AdvoCare Sued For Being A Pyramid Scheme
It looks like AdvoCare is doing a bit more than just building champions. I reported on the AdvoCare scam back in March of 2016. They have recently been sued for being a pyramid scheme.
AdvoCare International is a nutrition, weight-loss and skin-care company founded by Charles Ragus. Ragus, joined Herbalife in 1983, became one of the company’s top distributors. In 1989, he founded a company called Omnitrition. Webster v Omnitrition became a landmark case in the legalities of running a MLM. In 1992 distributors of Omnitrition, who had lost money, brought suit against the company and its principals, alleging the exist-ence of an illegal pyramid scheme. The case was settled for an undisclosed amount. Ragus in 1993 created AdvoCare International. The company slogan is, “We Build Champions.”
AdvoCare is now in court just like Omnitrition was in the past for being a pyramid scheme.
Here are the details of why AdvoCare is being sued:
AdvoCare is one of the largest multi-level marketing companies (“MLMs”) in the world, reportedly generating $719 million in net revenues in 2015. It also operates a pyramid scheme. AdvoCare’s many millions in revenues are primarily derived from bilking hundreds of thousands of individuals, known as “Distributors,” who participate in AdvoCare’s business opportunity.
In a classic pyramid scheme, participants pay money into the scheme for the right to receive compensation from the scheme based, in large part, on bringing new participants into the scheme. Each participant’s money is used to pay others in the scheme, as well as the scheme promoter. The more recruits a participant has under him, and the closer to the top of the pyramid he is, the more money he might make. Participants will lose their money unless they recruit enough new participants, who will also lose their money unless they recruit enough new participants, and so on. Because there is little or no money flowing into the scheme from non-participants, and since payments are shared with the promoter and disproportionately with the persons closer to the top of the pyramid, the vast majority of participants are doomed to lose most or all of their money.
Some MLMs (like AdvoCare) are pyramid schemes with a twist—rather than simply selling participants a right to share in the money paid in by other participants, the MLM sells participants a product and the right to share in the money paid in by other participants. The sale of the product is just a mask to obfuscate the true nature of the scheme.
For example, if the promoter of the classic pyramid scheme “sold” participants $100 toothpicks and the right to compensation from bringing in new participants to purchase $100 toothpicks (who would also bring in more toothpick-buying participants), the scheme is no less a pyramid scheme because the participants purchased toothpicks. The sale of toothpicks merely provides a mask of legitimacy to the pyramid scheme, allowing the promoter to claim he is a multilevel marketer of toothpicks instead of a pyramid scheme promoter. Here, rather than selling overpriced toothpicks to disguise its scheme, AdvoCare sells overpriced nutritional supplements.
Participants in the pyramid scheme operated by AdvoCare are its Distributors. AdvoCare requires Distributors to purchase start-up packages and pay annual dues, and the AdvoCare system makes it a virtual necessity that the Distributors regularly purchase AdvoCare products. In return, the Distributors get the right to receive compensation based in primary part on their recruitment of new Distributors (who pay fees, pay dues, and purchase product). Just like a classic pyramid scheme, the more recruits a Distributor brings into the AdvoCare program (and the more money those recruits pay AdvoCare), the more money that Distributor can make.
Unlike participants in a classic pyramid scheme, the AdvoCare Distributors receive products—nutritional supplements—in return for the money they pay into the scheme, which the Distributors can theoretically consume or sell. But that fact makes AdvoCare no less a pyramid scheme. The Distributors can sell little product at retail, at least for any amount above the wholesale price they pay AdvoCare (just as the $100 toothpicks are unlikely to be sold for a profit). The Distributors may use some of the product they buy, or they sell it for deep discounts, or they give it away for free as part of their recruiting efforts. But selling the product to non-Distributors for a profit is not a real income-generating possibility.
The Distributors cannot sell the AdvoCare product for a profit for many reasons. Products just as good, if not better, are widely available for cheaper on Amazon, eBay, and at GNC. The protein powder, amino acids, supposedly nutritional shakes, and other products AdvoCare sells have the same principal ingredients as cheaper alternatives widely available. In addition, AdvoCare prohibits Distributors from selling goods on e-commerce platforms and in almost all brick-and-mortar businesses, so there is no realistic way for Distributors to sell the overpriced products. Moreover, because the Distributors get stuck with AdvoCare product they cannot sell for a profit, some Distributors ignore AdvoCare’s prohibition on e-commerce sales and sell the products on the internet for the wholesale price or less, further frustrating other Distributors’ efforts at selling for a profit.
Other than the theoretical possibility of selling AdvoCare products for a profit to retail customers, all of AdvoCare’s business incentives depend on recruiting—just like a classic pyramid scheme pays based on recruiting. The primary financial incentives in AdvoCare’s compensation plan are bonuses based on purchases made by junior Distributors. And without recruiting, there are no junior Distributors. Thus, AdvoCare’s compensation system strongly encourages recruiting, and it provides very little reward for retail sales.
Moreover, AdvoCare’s system strongly encourages Distributors to buy more and more product, regardless of whether they need it for retail sales or would otherwise buy it for personal use. Distributors must achieve certain levels of purchases by themselves or in conjunction with junior Distributors to maintain their eligibility for each type of bonus from AdvoCare. This pressure to maintain their statuses incentivizes the Distributors to purchase product they do not need. Indeed, AdvoCare specifically designed its system to incentivize Distributors to purchase product they do not need.
AdvoCare claims to have over 600,000 Distributors, but the vast majority of AdvoCare’s Distributors lose money. According to AdvoCare’s 2015 Income Disclosure Statement, AdvoCare paid 71.5% of its Distributors $0 in 2015. It paid 93% of its Distributors $500 or less. These are gross income numbers that do not account for the money the Distributors paid AdvoCare in fees and product purchases. On information and belief, at least 95% of AdvoCare’s Distributors pay AdvoCare more money than AdvoCare pays them.
The only people who make money from the AdvoCare pyramid scheme are the very few at the top of the pyramid. These few—including Defendants McDaniel, Donnelly, Thurber, Bewley, Funk, and DeBerry (collectively, the “Individual Defendants”)—have gotten rich from defrauding the 90+% of Distributors who lose money. The Individual Defendants promote the pyramid scheme. Moreover, they, like AdvoCare, misrepresent the financial rewards available to Distributors and falsely argue that AdvoCare is a legitimate, legal enterprise. Plaintiffs seek to hold them liable as some of the principal promoters and profiteers from the illegal scheme.
Perhaps most damning is the fact that AdvoCare and the Individual Defendants do not prey on those who seek a get-rich-quick or idle investment scheme. Rather, they market the scheme to good people willing to work hard to make better lives for themselves and their families. They prey on people in tight financial circumstances looking for some extra income. They tell their victims that, with enough hard work, they can help themselves financially by growing their AdvoCare business. They tell unsuccessful Distributors (and the overwhelming majority are unsuccessful) that their lack of success is due to their not working hard enough at growing their AdvoCare business (i.e., recruiting more Distributors). AdvoCare thus uses its victims’ good natures to encourage them to join and stay in the scheme.
AdvoCare and the Individual Defendants have formed a fraudulent, criminal enterprise with the purpose and effect of defrauding hundreds of thousands of Distributors. On their own behalves and on behalf of a class of similarly injured Distributors, Plaintiffs seek to hold Defendants financially liable for the operation and promotion of a pyramid scheme.
– Source Ranieri et al vs Advocare International LP et al
If you have lost money selling AdvoCare products or have interest in acting as a lead plaintiff, please go to the class action website: www.advocare-lawsuit.com.
AdvoCare Scam Conclusion
In my opinion, AdvoCare is another recruiting scam. They charge you an upfront free and then try to get you to make a large $2100 product purchase. You have to recruit people to receive the top bonuses they offer. Less than 70% of distributors receive a commission check from AdvoCare. 96% of those that do get a check make less than $5000 per year. This does not include expenses. People from all walks of life are making little or no money with AdvoCare, enjoying time taking supplements that are not necessary for the vast majority of people, and making a difference by getting others to make the same choices. I would avoid the AdvoCare business opportunity.
Additional opinions of AdvoCare:
Is AdvoCare a Scam? – Lazy Man And Money