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FTC says companies are pyramid schemes

FTC says companies are pyramid schemes

Better Business Bureau

In legitimate multi-level marketing programs (MLM), like Amway and Mary Kay, distributors make the bulk of their income from direct sales to customers through their own efforts or through their “downline” distributors. Although the FTC says that most people who join even a legitimate MLM make little or no money and some lose money.

Pyramid schemes are a form of MLM in which a distributor’s income is largely based on how many people he or she recruits rather than how much product is sold. Distributors at every level are encouraged or required to buy a certain amount of product and may have to pay additional fees for training and marketing materials.

Pyramid schemes are often promoted with visions of becoming rich, driving fancy cars, living in mansions and taking exotic vacations. Most distributors find that they can’t sell enough product or recruit enough people to make money. Pyramid schemes are illegal and a regular target of FTC enforcement actions.

In the last quarter of 2019, the FTC announced actions against two companies it alleged were pyramid schemes. One of the companies has countersued the FTC denying it’s a pyramid scheme, so I won’t discuss that case here other than to say that two related companies settled the charges.

In the other case, AdvoCare International and its former CEO settled the FTC charges by agreeing to pay $150 million and be banned from the MLM business. Two top promoters also settled charges that they promoted the illegal scheme.

AdvoCare distributed health and wellness products through a network of hundreds of thousands of distributors. They were recruited through conferences, webinars, podcasts, print materials and social media.

The FTC says AdvoCare 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.” One of the individual promoters said, “There is incredible profit that can be made through infinity.” In fact, the FTC said that in 2016, and for the most part in the prior four years:

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