AdvoCare announced on May 17, 2019, it would abandon its multi-level marketing structure, a decision the company attributed to "confidential talks with the Federal Trade Commission." This public statement from AdvoCare sparked questions about the FTC's involvement and the prior knowledge of industry bodies.
The Direct Selling Association's (DSA) ethics and compliance attorney, Joseph Aquilina, submitted a Freedom of Information Act (FOIA) request to the FTC concerning AdvoCare. This request, one of twenty-four filed by Aquilina between October 1, 2018, and April 30, 2019, specifically sought information on "investigations/complaints" related to the direct selling company.
The FTC marked the AdvoCare FOIA request as "closed (responded)" on March 21, 2019. This date places the DSA's potential awareness of an FTC investigation into AdvoCare roughly two months before AdvoCare's public announcement. The FTC typically aims to respond to FOIA requests within one month, suggesting the underlying investigation was active for some time prior to March.
Federal regulators, including the FTC, often scrutinize multi-level marketing companies for their adherence to legitimate retail sales models, distinguishing them from illegal pyramid schemes. A core concern involves whether compensation is primarily derived from product sales to end-users outside the distributor network, or instead from recruitment and internal product purchases by distributors. The FTC has a long history of pursuing enforcement actions against companies where the primary revenue stream comes from new distributor enrollment rather than genuine product sales. AdvoCare's decision to shed its MLM model, citing FTC discussions, strongly implies regulatory concerns about its operational structure and retail legitimacy, potentially indicating a failure to meet these key benchmarks.
As a long-standing member of the DSA, AdvoCare's shift raises questions about the association's oversight. The DSA's Code of Ethics outlines principles for member companies, including prohibitions against deceptive practices and requirements for legitimate sales. Historically, the DSA has faced criticism for its perceived inability to effectively police its members, often responding to regulatory pressure with new self-regulatory initiatives. AdvoCare's membership entails paying fees to the DSA, creating a financial relationship that some critics argue can complicate rigorous self-regulation and independent enforcement.
The Direct Selling Self-Regulatory Council (DSSRC), launched by the DSA on January 4, 2019, was presented as a significant step to enhance industry oversight. Described as a "third-party, self-regulatory entity," the DSSRC's mandate includes "monitoring the entire U.S. direct selling industry" and conducting "independent investigations." Its stated purpose also includes reporting "unresolved violations of non-compliant companies to the Federal Trade Commission" itself.
Despite its ambitious goals, the DSSRC remained publicly dormant following the publication of its policies and procedures on January 14, 2019. It offered no public statement or action regarding AdvoCare's business model or its subsequent restructuring, even though AdvoCare's situation seemingly falls directly within the DSSRC's stated purview of monitoring and investigating potential non-compliance. This public silence from a body specifically created to increase industry oversight, especially concerning a high-profile member company like AdvoCare, contradicts its stated mission.
The timing of the DSA's FOIA request, AdvoCare's subsequent announcement, and the DSSRC's silence collectively point to a lack of transparency. If AdvoCare's business model was indeed problematic enough to warrant FTC intervention and a complete operational overhaul, why did the DSA's self-regulatory mechanisms, including its newly formed DSSRC, apparently fail to identify or address these issues beforehand? The FTC has yet to issue any public statement acknowledging its alleged "confidential talks" with AdvoCare, leaving the full extent of regulatory scrutiny and the DSA's prior knowledge largely undisclosed.