WASHINGTON (Reuters) - AdvoCare International, the multilevel marketing health and wellness company endorsed by New Orleans Saints quarterback Drew Brees, will pay $150 million to settle U.S. charges that it operated an illegal pyramid scheme.
AdvoCare “pushed distributors to focus on recruiting new distributors rather than retail sales to consumers,” the Federal Trade Commission said in a statement on Wednesday. Multilevel marketing companies such as AdvoCare typically enlist consumers to sell their products and to enlist other people as distributors for a commission, saying the opportunity can earn them money.
AdvoCare is “admitting that it operated as a pyramid,” said Andrew Smith, director of the FTC’s consumer protection division, at a press conference on Wednesday. The company is banned from multilevel marketing as part of the settlement, the FTC added.
The company denied that it admitted to operating as a pyramid, saying in a statement that Smith’s statement is “categorically false” and that “to this day, AdvoCare denies it operated as a pyramid.”
The company had said in May it would shift to direct-to-consumer sales and a single-level marketing model, with commissions only on product sales, not recruitment.
The Texas-based company sold health and wellness products such as energy drinks and weight loss supplements through its distributors. But consumers were charged $59 to become a distributor and had to spend between $1,200 and $2,400 on AdvoCare products to earn “all possible forms of compensation,” the FTC said. Hundreds of thousands of consumers in the United States were negatively affected by AdvoCare, the FTC said.
The company is endorsed by celebrity athletes from bodybuilders to football players. None of the endorsers, including Brees, are accused of any wrongdoing, the FTC said. Brees did not immediately respond to request for comment.
In a commercial for AdvoCare, Brees encouraged consumers to become distributors, saying “the financial benefits can be just as rewarding for those who want more and decide to build their own AdvoCare business.”
Reporting by Bryan Pietsch; Editing by Chizu Nomiyama and Lisa Shumaker