In its ongoing case in opposition to Success by Well being and proprietor Jay Noland, the FTC has moved for abstract judgement with respect to legal responsibility.
As summarized by the FTC, their case in opposition to SBH and Noland is as follows:
For over two years previous to the Courtroom’s Non permanent Restraining Order, Defendants promised monetary freedom to persuade shoppers to affix, and proceed sinking cash into, two pyramid schemes.
Starting in July 2017, Defendants’ Success By Well being (“SBH”) pyramid bought coffees, teas, and nutraceuticals.
When that scheme began to break down, Defendants, in October 2019, launched a VOZ Journey pyramid (additionally a part of SBH) that promised to at some point present a travel-booking platform.
In each pyramids, Defendants instructed members (referred to as “associates”) that their success depended not on their capacity to seek out, and promote merchandise to, final customers, however as a substitute on shopping for merchandise and recruiting new associates to purchase merchandise from SBH.
Consequently, associates entered an countless chain of recruitment, through which they may recoup their prices solely by enrolling new associates.
As in any pyramid scheme, the overwhelming majority of associates have to be, and have been, shedding cash at any given time.
Led by serial pyramid scheme promoter Jay Noland, the Particular person Defendants took $1.7 million for themselves whereas 6,957 associates earned $2.4 million in rewards, regardless of spending over $8.4 million on Defendants’ merchandise and coaching—to not point out hundreds on bills not paid to SBH.
As a result of there isn’t a real dispute relating to any materials truth, every Defendant is liable as a matter of regulation for deceptively selling the SBH and VOZ pyramid schemes and violating two FTC guidelines mandating that they provide or present refunds in sure contexts.
The FTC goes on to allege;
SBH used misleading gross sales and recruiting techniques
Defendants lure shoppers to enroll as associates with guarantees that in the event that they work laborious and observe “millionaire maker” Jay Noland’s directions, they’ll substitute their job revenue in six months and change into financially free—reaping a perpetual stream of million-dollar yearly funds—in simply 18 months.
As soon as enrolled, Defendants inform associates that reaching monetary freedom requires recruiting new associates and buying extreme stock, relatively than promoting SBH merchandise to final customers.
That is your basic affiliate autoship recruitment scheme, as recognized by BehindMLM in our 2018 Success by Well being evaluation.
The FTC, by their very own investigation, would verify BehindMLM’s evaluation two years later.
The “4 Steps to Success” Omits Retail Gross sales.
Defendants promote “4 Steps to Success” to “Hit the Floor Working as a brand new SBH Affiliate.”
But the 4 steps don’t point out gross sales to final customers.
As a substitute, they inform associates to
(1) “get began” by shopping for merchandise (ideally $500 or $1,995 packs),
(2) “be a product of the product” by setting a month-to-month auto-order of at the least $60 ($500 if looking for “monetary freedom”),
(3) construct a staff (i.e., recruit), and
(4) duplicate their very own efforts by educating their staff to do the identical.
For the third step, Defendants inform associates to recruit two new associates inside 48 hours in the event that they search monetary freedom.
“[D]uplication,” is the “key to long run success as an SBH Affiliate.”
Defendants additionally spotlight a “Energy of Ten” “success technique” through which “Associates must get ‘my 10’ Affiliate Staff Members” and train new recruits to “do the identical.”
Associates obtain the complete “Energy of Ten” by recruiting 10 associates as their “Tier 1,” every of whom recruit 10 as the primary affiliate’s “Tier 2,” and so forth by Tiers 3-5.
Defendants say this can pay $1,173,500 per 30 days when every affiliate within the 10×10 spends $500 per 30 days.
As with every MLM autoship recruitment scheme, the end-result is that in the end the merchandise are irrelevant.
Don’t simply take my phrase for that although;
Noland admits the apparent: the merchandise are, the truth is, irrelevant. Shortly earlier than launching SBH, Noland claimed he might “plug any firm or product into [his] course of, and you’ll be free financially if you wish to be.”
Equally, he instructed SBH associates to not complain about not receiving merchandise as a result of they may simply “promote the imaginative and prescient” (i.e., the enterprise alternative).
Unsurprisingly, Defendants’ undermining of gross sales to final customers is mirrored within the information.
Offline and on-line gross sales to non-affiliates are uncommon.
SBH, Noland and executives lured shoppers into SBH by falsely promising monetary freedom
Defendants inform shoppers that there are three forms of associates, these trying to:
(1) complement their revenue,
(2) “substitute [their] revenue (no extra job),” and
(3) acquire “monetary freedom.”
The selection is “yours,” id., however when you search monetary freedom and “pay shut consideration,” you might be “going to have the ability to get out of that job in about six months” and attain monetary freedom in 18 months.
It’s undisputed that Defendants instructed recruits (falsely) “a number of folks” are “reaching Monetary Freedom already with our firm.”
Defendants constantly use the time period “monetary freedom” to consult with a “fabulous degree of wealth past fully changing a job revenue.”
They admit to utilizing photos of yachts and vehicles, piles of money, and unique holidays to make the purpose.
Because the Courtroom discovered, monetary freedom, at minimal, means incomes revenue better than one’s present job revenue.
Defendants additionally tout Noland’s (fictitious) wealth as attainable for associates.
At one recruiting occasion, Noland rhetorically requested: “Jay, simply please inform me the way you created a monetary freedom life to the place your son earlier than he was born was already retired? And his children are retired, and his child’s children are retired? . . .
[I]t’s going to be any person that walks in right here for the primary time, 18 months from now won’t ever should work once more.”
Noland, now 52, went on to say he was “financially free, fully money and time free since I used to be 36” and had not “needed to work a job . . . since I used to be 27.”
Privately, Defendants did the identical. Scott Harris instructed a recruit, “You’ll make $100k+ in 2018.”
He instructed one other he wished “severe guys who need to make $100K a month in 3 years or much less,” including, “[m]illions might be made” with 10 hours per week to exchange one’s job revenue.
Thomas Sacca instructed a recruit that it “actually solely takes 2-3 of us catching the imaginative and prescient to create tens of millions!!”
Scott Harris was, amongst different roles, President of SBH. Thomas Sacca was Chief Gross sales Officer and Chief Visionary Officer.
After becoming a member of resulting from misleading advertising claims, SBH associates contunued to be topic to unsubstantiated monetary freedom hype
Customers pay a $49 annual membership charge to change into an SBH “affiliate.”
Defendants then bombard associates with claims that they’ll attain monetary freedom by working laborious and following directions.
For instance, Noland gave associates a “affordable expectation” of changing their job revenue in six months by being “result-oriented and targeted,” including in the event that they “simply utilized [his system], with out fail, it is best to be capable of be financially free in 18 months.”
Defendants spotlight that SBH will make associates tens of millions, calling this system a “literal golden goose.” They ubiquitously name Jay Noland the “Millionaire Maker.”
Noland, in flip, guarantees to create “1,000 millionaires” by SBH.
He titles a lot of his movies, “Millionaire Mentorship.” Throughout one such session, he instructed his on-line viewers to every sort, “I’m going to be a millionaire in SBH.”
Near 100 did, together with Thomas Sacca, who wrote, “Millionaire via SBH!! Assured!”
Equally, Noland regularly dangles his personal purported wealth as a carrot.
He boasts that he “made extra [money] than most individuals will make in 10 lifetimes, or possibly even 20.” He often claims to personal houses and warehouses.
Noland claims to have turned down a number of $100,000 talking gigs as a result of they have been inferior to his “residual revenue.”
He additionally touts giveaways to household, buddies, and others totaling “a pair million per 12 months.”
These claims are all false. Noland now admits he has a damaging web price and doesn’t keep in mind the final time it was optimistic.
Removed from unfathomable riches, he swore underneath oath to the IRS that he had “main losses” in every of his pre-SBH corporations.
Moderately than sitting on a perpetual revenue stream, he urged the IRS to take away large tax liens in order that opponents couldn’t use them to “discredit” him.
Moderately than being financially free on the age of 36 (in 2004), Noland was “residing on bank cards” in 2005 and 2006.
In 2007, the IRS mentioned he owed $187,000; he nonetheless owes about $180,000.
Moderately than proudly owning properties, he owns none in any respect.
Ouch.
Scott Harris additionally will get a serving for knowingly mendacity about Noland’s fictional success and wealth.
Harris, who handed the massive lie alongside, purposefully prevented questions that will have simply proven the emperor had no garments.
When somebody queried Harris on verification of Noland’s claims, he allegedly responded, “It’s not my enterprise to ask issues like that.”
SBH and its executives overtly pushed recruitment over retail
The deal with recruiting begins proper when an affiliate joins. At one occasion, Noland predicted dire penalties for any new affiliate who didn’t recruit somebody inside 48 hours:
“Quickly as I convey you in, you higher put any person in in 48 hours, or I’m nearly by no means going to speak to you once more.
Guess what’s going to occur when you go sluggish? Greater than doubtless you’re gonna die. Greater than doubtless, you’re gonna stop.”
Alongside the identical traces, Noland defined the “most essential factor” is to recruit inviters—individuals who will proceed the recruitment chain.
Defendants’ “Bootcamp” slide deck bluntly tells associates: “You Have To Get Nice At RECRUITING.”
Defendants’ inner talks present their deal with recruiting is deliberate.
In a single frank textual content collection of messages from Noland to Harris and Sacca, Noland made clear that “RECRUITING” is the “MAIN FOCUS”.
Want you guys to get folks RECRUITING. That must be the MAIN FOCUS. No Recruiting = No Residual Revenue. As Sr. Discipline Advisors, your #1 Job is to maneuver the sphere to construct.
Scott, you and Tommy buckle up laborious right now with one another and get folks transferring. RECRUIT and REPORT.
You two must personally begin RECRUITING your asses off as nicely. Lead.
SBH’s workers and associates all march to this recruiting drumbeat.
SBH’s then-director of gross sales, Robert Mehler, defined that whereas retail gross sales might assist associates “make some further, part-time cash,” “recruiting is essential” and associates ought to construct a “10x10x10x10x10.”
To the extent that Defendants promote gross sales to non-affiliate final customers, they accomplish that as a recruiting or “confidence-building” technique, and constantly urge changing these prospects into associates.
Success by Well being’s insurance policies promoted stock loading
Stock loading in MLM is often characterised by associates on autoship accumulating storage a great deal of unsold product.
Previous to a Florida occasion, Scott Harris instructed associates they need to max out bank cards and take out loans as a result of attending “is what it takes . . . to make it to the highest.”
Thomas Sacca boast(ed) shoppers “are utilizing a number of bank cards to get to Icon (rank) as a result of they . . . see the worth”
As alleged by the FTC with supporting proof, this was basically Success By Well being’s enterprise mannequin.
Not solely do Defendants encourage extreme shopping for (untethered to ultimate-user demand), however in addition they lack any insurance policies to make sure that associates’ stock leads to the arms of final customers relatively than accumulating in associates’ garages.
For instance, Defendants’ no-refund coverage (see infra p. 16) leaves shoppers who’re unable to promote their private stock with no choice however to take losses.
Defendants additionally don’t have any coverage that associates should resell or use merchandise they buy or that they keep a minimal variety of retail prospects.
With respect to retail compliance, Jay Noland is on the document admitting that “SBH has no compliance insurance policies”.
VOZ Journey, like SBH, was a pyramid scheme from inception
Defendants’ enterprise struggled in 2019. In late August, their accountant, Crystal Roney, despatched Jay Noland “inner reporting” displaying SBM’s web working revenue for the 12 months was damaging.
SBH product gross sales had plummeted almost 33%.
Roney warned Noland he wanted an “revenue run.” Noland turned to what he is aware of greatest.
Noland is reported to have said;
I construct pyramids, man. . . . That’s what I do. I construct some little pyramids. Besides I’m on the prime of those I constructed.
VOZ, a reduction journey themed alternative, was introduced in October 2019.
This system required enrollees (“Elite Journey Associates” or “ETAs”) to purchase $1,000-2,795 “packs” to entry a (never-completed) journey platform and earn rewards by recruiting others to purchase packs.
At the same time as their efforts to launch the scheme collapsed, they pushed associates to maintain recruiting others to pay cash to SBH.
In the end, Defendants took in $1 million from ETAs, however by no means supplied any services or products, and had no capacity to take action.
SBH brought about widespread monetary destruction amongst its associates
Complaints from prime earners apart, nearly all of Success by Well being associates misplaced cash.
SBH’s personal information reveals that over 94% of associates didn’t earn sufficient rewards from SBH to recoup the cash they paid to SBH.
Excluding the Defendants, SBH has 6,957 associates who earned $2,174,301 in commissions ($312 per affiliate), and $261,640 in product credit ($38 per affiliate).
Associates bought $8.4 million in SBH merchandise and trainings to earn these payouts.
Lower than 6% of associates (420), obtained more cash from SBH than they paid to it, and that “fortunate” few obtained, on common, a web $227 per 30 days.
Solely 11 associates netted greater than $10,000, and based mostly on their tenure with SBH, is a median of $1,581 per 12 months for every of them—a far cry from the $1,173,500 per 30 days Defendants promised.
The 273 associates who pursued SBH for over 18 months—the time to succeed in “monetary freedom”—had a web lack of $2.0 million; solely 11 had a optimistic web.
Knowledge from associates’ precise expertise reveals almost all misplaced cash.
Sworn testimony from 12 associates, 11 of them “Founders” present they every misplaced cash.
Collectively, the 12 pursued SBH for 125 months, paid SBH $38,177 for “coaching” and $103,924 for memberships/merchandise, incurred $53,511 in SBH-related bills, earned $45,491 in SBH rewards, earned $20,177 from reselling SBH merchandise, and personally consumed $13,334 in SBH merchandise.
Collectively, they misplaced $123,195.
Even associates who oppose the Courtroom’s injunction did abysmally.
The 106 distinctive associates for whom Defendants submitted statements to the Courtroom earned incurred a collective lack of -$908,103.
I do know I shouldn’t be laughing at folks’s monetary wreck however simply on the affililiates who wrote in to help a pyramid scheme they collectively misplaced 1,000,000 on, how?
The highest 5 most profitable of Defendants’ hand-picked supporters netted simply $2,556 every on a median, annualized foundation.
How on Earth do you get to that degree of delusion?
The outcomes should not significantly better for Defendants’ supporters by including details about their retail gross sales and bills.
The FTC subpoenaed 19 associates, 5 didn’t reply (every one among Defendants’ 106 supporters).
Taking the 9 who gave significant information, together with Defendants’ purported knowledgeable/affiliate who testified underneath oath, the ten: paid SBH $52,827 for “coaching” and $232,337 for memberships and merchandise, incurred $73,285 in SBH-related bills, earned $242,631 in rewards from SBH, earned $248,804 from reselling SBH merchandise, and personally consumed $85,941 of product.
Over their collective 212 months in SBH, they netted on common, $93.50 per 30 days (or, $36 per 30 days by excluding the highest affiliate).
And right here’s the end-result of all of this:
Associates’ testimony reinforces what the information reveals: Defendants prey on shoppers and push them to show over what financial savings they might have and go deeper into debt.
The outcomes are devastating.
One affiliate stop her job of 27 years to observe Noland after being cleared to change into a SBH “Founder,” solely to lose $10,000, should stop, and battle to make half of what she did earlier than at a brand new job.
Different examples submitted as proof by the FTC element “life financial savings gone”, “$47,180 misplaced, household ties severed” and “bought house to go “all-in with SBH, ended up bankrupt”.
In contrast, the Particular person Defendants did nice. They paid $5,690 to SBM (web of product credit), but obtained $1.7 million from it, excess of anybody else.
Defendant Thomas Harris is on the document acknowledging, “a pyramid scheme can be (the place) solely the folks on the prime can become profitable”.
Stopping recruitment commissions killed off what was left of Success by Well being’s enterprise
As a part of the granted injunction, recruitment commissions have been stopped however associates have been nonetheless capable of buy SBH merchandise.
Lastly, post-TRO, with recruiting incentives gone, solely 45 of the 106 proDefendant associates made a SBH buy, demonstrating the dearth of precise private use, or retail demand, for SBH merchandise.
The 45’s collective spending on merchandise additionally dropped from $772 per day pre-TRO to $236 per day post-TRO.
The push for abstract judgment
Of their movement for abstract judgment, the FTC put forth:
The undisputed information show that
(1) SBH and VOZ have been pyramid schemes,
(2) Defendants promoted these schemes utilizing false claims that associates might fairly anticipate to earn substantial revenue (together with monetary freedom) by following Defendants’ directions,
(3) Defendants supplied associates the means and instrumentalities to violate the FTC Act,
(4) Defendants violated the Merchandise Rule by failing to well timed ship merchandise or present refunds, and
(5) Defendants violated the Cooling-Off Rule by failing to supply a three-day proper of rescission on gross sales happening at occasions.
Moreover, the undisputed information set up that the Company Defendants are all responsible for these violations as a result of they’re a standard enterprise, and the Particular person Defendants are all liable as a result of they immediately participated in, had authority to regulate, and had information of the Company Defendants’ illegal acts.
Citing a number of violations of the FTC Act, the FTC is looking for ‘abstract judgment as to legal responsibility in opposition to all Defendants on all counts.’
The FTC’s movement was filed on March twelfth. It’s supported by 100 and forty-nine reveals of supporting proof.
The SBH defendants have a possibility to answer the movement, after which the FTC can file a reply.
It will doubtless take just a few months, after which the court docket will challenge an order on the movement.
If abstract judgment is granted, the case can have been all however determined within the FTC’s favor.
Keep tuned…
Replace twelfth September 2021 – The FTC was granted legal responsibility abstract judgment on September ninth.