AdvoCare CEO Patrick Wright recently issued an internal email to distributors, directly contradicting the terms of the company's $150 million settlement with the Federal Trade Commission. The FTC had banned AdvoCare from multi-level marketing after alleging it operated an unlawful pyramid scheme.
Wright's message to the company's sales force claimed AdvoCare "strongly disagree(s) with the FTC's conclusions." He stated the FTC approached the company nearly three years prior, specifically questioning its compensation model. Wright concluded the agency was "never going to allow AdvoCare to operate as we had before."
The settlement order, which both AdvoCare and Wright consented to, includes a clause requiring the company to "waive all rights to appeal or otherwise challenge or contest the validity of (the court's) order." This agreement means the company cannot legally dispute the FTC's findings in court.
Despite this, Wright's email asserted the FTC "incorrectly stated in a press conference this morning that AdvoCare had admitted to operating as a pyramid. This is categorically false." He wrote that AdvoCare "forcefully rebutted this charge in its discussions with the FTC" and continues to deny operating as a pyramid scheme.
The settlement document, however, states that while AdvoCare neither admits nor denies the FTC's allegations, "the facts alleged in the complaint will be taken as true." Among these facts, the FTC complaint explicitly includes the allegation that "AdvoCare operates as an unlawful pyramid scheme." This legal distinction allows the FTC to base its enforcement action on specific findings without a formal admission of guilt from the defendant.
The $150 million payment AdvoCare agreed to is a significant sum. Such penalties often reflect the FTC's assessment of monetary losses suffered by consumers and the extent of the alleged deceptive practices. This settlement also imposes a permanent ban on AdvoCare's prior multi-level marketing structure. The company must now operate under a single-tier direct sales model, focusing solely on retail product sales to end-users rather than compensation based on recruiter downlines.
The Federal Trade Commission defines a pyramid scheme as a business model that rewards participants primarily for recruiting new distributors rather than for selling legitimate products or services to consumers. Most participants in such schemes lose money, as the structure benefits those at the top at the expense of those who join later.
Wright's internal communication, directly challenging the FTC's public statements and the binding terms of a federal court order, creates a conflicting narrative for AdvoCare's remaining distributors. This message risks sowing confusion about the company's legal standing and future operational model.
Contradicting the terms of a consent order can carry serious legal ramifications. Federal agencies, including the FTC, possess authority to pursue contempt of court charges or additional penalties against individuals or companies found to be in violation of a settlement agreement. Such actions aim to ensure compliance and prevent further consumer harm.
The FTC's enforcement history shows a consistent effort to combat alleged pyramid schemes across various industries. Regulators prioritize clear communication regarding settlement terms to ensure both companies and their participants understand the required changes and their legal obligations.
Consumers seeking information about multi-level marketing or reporting potential pyramid schemes can visit the Federal Trade Commission's official website at FTC.gov.