FTC alleges “Success By Health” is a pyramid scheme

The new year has just begun, but the FTC already has delivered its answer to the annual question: Should old acquaintance be forgot and never brought to mind? The answer? If you’re a past defendant in an FTC case, the FTC won’t forget you.

Today, the FTC announced two related law enforcement actions naming business opportunity promoter Jay Noland and several co-defendants. Twenty years ago, the FTC sued Noland and others for operating an online shopping network that the FTC alleged was an illegal pyramid scheme. A 2002 court order that resolved the case barred Noland from participating in any future pyramid schemes and imposed other restrictions.

The two FTC cases announced today allege that Noland is back in the pyramid scheme business with a venture called “Success By Health” (SBH), which the FTC says has bilked consumers out of more than $7 million since 2017. In one case, the FTC asks an Arizona federal court to halt SBH’s allegedly unlawful activities. The other case asks the court to hold Noland and his companies in contempt of the 2002 order, which the FTC alleges they’re violating by operating SBH.

SBH sells coffee, tea, and dietary supplements through a network of independent distributors, called “Affiliates.” According to the FTC, SBH tells consumers they can replace their job income in six months and gain “financial freedom” in 18 months if they enroll in the SBH program as Affiliates and follow Noland’s instructions.

In reality, the FTC says, the business’s structure ensures that the vast majority of Affiliates lose money in the program, as borne out by most SBH Affiliates’ actual experience. The complaint alleges that SBH is a classic pyramid scheme. According to the FTC, SBH pushes Affiliates to invest heavily in buying SBH products and tickets to costly “training” events, but compensates them based on how many new Affiliates they recruit and the volume of SBH products they and their recruits buy, not on their sales of SBH products to retail customers. According to the FTC, SBH presses Affiliates to max out credit cards, borrow from family, get bank loans, and sell or mortgage their homes to buy inventory and build their business.

The FTC’s lawsuit alleges that SBH’s claims that consumers who invest in the program will make substantial income are false; that promotional materials SBH furnishes to Affiliates for recruiting make the false and misleading income claims and therefore provide the means for others to deceive consumers; and that SBH is actually a pyramid scheme. Each of these practices violate the FTC Act.

The FTC also alleges the defendants violate two rules the Commission enforces. First, it alleges the defendants violate the Mail, Internet, or Telephone Order Merchandise Rule by often failing to ship products to Affiliates and other consumers who place product orders, and failing to offer and give consumers refunds.

Second, the FTC alleges the defendants violate the Cooling-Off Rule, which gives consumers a three-day right to cancel certain sales made at a consumer’s home, workplace, or a seller’s temporary location. According to the complaint, SBH pushes Affiliates to attend costly training events at hotels and other locations where they use high-pressure sales tactics to coerce the Affiliates to buy expensive SBH products and services, without telling them – as required by the Rule – that they have a legal right to cancel those transactions.

The FTC’s contempt action names as defendants Noland and two of his companies, Success By Media Holdings Inc., and Success By Media LLC. The complaint seeking to halt SBH’s allegedly unlawful activities names Noland, his two companies, his wife, Lina Noland, and two principals in the business, Scott Harris, and Thomas G. Sacca.

The SBH matter marks the third action the FTC has brought since October to halt an alleged pyramid scheme masquerading as a legitimate multi-level marketing (MLM) business. If you’re considering buying into an MLM business, look for these warning signs that it may be a scam:

• Promoters make extravagant promises about your earning potential. Such promises are false.
• Promoters emphasize recruiting new distributors for your sales network as the real way to make money. In a legitimate MLM program, you should be able to make money just by selling the product.
• Promoters play on your emotions or use high-pressure sales tactics, maybe saying you’ll lose the opportunity if you don’t act now and discouraging you from taking time to study the company. Any company that tries to pressure you to join is one to avoid.
• Distributors buy more products than they want to use or can resell, just to stay active in the company or to qualify for bonuses or other rewards. If you see this happening, keep your money.

Visit our article on MLM businesses and pyramid schemes for more information about avoiding a bad business deal.

_____

Jan. 17, 2020: An earlier version of this blog post incorrectly identified a defendant in the case. The defendant is Thomas G. Sacca, not Thomas G. Sacca Jr.