An Arizona court has ruled Success by Health was a pyramid scheme.
Having now considered the disputed evidence in its capacity as finder of fact, the Court concludes that the FTC should also prevail on its pyramid scheme claim as to SBH.
The decision marks the first significant MLM related win for the FTC since the Supreme Court’s AMG ruling in 2021.
The Success by Health bench trial kicked off earlier this year, spanning January 25th to February 8th.
The court’s May 11th order comes in at one hundred and thirty-one pages. I’ve gone through it and grouped the important points below under various headers.
During the trial each side presented its case. The court noted that while it found the FTC’s witnesses “credible and persuasive”, Success by Health’s witnesses were “a mixed bag in terms of credibility”.
During the bench trial Success by Health presented affiliate, employee/affiliate and defendant witnesses.
As noted by the court, here are some of the credibility issues with Success by Health’s affiliate witnesses.
The Court was not persuaded by one witness’s contention that SBH’s nutraceutical products literally caused his cranial plates to shift back into place 36 hours after he began taking those products.
One affiliate witness denied ever telling consumers that joining SBH would help them earn over $100,000, only to be confronted with a Facebook post where he made that representation.
This witness then denied ever offering cash bonuses to affiliates for recruiting someone into SBH to buy an accelerator pack, only to be confronted with a Facebook post where he made that representation.
This witness then denied ever making the representation that “SBH is delivering people every day to financial freedom,” only to be confronted with a Facebook post where he made that representation.
Similarly, another affiliate witness initially testified that retail sales were “kind of the backbone of everything [SBH] did” and “the backbone of the industry really, but especially the company” and denied that Noland had ever suggested that recruitment commissions (rather than retail sales) were the backbone of the company.
During cross-examination, however, the FTC played a video in which this witness was shown telling affiliates that, according to Noland, a particular recruitment commission was the heart and soul and backbone of the company.
This witness also testified, during his direct examination, that he never bought products just to achieve or maintain a certain rank within SBH.
However, during cross-examination, this witness was confronted with a depressing text-message exchange in which he reached out in a panic to Sacca on the last day of the month because “the bank declined [his] SBH auto-order for insufficient funds” and he was fearful he would lose his SBH rank if he did not place a qualifying order by the end of the month.
The court also gave weight to Success by Health’s affiliate witnesses contributing to its legal defense fund.
Although affiliates are, of course, free to use their money however they see fit, such donations undermine the donors’ credibility as fact witnesses (because they suggest the witnesses are not neutral and have an incentive to shape their testimony to assist the defense).
With respect to Robert Mehler (right), Success by Health’s sole employee/affiliate witness, the court opted to
not assign much weight this testimony for several reasons.
First, Mehler was thoroughly impeached on an array of topics during cross-examination.
Other credibility-impairing topics include Mehler’s contention that it was permissible to pass off medical claims for SBH products under the guise of “coincidences”, and Mehler’s involvement in promoting a spurious “clinical trial” involving an SBH weight loss product, which was actually conducted by a high-ranking SBH affiliate who was later convicted of federal fraud charges.
Second, at any rate, Mehler offered little to corroborate his claimed profits from retail sales and made statements that were difficult to reconcile with his calculations.
Success by Health’s defendant witnesses were Lina Noland, Jay Noland, Thomas Sacca and Scott Harris.
The court found Lina Noland’s testimony “somewhat helpful to the defense … (but) not all of it was”.
In particular, the Court was unpersuaded by the calculations that seemed intended to establish that non-affiliates were legitimately interested in SBH’s products and composed a significant segment of the purchasing population.
During cross-examination, the FTC persuasively demonstrated that, when the data in the spreadsheets is correctly tabulated, only 5.4% of the purchases in 2019 and only 1.8% of the purchases in 2018 were by non-affiliate customers (and that even these figures are potentially overstated because some of the purchases that were considered when calculating these figures were made by affiliates who may have been misclassified as nonaffiliate customers in the spreadsheet).
During her direct examination, Ms. Noland also testified at length about the socalled “complaining witnesses” and sought to impeach their credibility.
This was a recurrent point of emphasis in the defense case22 and, from the Court’s perspective as finder of fact, it largely fell flat.
Even accepting that the complaining witnesses were biased against Defendants (and, thus, those individuals’ claims and accusations should be viewed with skepticism), the FTC’s case is not based on the claims of a handful of witnesses but rather on a veritable mountain of other evidence. Indeed, the FTC did not even call any of the complaining witnesses at trial.
Ms. Noland also attempted to address the spoliation issue related to Signal.
This testimony was not credible, for the reasons discussed elsewhere in this order, and the resulting lack of credibility tainted Ms. Noland’s testimony on other topics.
BehindMLM covered the Success by Health Defendants being found liable for spoliation of evidence earlier today.
Ms. Noland’s credibility was also undermined by her testimony regarding the property in Panama.
As background, the Nolands appeared in a video shot in Panama, which was broadcast to SBH affiliates in 2019, in which Noland suggested that he owned a particular oceanfront property that could be seen in the background.
Afterward, Ms. Noland gestured to the property and told SBH affiliates that they could “get all this” if they just followed the basics.
In fact, the Nolands never owned the property—although both claimed (without corroboration) that Noland had made some preliminary steps to purchase the property in 2012, both acknowledged that Noland never actually purchased it.
It should go without saying that the Nolands’ claims in the video were deceptive—they attempted to pass off a property they didn’t own as proof of the luxurious lifestyle they had achieved (and affiliates could hope to achieve) through SBH.
Ms. Noland (and later Noland) then made things even worse by attempting, via their trial testimony, to defend the accuracy of those indefensible claims.
Thomas Sacca was presented as a Success by Health witness who
has experienced significant health problems in recent years (including the onset of blindness, a heart attack, and the potential onset of multiple sclerosis) that have eroded his memory of many of the events at issue in this case.
Due to these limitations, defense counsel was allowed to use extensive leading questions during Sacca’s direct examination.
Sacca’s memory problems undermined the utility of much of his testimony.
Finally, Sacca made admissions on several topics that are harmful to the defense.
For example, Sacca admitted making impermissible income claims from time to time during his tenure at SBH. Sacca’s proffered justification for these claims—that his listeners knew he didn’t really mean what he was saying—is speculative and unpersuasive.
In one quoted discussion, Sacca appears to infer that his use of “guarantee” wasn’t in fact a guarantee.
Q: “Now, do you have a habit of using the word ‘guarantee’ in some of your discussions with people?”
A: “Yeah, I do. It’s a word I use often, you know, right, wrong, or indifferent, I do use it.
So—but in every conversation I ever had, everybody knew we were not guaranteeing any income.”
The court also noted that Sacca’s actions demonstrated a tendency to “prioritize compliance over profits”.
The court flat-out states Jay Noland “was not a credible witness.”
As an initial matter, the voluminous examples of dishonesty related to Signal and ProtonMail, which are summarized earlier in this order, undermine the entirety of Noland’s testimony.
Once a witness is shown to have repeatedly violated court orders and made false under-oath statements with respect to one topic, that witness’s testimony on other topics must be viewed with skepticism.
With respect to compliance, the court found that Noland was mostly spouting “nonsense”.
Noland testified that SBH’s use of senior field advisors resulted in “the most effective form of compliance I believe in the industry.”
Noland also cited the existence of senior field advisors as one of the reasons he didn’t think it was necessary for SBH to track retail sales by affiliates and identified the senior field advisors as one way he attempted to “go above and beyond to [en]sure compliance with” the 2002 permanent injunction.
These assertions were not credible for an array of reasons. As an initial matter, it is nonsensical that two or three senior field advisors would be better at tracking retail sales by SBH’s thousands of affiliates than a formal tracking system.
Separately, the evidence during the bench trial showed that Noland did not disclose the existence of (and may have mischaracterized the scope of) the 2002 permanent injunction to Sacca, who was one of SBH’s senior field advisors; also did not disclose the 2002 permanent injunction to Mehler, who was SBH’s one-time head of sales; and installed Harris as his other main senior field advisor after learning that Harris was subject to various cease-and-desist orders issued by state regulatory agencies regarding compliance failures in earlier businesses.
This is hardly a serious approach toward compliance.
Noland’s lies about his personal wealth were also an issue.
Another example of a false statement regarding Noland’s wealth was his statement to an audience of SBH affiliates that “I’ve been financially free, completely time and money free since I was 36.”
This statement was false and misleading—at the age of 36 (i.e., in 2004 or 2005), Noland had not yet started Organo Gold, was working in the mortgage industry, and was living (or was about to start living) off credit cards.
Nevertheless, during trial, Noland offered a variety of unpersuasive justifications and rationalizations for this statement and other similar statements.
For example, Noland repeatedly denied ever describing himself as a millionaire or even strongly implying that he was a millionaire.
Noland also flatly denied ever making any false or deceptive statement, on any topic, during his tenure at SBH and VOZ Travel.
These denials betray a lack of candor and accountability—it is obvious that statements about being financially free since the age of 36, being financially free to the point of one’s grandchildren never having to work again, owning luxury properties in Panama and around the world, and “I probably give away a couple million a year [but] [d]on’t even feel it, though . . . [because] I got freedom” would imply millionaire status.
With respect to VOZ Travel, the court took issue with Noland’s AI grift.
One of the VOZ Travel presentations included such statements as “We have a complete gamification engine that rewards you heavily for providing feedback and insights regarding our curated experiences,” “Our Artificial Intelligence engine utilizes heuristics to determine your ‘traveler DNA,’” and “Our A.I. is named ‘Dina’ and you can think of her as being like Siri, Alexa, Cortana, or Google Assistant.”
The FTC established … that these statements were untrue—Defendants had not developed any such gamification engine or artificial intelligence engine, let alone an artificial intelligence engine named “Dina” that rivaled the competing engines created by Google, Amazon, and other multi-billion dollar companies.
And if making such misrepresentations weren’t bad enough, Noland then attempted, in vain, to defend the accuracy of the misrepresentations during his trial testimony.
These were outrageous claims and Noland made things even worse by attempting to defend their accuracy.
A “fabricated backdated version” of a royalty agreement was also cause for concern.
At trial, the FTC presented evidence intended to establish that Noland had fabricated a backdated version of the royalty agreement after the start of litigation in this case.
In an attempt to dispute these accusations, Noland testified that he actually signed the royalty agreement in 2017 and then placed it in a file folder in his home in Las Vegas.
During cross-examination, the FTC pointed out that, in certain pretrial filings, Noland’s counsel had represented that Noland did not sign the document until April 2018.
Initially, Noland suggested that his counsel had been wrong and that 2017 was the correct signing date.
The FTC then questioned Noland about an email from his accountant in April 2018 expressing concern about the lack of a signed agreement.
At that point, Noland stated that the signing date was actually April 2018.
The FTC then offered Noland an opportunity to address the evidence of fabrication it had presented earlier.
Notably, this evidence included an email from August 2019 in which Noland had been emailed a “draft” version of the royalty agreement.
Noland’s resulting explanation was unsatisfactory, at least from the Court’s perspective as the factfinder—at no point did Noland explain why it would have been necessary to send him a draft version of the agreement in August 2019 if he had already signed it in 2017 (as he initially testified) or in April 2018 (as he testified after the 2017 date was shown to be wrong).
Nor did Noland provide a satisfactory explanation during his testimony on redirect.
The Court also found Noland’s testimony on other topics to be unpersuasive and at times incredible.
Overall this was a major problem for Success by Health at trial, because Noland’s
credibility and truthfulness play(ed) a key role in its evaluation of the scope of injunctive relief that is necessary in this case.
Scott Harris (right), as a Success by Health witness, was found to be “not persuasive”.
The Court was also troubled by Harris’s representation to SBH affiliates that, since working for Equinox, he’s “never had an issue making six figures a year.”
In his sworn financial disclosures in this case, Harris admitted making only a mid-five-figure income in 2015, 2016, and 2017.
Although Harris’s six-figure income claim wasn’t as much of a whopper as some of Noland’s income claims, it was still false.
Nor did Harris help his credibility by attempting to defend the accuracy of that claim during his testimony on redirect.
A key component to determining whether an MLM company is operating as a pyramid scheme is retail sales volume.
On that note the court found, based on filed evidence, that Success by Health affiliates who attempted to focus on retail sales “often lost money”.
Additionally, even the affiliates who were able to eke out a small profit from retail sales generated miniscule net earnings that were often less than could be earned at a minimum-wage job and paled in comparison to the profits that could be earned from commissions.
After weighing all of the voluminous evidence in this case (including the video clips introduced by both sides, the written marketing materials, and the various witnesses’ testimony), the Court concludes that SBH’s main focus was on the lucrative commissions that affiliates could earn by recruiting others.
Defendants placed heavy emphasis on recruiting. Defendants failed to place anywhere near a similar level of emphasis on retail sales.
Inventory loading is when affiliates in an MLM company purchase more product than they can consume and/or can sell.
Inventory loading, which typically comes at the expense of retail sales in MLM, is a sign affiliates are purchasing product to qualify for commissions.
This in turn is a strong indicator of an MLM company operating as a pyramid scheme.
Defendants urged consumers to join SBH and buy large product packs, telling them that the “more inventory you have to start your business, the faster your business typically will grow.”
Defendants also instructed affiliates to tell their new recruits that the “[t]he higher the Pack you initially start with, the more money you can make”.
Referencing the need to “get started” with a $2,000 product pack, Noland told recruits that they could just use “other people’s
“What I’m going to do is[,] I’m going to put it on a credit card. I’m going to use other people’s money.”
In one end-of-month video message to affiliates, Harris boasted about the purported benefit of inventory loading: “If you’ve got $1,000 worth sitting in your house, congratulations. If you’ve got four or $5,000 worth, congratulations. If you’ve got more
than that, congratulations.
Mr. Noland and I [in a prior MLM business] used to carry around 10, 15, 20, $25,000 or more in products.”
In another end-of-month message, Harris encouraged affiliates who were $2,000-3,000 away from hitting a higher SBH “rank” to simply buy the products themselves, despite the fact that those “ranks” reset every single month and affiliates might find themselves in the exact same situation the following month.
[“I’m two or [$]3,000 away from ranking up, I’m going to buy those products.”];
Affiliates heeded Defendants’ warnings, with affiliates’ purchase volume skyrocketing at the very end of each month.
Defendants also failed to track retail sales and placed no restrictions on affiliates’ ability to order more products while they still had excessive inventory on hand.
Income claims and representations
A key part of Success by Health’s marketing was “financial freedom”.
On an early SBH “Heat” conference call, Noland explained: “I’m talking about financial freedom, where you just do not have to work again and money keeps coming in, over and over and over again.”
Later, he explained that “financial freedom” meant, at a minimum, a perpetual stream of $20,000 monthly payments.
Defendants also used images of yachts and cars, piles of cash, and exotic vacations to promote consumers’ potential financial earnings.
Defendants stated that achieving this form of financial freedom was not simply theoretically possible, but reasonably likely—and, in some case, a virtual certainty—if affiliates followed Noland’s training.
Separately, during the October 2018 “MVP” event, Noland told the allSBH affiliate audience: “Y’all going to be rich. Don’t worry about it. I’ll make you a millionaire. Y’all got that? You three, I’m going to make you millionaires. Boom.”
Meanwhile, Harris told one SBH affiliate by text message: “You’ll make $100k+ in 2018.”
Mehler, SBH’s then-director of sales, once told affiliates that a five-figure monthly income was not a “theoretical example” but instead a “fact” based on Noland’s past results.
Based on Success by Health sales data, an FTC data analyst prsented a spreadsheet that showed “SBH affiliates paid $6,205,551.29” for products.
Only $2,17 million was earned in commissions.
Thus, in relation to SBH, affiliates suffered a net loss of more than $4 million (which does not include the additional cost of tickets for training events or certain other costs, such as travel and marketing expenses).
Other statistics gleaned from the spreadsheet data include:
Less than 6% of affiliates (420 of the 6,957 total affiliates) received more money from SBH than they paid to SBH.
65% of affiliates who attended trainings were in “a net loss position of greater than a thousand dollars” compared to 10% of affiliates who had not attended a training event.
Left out of the data is offline retail sales volume, because Success by Health didn’t track it.
Despite that missing data though, the court asserted it
has no hesitation concluding, in its capacity as finder of fact after hearing all of the evidence at trial (including the testimony from the defense’s handpicked best examples of supposedly successful retail sales activity), that the revenue from retail sales was nowhere near enough to offset the losses calculated.
Bringing the issue of Success by Health’s deceptive income claims and representations home, is the fact that
Noland, Harris, and Sacca themselves did not earn, during their 29 months sitting atop the SBH pyramid, anything close to what Defendants claimed top affiliates could reasonably expect to achieve in just 18 months.
Noland received $206,009.29 in commissions, or $7,103.77 per month over the relevant 29-month period.
Noland also purchased only $300 in SBH products and admitted making “de minimis sales of his personal inventory.”
Thus, Noland averaged just over $7,000 per month over 29 months, not the $20,000 per month that Defendants told #3s they could reasonably expect, at a minimum, after 18 months.
Next, Harris received $120,812.22 in SBH commissions, or $4,165.94 per month, over the relevant 29-month period. Harris admitted making “few if any” offline retail sales.
Finally, Sacca received $108,712.67 in SBH commissions, or $3,748.71 per month, over the relevant 29-month period. Sacca admitted “de minimis sales of personal product.”
As with Noland and Harris, Sacca’s SBH earnings were thus far below what Defendants told #3s they could reasonably expect after 18 months.
As owner and CEO of Success by Health, Jay Noland’s personal wealth representations were heavily scrutinized by the court.
Defendants repeatedly used Noland’s purported wealth to recruit new affiliates and convince existing ones to spend more money.
At one event, for example, Noland rhetorically asked: “Jay, just please tell me how you created a financial freedom life to where your son before he was born was already retired?
And his kids are retired, and his kids’ kids are retired? I’m now working on my fourth generation. . . . [I]t’s going to be somebody that walks in here for the first time, 18 months from now will never have to work again.”
At the same event, Noland claimed he had been “financially free, completely time and money free since I was 36” and had not “had to work a job . . . [s]ince I was 27,” due to “this thing called residual income.”
Noland made effectively the same claim on an early Heat call, claiming that as of 2004, he already “had reached complete time and money freedom” and had been “generationally set-up for a long time.”
Noland told another audience he had “made more [money] than most people will make in 10 lifetimes, or maybe even 20.”
At another event, Noland claimed to have given away “a couple million per year” to family, friends, and others, adding that he did not “even feel it, though” because he had “freedom.”
The court noted that Noland’s financial representations, which again were used to promote Success by Health, were baloney.
In his January 2020 sworn financial statement, Noland reported he had a negative net worth and owed over $210,000 in state and federal taxes.
At his deposition, Noland was unable to identify a time he ever had a positive net worth.
Noland admitted to the tax advocate assisting him in dealing with the IRS that he was “living on Credit Cards” in 2005 and 2006 and that, in 2007, the IRS ordered him to pay $187,000 in back taxes (which Noland admittedly “did not have the ability to pay”).
Whilst the court acknowledged Success by Health ‘consistently took orders for products that were out of stock and, in some cases, would not exist for 6-12 months’, ultimately this wasn’t a significant contributing factor to the court’s findings.
Arriving at Success by Health being a pyramid scheme
With consideration of the evidence presented by both sides, the court relied on the Koscot Test.
To determine whether a MLM business is a pyramid [scheme], a court must look at how the MLM business operates in practice.”
“[A] pyramid scheme is characterized by the payment by participants of money to the company in return for which they receive
(1) the right to sell a product and
(2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users.”
The court found the first prong was met because
there is no “dispute that consumers were required to pay an annual fee of $49 to be SBH Affiliates” and that, “by paying this fee, Affiliates gained the right to sell SBH products on their [replicated SBH] webpage.”
With respect to the second prong, which Success by Health directed its arguments at, the court found
the evidence from the bench trial overwhelmingly establishes that the second prong of the pyramid-scheme test is satisfied.
First, as a structural matter, SBH paid commissions based on purchases from SBH, rather than on the resale of those products to retail customers.
Courts have repeatedly noted the potential problems posed by such a commission structure.
Although Defendants argue that purchases from SBH are a proxy for retail sales—that is, one can assume that if a recruit is purchasing products from SBH, the recruit must be using those products to make retail sales or for personal consumption—this assumption was not borne out by, and indeed contradicted by, the evidence presented at trial.
The FTC argues that the Ninth Circuit’s decision in Omnitrition supports a pyramidscheme finding under these circumstances. The Court agrees.
In Omnitrition, the Ninth Circuit noted that a company’s “product sales” were “driven by enrolling people” who would then “buy exorbitant amounts of products that normally would not be sold in an average market by virtue of the fact that [members] enroll, get caught up in the process, in the enthusiasm. . . . It has nothing to do with the normal supply and demand in this world.
It has to do with getting people enrolled, enrolling people, getting them on the bandwagon and getting them to sell product.”
Here, too, Defendants drove SBH sales by pushing recruitment, taking advantage of the momentum from recruitment to sell large up-front product packs, urging large monthly purchases to stay on the path to financial freedom, and encouraging one’s recruits to do the same (i.e., to “duplicate”).
Second, putting aside the basic, structural disconnect between commission payments and retail sales in SBH, the evidence during the bench trial established that, in practice, Defendants placed heavy emphasis on recruiting and relatively little emphasis on retail sales.
Defendants’ arguments to the contrary are simply belied by the record.
Third, it speaks volumes that SBH experienced a 95% decrease in sales volume after the receiver took control and eliminated the commission structure that was previously in place.
Even accepting that there may have been other reasons, in addition to the elimination of the commission structure, for the 95% decrease, the numbers are staggering.
Such a dramatic change suggests that the primary motivation for purchasing SBH products was not true consumer demand, such as a desire to resell the products in retail transactions or consume the products for personal satisfaction, but the hope that such purchases would lead to (or maximize or preserve the availability of) commissions.
Fourth, in a related vein, the Court was struck by the evidence showing that purchases of SBH products would spike on the last day of each month, that nearly 95% of the purchases from SBH were made by SBH affiliates, and that SBH affiliates were economically incentivized (and aggressively encouraged) to use monthly purchases to maintain the “rank” necessary to qualify for increased commissions.
Taken together, these considerations bolster the conclusion that the allure of recruitment-based commissions was the primary impetus for product purchases.
Fifth, as discussed at length in earlier portions of this order, Defendants failed in their attempt to show that retail sales provided a significant source of rewards.
Sixth, other features of SBH provide additional support for the conclusion that it was operating, in practice, as a pyramid scheme. Defendants failed to track retail sales by affiliates and made little effort to create the sort of safeguards against inventory-loading that other MLMs often utilize.
To the contrary, Defendants adopted an official no-refunds policy, often required (and otherwise strongly encouraged) automatic monthly orders, and threatened to bring civil and criminal charges against affiliates who requested refunds or made chargeback requests even when product orders went unfulfilled by the company for months on end.
Accordingly, the FTC met its burden of establishing that “the rewards [SBH] participants received in return were largely for recruitment, not for product sales.”
With Success by Health being found to be a multi-million dollar pyramid scheme, the issue of damages via judgment must now be resolved.
The Supreme Court’s AMG decision was a major spanner in the works, limiting what actions the FTC could seek monetary damages on.
Although the FTC indicated at the outset of the case that it intended to seek damages of up to $8 million based on its claims in the Lead Action, the FTC later clarified that, in light of AMG Capital, it is only seeking monetary remedies in the Lead Action pursuant to its Rules-based claims and is not seeking monetary remedies pursuant to its pyramid-scheme and false-statements claims.
This greatly reduces the monetary remedies sought in the Lead Action.
The FTC’s Rules-based claims pertain to violations of the Merchandise Rule and Cooling-Off Rule.
The FTC seeks $561,798.80 in monetary remedies based on Defendants’ violations of the Merchandise Rule.
The FTC’s request for $561,798.80 in monetary remedies based on the Merchandise Rule violations is flawed for the same reasons discussed in the November 2021 summary judgment order.
As noted there, the FTC’s “all-or-nothing methodology . . . fails to account for the inherent value of the product that consumers ultimately received, even if the product was shipped late.”
The FTC’s arguments on these points are unavailing.
The Court acknowledges that Defendants have also been shown to have engaged in other forms of misconduct with respect to their sale of SBH products, such as selling them as part of a pyramid scheme and making false income misrepresentations.
But it would be analytically imprecise and improper to consider those violations when evaluating the injury arising from the Merchandise Rule violations.
By failing to account for the value of the late-shipped products in its own methodology, the FTC failed to meet its initial burden of providing a “reasonable estimate” of damages.
Anticipating this ruling, the FTC offered up a “fallback claim for $6,829” in damages.
To calculate that sum, the FTC identified five specific instances in which a consumer requested a refund after experiencing a shipping delay, only for SBH to reject the refund request.
The Court agrees with the FTC that an award of $6,829 in damages is appropriate based on these five transactions.
The FTC seeks $581,024.75 in monetary remedies based on Defendants’ violations of the Cooling-Off Rule.
Those damages stem from the sale of tickets to future training events during other live training events.
The FTC argues that Defendants were required, pursuant to the Cooling-Off Rule, to advise ticket purchasers of the right to rescind the purchase within three days but did the opposite by describing the tickets as non-refundable.
The Court declines to award any damages based on the Cooling-Off Rule violations. The analysis here mirrors, in many respects, the analysis concerning the Merchandise Rule.
Although the Court does not foreclose the possibility that the FTC could, in an appropriate case with sufficient evidence, obtain an award of monetary relief based on violations of the Cooling-Off Rule, the problem here is that the FTC’s methodology goes beyond § 19’s authorization to grant only “such relief as the court finds necessary to redress injury to consumers” and violates Figgie’s corresponding mandate that “the relief must be necessary to redress the injury.”
A “fallback request” of $223,793 on the Cooling-off Rule violation was also denied.
The FTC’s fallback request for $223,793.50 in Cooling-Off Rule damages is misplaced.
The court found alleged violations of the Cooling-off Rule, pertaining to tickets sold to a scheduled SBH event, which was cancelled as a result of the FTC’s lawsuit,
was not the cause of these consumers’ loss, as the 72-hour refund window had expired long before these events were cancelled.
The FTC’s Contempt action
While these decisions depressingly result in the Success by Health defendants being fined peanuts for running a multi-million dollar pyramid scheme (not the first time it’s happened), the good news is the FTC did prevail on its contempt action.
This action pertains to alleged violations of a previously granted injunction against Jay Noland. Said injunction explicitly prohibited Noland from “engaging in any pyramid sales scheme”.
The FTC seeks $7.3 million through its contempt action, which it claims represents
a full refund for all amounts that consumers paid to SBH and VOZ Travel (after an offset for commission payments to consumers).
The FTC was originally denied this amount back in 2022.
The Court’s overarching reason for denying the request was that it was “based, in part, on the assertion that SBH constituted a pyramid scheme and that the Contempt Defendants made false income-related statements in the course of operating SBH (conduct that would, in turn, violate Sections I, II, and III of the permanent injunction),” but the FTC had not yet proved all of its SBH-related liability theories at that time.
Fast forward to May 2023…
The FTC has successfully addressed the concerns that were raised in the March 2022 order.
As a result, and because the Contempt Defendants’ various damages-related counterarguments are unavailing, the Court grants the FTC’s request for the imposition of a $7,306,873.14 compensatory civil sanction in the Contempt Action, which is owed jointly and severally by the Contempt Defendants.
On top of the $7.3 million awarded in damages, the Success by Health defendants will also be up for (non-monetary) injunctive relief.
The FTC argues that injunctive relief is necessary here because all of the relevant factors show that there is a cognizable danger of future violations.
The Court has no doubt that injunctive relief is necessary and appropriate here.
The sheer volume of deceptive tactics and statements associated with (SBH and VOZ Travel) provides unmistakable evidence of scienter and shows that the violations were not isolated, but recurrent.
Some of the details associated with VOZ Travel are particularly outrageous.
Also outrageous were some of the wealth-related representations, including the video about the house in Panama that is discussed in more detail elsewhere in this order.
Nor have Defendants displayed any meaningful recognition of wrongdoing.
To the contrary, they have denied any fault—Noland flatly denied making any “statement while [he was] running SBH and VOZ Travel that was deceptive or misleading” —while seeking to assign all of the blame for their current predicament to the FTC, or the Court, or the receiver, or the complaining witnesses.
For a time, Defendants even falsely sought to portray the FTC’s expert as a Ku Klux Klan sympathizer in an effort to undermine her conclusions.
BehindMLM covered Noland’s attempt to play the race card back in 2020.
Defendants ignored—and in some cases, directly violated—important regulatory requirements meant to protect consumers.
Also concerning was the testimony that SBH’s then-head of sales believed it was appropriate to make health claims about SBH’s products so long as they were passed off as “coincidences.”
Similarly concerning was the testimony that two top SBH affiliates used their own health clinic to run a self-interested study intended to establish the health benefits of SBH’s products, were eventually indicted on federal fraud charges, and were allowed to remain in their positions post-indictment.
Then there was the testimony about SBH’s lack of insurance and use of FDA-banned ingredients, which the receiver discovered after she was appointed.
It is difficult to hear all of those details and conclude that Defendants could be trusted to run a future MLM business in compliance with the law.
The violated 2002 NetForce injunction were also taken into consideration by court;
More important, the analysis here is not confined to the four corners of SBH and VOZ Travel.
The Contempt Defendants engaged in all of the misconduct described above while laboring under the shadow of the 2002 permanent injunction.
One might have expected the looming threat of contempt sanctions to nudge the Contempt Defendants to err on the side of caution. They did not.
Instead, they (among other things) adopted compensation structures for SBH and VOZ Travel that were facially illegal in light of how the 2002 permanent injunction defined the term “prohibited marketing scheme.”
Given Defendants’ utter disregard for the obligations created by the 2002 permanent injunction, it is difficult to assign any sincerity to their assurances that, if allowed to resume control over SBH and VOZ Travel (and/or operate another MLM in the future), they will implement new processes and oversight structures and rely on new technologies (such as DocuSign or retail tracking apps) to ensure compliance with the law.
Noland’s conduct in relation to the 2002 permanent injunction is particularly concerning.
He did not disclose the 2002 permanent injunction to Mehler (SBH’s onetime head of sales), may have mischaracterized the scope of the 2002 permanent injunction to Sacca (one of SBH’s senior field advisors), and installed Harris as his other main senior field advisor after learning that Harris was subject to various cease-and-desist orders issued by state regulatory agencies regarding compliance failures in earlier businesses.
This is hardly a serious approach toward compliance and amplifies the Court’s doubts about whether Defendants could be trusted to follow the law in relation to a future MLM.
As was the Success by Health Defendant’s post-TRO conduct (the TRO was granted early on after the FTC filed its case).
Defendants’ post-TRO conduct also raises concerns about their willingness and capacity to comply with the law.
After being served with the TRO on January 13, 2020, Defendants did not comply with the requirement that they immediately provide a copy to each affiliate.
Instead, Noland broadcasted a six-minute statement to SBH affiliates that didn’t mention the TRO but touted Defendants’ honest and integrity.
There is also evidence that Noland fabricated the ECF royalty agreement.
Once again, such conduct goes to the heart of whether Defendants pose a cognizable danger of future violations.
And of course the spoliation of evidence acts, which the court characterized as
destroying evidence, violating court orders, giving false under-oath testimony, and taking no accountability for the misconduct after being caught.
If the FTC gets its way, the Success by Health Defendants will be prohibited from
(1) participating in multi-level marketing programs,
(2) participating in Ponzi or chain referral schemes,
(3) making any material misrepresentations or unsubstantiated claims in connection with the sale of good or services,
(4) failing to monitor compliance with the injunction and failing to investigate consumer complaints,
(5) participating in the sale of ‘business coaching’ services,
(6) violating terms based on the FTC’s Merchandise Rule, and
(7) violating terms based on the FTC’s Cooling-Off Rule.
And, at least as at the time of the court’s order, it’s looking the FTC will get what they want.
The Court agrees, in nearly all respects, with the FTC’s arguments regarding the scope of injunctive relief.
Defendants have shown themselves to be utterly incapable of operating an MLM business in a lawful manner.
That said, while the court found six of the seven requested forms of injunctive relief “uncontroversial and obvious”, number five gave the court pause for concern.
The Court is unwilling to bar Defendants from participating in the sale of business coaching services.
Although the Court reaches this conclusion with some reluctance—the training events played an important role in the propagation of the illegal schemes in this case, and some of the details regarding Defendants’ post-TRO businesses are concerning and unsavory—it is no small thing to impose a lifetime ban on an individual’s ability to earn a livelihood in a particular industry.
The Court is hopeful that the prohibition against participating in the MLM industry—which, to be clear, extends to providing business coaching services on behalf of MLMs, regardless of whether those MLMs are owned or operated by Defendants—strikes the correct balance between protecting consumers and allowing Defendants to earn a living.
Just so we’re clear, the court is looking to ban Jay Noland and the rest of the Success by Health Defendants, from having anything to do with MLM for life.
Accordingly, the FTC was directed to
file an updated version of the proposed “Final Order of Permanent Injunction and Monetary Judgment” that it filed before the bench trial.
This was to happen within fourteen days of May 11th. May 25th is this Thursday so that filing should be made sometime this week.
After the court signs off on the filing, we’ll get a clearer picture of exactly what the judgment against the Success by Health Defendants will be.