On Wednesday of last week, the FTC wrote “AdvoCare business model was pyramid scheme”. We kind of knew this was going on as AdvoCare said that the FTC forced them to end its MLM
Back in 2015, I was looking at many MLMs at the advice of readers. One of those happened to be AdvoCare. I asked if Advocare was a scam.
“If there’s ANY question at all that a business is a pyramid scheme, I’d stay as far away as possible. I vote with my dollars and my time to only work on businesses that are CLEARLY legitimate. If AdvoCare wants to claim legitimacy, I believe they should remove the questions of whether it is an illegal pyramid scheme. They can easily remove the multi-level compensation plan and pay everyone a straight commission for making sales.”
Of course most MLMs respond to something like that with an argument of the following, “We’ve been in business for 26 years [in the case of AdvoCare], so how can you think our business is illegal?”
That’s a fair argument, but we’re left with the hard reality that AdvoCare was running a pyramid scheme for 26 years according to law enforcement.
The obvious question becomes, “How can you know that ANY MLM company ISN’T and MLM?” After all, to my knowledge there’s never been an MLM company that the FTC declared is not a pyramid scheme.
Let’s go back to that FTC article that I mentioned at the beginning of this post. The very first paragraph from the FTC’s attorney Seena Gressin says:
“Are you thinking about joining a multi-level marketing business to earn extra money? Before investing your hard-earned cash, make sure you’re not dealing with a pyramid scheme – a scam that can cost you dearly.”
The FTC proceeds to give some tips on how to avoid pyramid schemes (mostly to avoid any company that focuses on recruiting).
I’m fine with consumer education. The problem is that you have to educated each and every consumer and make sure you don’t miss any. That’s too much to ask, especially because few consumers are reading the FTC’s website.
Here’s the part that rings hollow to me. Let’s look at it from a different perspective. AdvoCare fooled all the experts at the FTC for 26 years*. What chance does the average Joe consumer have?
If we are going to stop pyramid schemes, it isn’t going to happen by educating every consumer in the United States. It’s going to happen by shutting down the scammers… and not waiting 26 years to do it.
In the meantime, tell 5 friends that MLMs MUST be avoided… and ask them to tell 5 friends the same.
* In reality it’s a lot more complicated. The FTC has to sue MLM companies claiming they are pyramid schemes. That process can cost millions and millions of lawyer fees over several years. The FTC doesn’t have the money and manpower to shut down all the pyramid schemes. For more on this see this Bloomberg article (subscription required).