The FTC recently sent Plano-based multi-level marketing company AdvoCare under fire for operating as an illegal pyramid scheme. The company was charged with a $150 million fine from the FTC, and is officially banned from participating in any multi-level marketing. Even though AdvoCare has had plenty of celebrity endorsements such as Saints quarterback, Drew Brees, it’s estimated that 72 percent of AdvoCare participants made no money or lost money from AdvoCare.
The $150 million fine will be used to go towards compensating AdvoCare distributors, but most of the damage has already been done. Accumulating debt from these types of business models is not unheard of. New AdvoCare recruiters can only join the company by paying a $59 fee. AdvoCare also offers additional programs to make even more money if a distributor invests $1,200 to $2,400 on AdvoCare products. Most participants who join a multi-level marketing business will also lose a substantial amount of money, or will see a criminally low return on investment.
MLM operations like AdvoCare frequently face lawsuits like these. In 2018, the hair care MLM brand Monat faced 6 class-action lawsuits from both its distributors and customers. These lawsuits included issues involving both their unethical recruitment process and the quality of their products.
Pyramid Scheme VS. MLM
As of right now, the FTC considers pyramid schemes illegal. There are companies out there that use direct sellers and MLM business plans, but they are considered legal. To recognize an illegal pyramid scheme, ask yourself:
- Is this company and distributors making most of its money from recruitments?
- Are the products/services low-quality?
- Are the products/services making outrageous claims with no scientific evidence from an outside source?
- Are they using high-pressure sales tactics to sell to and recruit people?
- Does the company itself have poor communication between its distributors?
- Are there no or poor reviews of the company on the Better Business Bureau?
- Is the company willing to hire you as a distributor without an interview?
If you answered yes to any of these questions, it’s probably a pyramid scheme. Companies with a cryptic recruitment process manage to pass themselves off as a legal MLM by attaching products to their business. However, the majority of the money made is from recruiting other people to become distributors rather than from the products/services offered.
Many business analysts now consider MLM-based businesses to be pyramid schemes. This is because of their distributor’s “cult-like” community building tactics, extensive recruitment fees, and low return on investment.
Before You Join An MLM
The FTC stresses considering a few things before you join an MLM. In addition to looking for the red flags of a pyramid scheme, ask your MLM recruiter the following questions:
- How long have you worked with this company?
- How much money did you make with this company in the last year?
- Am I required to pay for a certain amount of products, services, training supplies, or requirement fees?
- How much inventory did you buy last year, and did you sell all of your inventory?
- What were your business expenses last year?
- Have you borrowed money or used your personal credit card to fund your business?
- How much have you borrowed, and do you owe any money?
- How much money do you make off recruitments compared to selling products?
- Do you have to recruit other distributors to make money?
- How many people have you recruited, and how many have left the business?
- How much time do you spend on the business in a week?
- How much money do you make in a week?
Remember that this is a business, you should not be afraid to ask questions about money. Turn down any offer that does not fully disclose any of these questions. As an investor in a business, you should see a return on your time and money. If the opportunity is presenting itself as a legitimate business, you should also ask yourself if you can fully commit to running a business with a detailed marketing and sales plan. Don’t rush into anything that presents itself as “easy” and “quick” money with outlandish promises.
Class-Action Lawsuits Against MLMs and Pyramid Schemes
If you do find yourself in debt from joining an MLM or a pyramid scheme, it may be time to call a lawyer. Research the company to see if they already have a class-action lawsuit filed against them, then gather your personal evidence:
- Messages between you and your recruiter
- Messages between you and the company itself
- Receipts and transactional records of expenses
- An inventory of products you’ve bought and sold
- All contracts and official documents with the MLM company
A lawyer can help you file for and join a class-action lawsuit, or can help you file for bankruptcy if your MLM has sent you into financial ruin. Don’t let a company’s false-promises drag you down any longer, and talk to one of your Premier Partners about your options. Call 1(844) 980-1574 today.