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June 12, 2023
The Federal Trade Commission says it refunded $392 million to 1.9 million consumers in 2022. A case involving a multi-level marketer (MLM) selling dietary supplements topped the list of payouts.
In a recent press release, FTC revealed refunds arising from a case involving former MLM AdvoCare accounted for the biggest single chunk of distributions made to consumers in 2022.
That case, which was settled in 2019, ordered Advocare to fork over $149 million to FTC to make redress to consumers. Those funds were distributed to consumers in 2022.
FTC’s case against AdvoCare alleged the company had told consumers its business model “offers the average person a financial solution that will enable them to earn unlimited income, attain financial freedom and eliminate the constraint of traditional employment.”
In reality, the FTC complaint alleged, most distributors earned nothing or even lost money.
Even though the company denied FTC’s allegations, it agreed to pay the fine and to restructure its business to remove any hint of MLM activity by no longer rewarding distributors for signing up new distributors.
Commissions ostensibly are now only paid on sales to consumers.
FTC said $248 million of the overall $392 million distributed to consumers involved cases with first-time distributions in 2022.
And the vast majority (over 90%) of total distributions to consumers were tied to cases resolved before a U.S. Supreme Court ruling in 2021 that “ripped the FTC of its ability to recover redress for consumers pursuant to Section 13(b) of the FTC Act,” the agency said in its news release. In the four years before the ruling in AMG Capital Management LLC v. FTC, the agency added, it “returned more than $11 billion to consumers using its Section 13(b) authority.”
The AdvoCare settlement was included as part of this group and was by far the biggest single pot of money sent to consumers last year. Five other cases involved payouts ranging from about $9 million to about $25 million, while payouts in the remainder of the 22 overall cases were much smaller.
The rest of the funds sent to consumers in 2022 were tied to cases in which distributions were ongoing. Two companies related to the dietary supplement industry fell into this category.
In one case, FTC distributed $347,000 of a total $9.8 million settlement with a company called Health Formulas, which was alleged to have fraudulently advertised “free trials” of natural health products. Consumers then found it difficult or impossible to cancel the credit card charges, the FTC complaint alleged.
Another case, brought against an Arizona company called Quantum Wellness Botanical Institute, was based on over-the-top claims.
According to FTC, the company “deceptively claimed that their product is a virtual cure-all for age-related ailments—including cell damage, heart attack damage, brain damage, blindness and deafness.” The settlement ordered the company to repay $660,000 to consumers, of which $424,000 was mailed in 2022.
A case against another MLM selling supplements was closed by FTC in 2022. In 2019, Vemma Nutrition had agreed to pay $2.3 million to FTC, of which $2.15 million was returned to consumers. That company, like AdvoCare, agreed to cease operating as an MLM.
According to a public document summing up all of the payments made to consumers by FTC over the years, two of the four largest payouts ever recorded involved the sales of dietary supplements via MLMs.
Those are the AdvoCare settlement and the $200 million settlement that Herbalife agreed to in 2016. That case also involved changes to Herbalife’s business model, but the company is still classified as an MLM.
Herbalife’s troubles with federal regulators didn’t end there. In 2020, the company agreed to pay a $122 million fine to settle alleged violations of the Foreign Corrupt Practices Act that centered on bribes paid in China. The case led to the abrupt resignation of then CEO Rich Goudis.
Senior Editor, Informa
Hank Schultz has been the Senior Editor of Natural Products Insider since early 2023.
His approach to industry journalism was formed via a long career in the daily newspaper field. After graduating from the University of Wisconsin with degrees in journalism and German, Hank was an editor at the Tempe Daily News in Arizona. He followed that with a long stint working at the Rocky Mountain News, a now defunct daily newspaper in Denver, where he rose to be one of the city editors. The newspaper won two Pulitzer Prizes during his time there.
The changing landscape of the newspaper industry led him to explore other career paths. He began his career in the natural products industry more than a decade ago at New Hope Natural Media, which was then part of Penton and now is an Informa brand. Hank formed friendships and partnerships within the industry that still inform his work to this day, which helps him to bring an insider’s perspective, tempered with an objective journalist’s sensibility, to his in-depth reporting.
Harkening back to his newspaper days, Hank considers the readers to be the primary stakeholders whose needs must be met. Report the news quickly, comprehensively and above all, fairly, and readership and sponsorships will follow.
In 2015, Hank was recognized by the American Herbal Products Association with a Special Award for Journalistic Excellence.
When he’s not reporting on the supplement industry, Hank enjoys many outside pursuits. Those include long distance bicycle touring, mountain climbing, sailing, kayaking, and fishing. Less strenuous pastimes include travel, reading (novels and nonfiction), studying German, noodling on a harmonica, sketching and a daily dose of word puzzles in The New York Times.
Last but far from least, Hank is a lifelong fan and part owner of the Green Bay Packers.
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