AdvoCare International LP, a direct sales company based in Plano, Texas, faced a $1.9 million jury award in Dallas County in 2009 for deceptive trade practices, years before the Federal Trade Commission would impose a $150 million judgment against the company in 2019. Founded in 1993 by Charles Ragus, the firm initially marketed its health and wellness products through a multi-level compensation plan.
Charles Ragus, who had prior experience as a regional Vice President at Fidelity Union Insurance and as a distributor for Herbalife, established AdvoCare. The company built its business on selling nutritional supplements, weight management products, and skincare items. After Ragus's passing, Richard Wright served as CEO from 2007 until his retirement in September 2015. Brian Connolly, who spent decades at Avon Products Inc. and rose to Executive Vice President of Global Sales, took over as Chief Executive Officer in October 2015.
AdvoCare's operational history includes several significant legal challenges. In July 2008, Olympic swimmer Jessica Hardy tested positive for clenbuterol, a prohibited performance-enhancing substance. Hardy attributed the positive test to a contaminated supplement, specifically AdvoCare's Arginine Extreme, which she received free in exchange for testimonials. She initiated a lawsuit against AdvoCare.
AdvoCare responded by filing its own lawsuit, alleging false claims against Hardy. An arbitration panel later reduced Hardy's suspension, accepting expert testimony that supported the possibility of contamination. AdvoCare publicly challenged this finding, stating that two independent laboratories had found no trace of clenbuterol in their products. Hardy then filed a countersuit. Court documents from early 2012 indicate the parties reached a confidential settlement.
Another legal confrontation involved Bruce and Teresa Badgett. In 2009, a Dallas County jury awarded the Badgetts $1.9 million after determining AdvoCare had engaged in deceptive trade practices. The Badgetts had been successful AdvoCare distributors for over twelve years before the company terminated their distributorship in 2006, citing what the Badgetts characterized as vague and unsubstantiated reasons.
The jury's verdict found the termination clauses in AdvoCare's distributor agreement unconscionable and the company's business practices misleading. AdvoCare appealed the judgment on April 30, 2010. The company argued that its distributors were not "customers" under the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA), and therefore the Badgetts lacked standing to sue under that statute. The appeal was dismissed on March 13, 2012, requiring AdvoCare to reimburse the Badgetts for court costs.
The company's product line spans five primary categories: Trim, Active, Well, Performance Elite, and Skincare. The Trim category focuses on weight management, offering products like Crave Check SR at $25.95 for 60 caplets and Meal Replacement Shakes for $44.95 for 14 pouches. The Active line provides energy and hydration products, including AdvoCare Spark, priced at $22.95 for 14 pouches or $51.95 for 42 servings.
The Well category, the largest with twenty-four distinct products, includes nutritional support, stress management, cognitive function, and digestive health items in various forms such as chews, tablets, capsules, and powdered drinks. Performance Elite products target serious athletes, featuring BioCharge for muscle recovery at $42.95 for 30 sticks and Post-Workout Recovery for $79.95 for 25 servings. The Skincare category completes the offerings with water-based products, such as SYS Serum at $59.95 for 30ml and SYS Body firming lotion at $59.95 for 255ml.
AdvoCare's compensation plan in 2015 placed a strong emphasis on retail sales. Commissions for distributors operated through a unilevel structure, with payouts scheduled on the first and third Tuesday of each month. To qualify for any multi-level marketing commissions, distributors had to submit a Retail Sales Compliance form for each pay period. This form required certification of at least five retail sales to five different customers, not including personal purchases. The form mandated inclusion of each customer's home phone number and address and had to reach AdvoCare within seven days of the pay period's close. Missing this deadline resulted in forfeiture of all earned compensation.
AdvoCare reserved the right to contact listed customers to verify sales. Providing false or inaccurate information could lead to suspension or termination of a distributorship. Retail commissions equaled the difference between the retail price and the distributor's wholesale price. Distributors started with a 20% discount, which could increase to 40% based on sales volume. Achieving $500 to $1499 in personal volume (PV) and group volume (GV) earned a 25% discount. $1500 to $2999 reached 30%, and $3000 or more qualified for the maximum 40% discount. PV represented personal orders plus retail customer sales, while GV included sales from the distributor's downline.
Residual commissions required distributors to achieve "Advisor status." This status mandated generating $3000 in combined PV and GV, with at least $500 in PV, over one to three consecutive pay periods. The unilevel plan paid commissions on three levels, ranging from 5% to 7%, depending on the distributor's combined PV and GV. Leadership Bonuses extended these residual commissions beyond three levels using a generation model, where each leg of the downline tracked independently. Percentages for these bonuses varied from 3% at the Silver rank up to 19% at the Diamond rank, with qualification criteria tied to residual commission earnings and the number of productive downline legs. Further ranks, including Platinum, Double Diamond, and Triple Diamond, added incremental bonus percentages on all Advisor-qualified affiliates.
The company also enforced a "70% rule." Distributors were required to sell or personally consume 70% of all products they purchased. If AdvoCare determined a distributor failed to meet this requirement, the company could claw back overrides and Leadership Bonuses from future payments, deny payment, or impose disciplinary actions, including termination of the distributorship. This requirement aimed to ensure products moved to end-users, rather than accumulating with distributors.
The emphasis on retail sales and the 70% rule were central to AdvoCare's stated business model, which faced increasing scrutiny from regulatory bodies. In October 2019, this scrutiny culminated in a landmark enforcement action by the Federal Trade Commission (FTC). The FTC alleged AdvoCare operated an illegal pyramid scheme, primarily compensating distributors for recruiting others rather than for legitimate retail sales to end-users. The agency claimed that most distributors lost money and that the company’s compensation structure primarily benefited a small number of top-level distributors.
The FTC's complaint detailed how AdvoCare allegedly urged distributors to buy large quantities of products for personal consumption and to qualify for bonuses, rather than focusing on actual retail sales. The commission pointed to the company's income disclosure statements, which showed that 72% of its distributors earned no money or lost money, while less than 1% earned significant income.
Under the terms of the settlement, AdvoCare agreed to pay $150 million to the FTC, which was designated for consumer redress. Additionally, the company was permanently banned from multi-level marketing. The settlement mandated AdvoCare to transition to a single-level direct sales model, where distributors can only earn money from direct sales to retail customers. The company's former CEO, Robert C. Clarke, and other top distributors were also individually banned from multi-level marketing and required to pay millions in consumer redress. This enforcement action marked a significant shift for AdvoCare, fundamentally altering its business model and compensation structure. The FTC asserted that AdvoCare's compensation plan illegally incentivized recruitment over product sales, making it a pyramid scheme under federal law.
The 2019 FTC order against AdvoCare prohibited the company and its former executives from operating any multi-level marketing business, requiring a full transition to a single-level direct sales model. Consumers who believe they were harmed by AdvoCare's prior practices can find information on the FTC's redress program website, ftc.gov/advocare-redress.