Monday, March 30, 2020

Feds Shuts Down Las Vegas Based Coffee Company, Success by Health, For Fraudulent Affiliate Marketing

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Pesach Lattin
Pesach Lattinhttp://pacevegas.com
Pesach "Pace" Lattin is one of the top experts in interactive advertising, affiliate marketing. Pace Lattin is known for his dedication to ethics in marketing, and focus on compliance and fraud in the industry, and has written numerous articles for publications from MediaPost, ClickZ, ADOTAS and his own blogs.

Success by Health, a Nevada corporation that markets and sells coffee products as the foundation of an overall harmonious lifestyle brand, recently caught the attention of the Federal Trade Commission (FTC) based on its claims about some of its products.

Some of the claims made by Success by Health include health claims; for example, the company’s website reads, “We believe that when cared for correctly, the human body can live to 120 years of age.” The website also claims that Success by Health “[has] created the most powerful nutritional products, and the most up to date, customizable, fitness and nutrition plans.”

These claims would traditionally be interesting to the FTC as they make sweeping health promises and hyperbolic claims about the products’ efficacy. However, these health claims were not at issue in the recent complaint filed by the FTC. Rather, the FTC’s interest was piqued by Success by Health’s affiliate program, which led to a complaint filed earlier this year.

In its complaint, filed in the U.S. District Court for the District of Arizona in mid-January 2020, the FTC accused Success by Health and a handful of the company’s officers and representatives (including someone referred to as a “chief visionary officer”) of potentially running a pyramid scheme.

At the center of the alleged pyramid scheme by Success by Health was a draconian program that charged $49 for affiliate status – which consisted mainly of the right to recruit further affiliates whose sales rolled up the chain. But the FTC alleges that there was no way to get a financial foothold within the program. “[Success’] marketing materials allegedly failed to disclose that to achieve [a promised $1 million in monthly commissions], an affiliate would have to recruit more than 100,000 affiliates working underneath them, the vast majority of whom would be losing money at any given time.”

The FTC also accused the defendants of running afoul of the FTC’s Mail, Internet, or Telephone Order Merchandise Rule by simply ignoring affiliate orders altogether and failing to provide refunds in those cases, and of violating the cooling-off rule, which grants consumers three days to cancel sales.

In this case, it wasn’t consumers who needed protection, as you might expect. Instead, the FTC alleges in its complaint that Success by Health failed to tell its affiliates that the “expensive … products and services” they were expected to buy from the company could be canceled under the rule.

The main point of contention, the FTC alleges, is that affiliates were effectively competing with the company itself. “Any member of the public can buy SBH products from the company’s website, or an Affiliate Website, at the same ‘wholesale’ price that SBH offers to Affiliates,” the complaint reads. “SBH sets the pricing both on its website and on the Affiliate Websites. Affiliates do not have the ability to offer different prices on the internet.”

This arrangement, in addition to various allegedly deceptive lifestyle and income claims, is the basis for the FTC’s filing to secure a restraining order that shuts down the company while the case proceeds.

This is a rare case where an FTC filing is not immediately accompanied by a settlement, so there’ll be more to talk about soon, we’re sure. It will be interesting to see how Success by Health defends its affiliate program and claims.

Postscript: The founder of Success by Health, J.D. Nolan, was sued back in 2000 for running an earlier shopping network pyramid scheme. According to the FTC, “a 2002 court order that resolved the case barred Noland from participating in any future pyramid schemes and imposed other restrictions.” The FTC is watching.

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