hefty costs are added, nearly all of them lost money."

The settlement requires Advocare to notify its distributors about the agreement; the company will provide a 100% refund for unused products to people who want to leave the business. The FTC will also be contacting Advocare distributors who may qualify for compensation.

Use of Advocare's Spark energy drink was associated with the development of an unusual type of kidney stone in three individuals who consumed several servings daily for a year or more (see the Concerns and Cautions section of the Choline Supplements Review for details).

In 2018, Advocare recalled certain Muscle Strength and Nighttime Recovery supplements due to undeclared allergens.

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