Federal Trade Commission v. Noland, Jr.

• Court: District Court, D. Arizona
• Decided: May 11, 2023
• Docket: 2:20-cv-00047
• Status: Unknown

Opinion

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Federal Trade Commission, No. CV-20-00047-PHX-DWL 10 Plaintiff, ORDER 11 v. 12 James D. Noland, Jr., et al., 13 Defendants. 14 15 The bench trial in this matter took place over the course of 11 trial days in January 16 and February 2023. The Court’s findings of fact and conclusions of law are set forth below.

17 LEGAL STANDARD 18 Rule 52(a)(1) of the Federal Rules of Civil Procedure provides that “[i]n an action

19 tried on the facts without a jury . . . , the court must find the facts specially and state its

20 conclusions of law separately. The findings and conclusions may be stated on the record 21 after the close of the evidence or may appear in an opinion or a memorandum of decision 22 filed by the court.”

23 The Ninth Circuit has explained that a district court’s findings under Rule 52(a)

24 “should be explicit enough to give the appellate court a clear understanding of the basis of

25 the trial court’s decision, and to enable it to determine the ground on which the trial court

26 reached its decision.” Alpha Distrib. Co. of Cal., Inc. v. Jack Daniel Distillery, 454 F.2d 27 442, 453 (9th Cir. 1972). With that said, such findings must also “strike an appropriate 28 balance between detail, simplicity, and efficiency. . . . [E]xcessively long and detailed Case 2:20-cv-00047-DWL Document 579 Filed 05/11/23 Page 2 of 131

1 findings are not necessary . . . and can even be unhelpful. . . . Ultimately, the trial court’s 2 findings should be sufficient to reveal the court’s concept of the facts and applicable legal 3 standards without being needlessly elaborate or too wordy.” 2 Gensler, Federal Rules of 4 Civil Procedure, Rules and Commentary, Rule 52, at 46-47 (2021). Put another way, “the 5 judge need only make brief, definite, pertinent findings and conclusions upon the contested 6 matters; there is no necessity for over-elaboration of detail or particularization of facts.” 7 Fed. R. Civ. P. 52, advisory committee’s note to 1946 amendment.1 8 FINDINGS OF FACT 9 I. Background 10 Before turning to the FTC’s outstanding claims, it is helpful to provide an overview 11 of the complicated factual and procedural history of this case and make some factual 12 findings regarding witness credibility and other issues that are broadly relevant to the 13 outstanding claims. 14 A. Overview Of The Two Actions 15 Between 2017 and 2020, James “Jay” Noland (“Noland”), Lina Noland, Thomas 16 Sacca (“Sacca”), and Scott Harris (“Harris”) (together, “Defendants”) operated a pair of 17 multi-level marketing businesses (“MLMs”). The first, Success by Health (“SBH”), 18 offered coffee products, other beverages, and nutraceuticals, while the second, VOZ Travel 19 (“VOZ Travel”), promised to offer certain travel-related benefits. 20 In January 2020, the FTC filed a lawsuit against Defendants, which was assigned 21 case number 20-cv-00047 and will be referred to as the “Lead Action.” In the operative 22 complaint in the Lead Action, the FTC alleges that Defendants violated various provisions 23 24 1 As discussed throughout this order, the Court broadly found the FTC’s witnesses to be credible, whereas many of the defense witnesses were not fully credible. Thus, the 25 Court largely agrees with the FTC’s proposed findings of fact. Nevertheless, given the directive to “make brief, definite, pertinent findings and conclusions upon the contested 26 matters” and avoid “over-elaboration of detail or particularization of facts,” this order does not address all 842 of the FTC’s proposed findings of fact (Lead Action, Doc. 528) or all 27 271 of Defendants’ proposed findings of fact (Lead Action, Doc. 529). Instead, relevant findings have been included where appropriate. This approach (which has still generated 28 a 100+ page order) should not be viewed as an implicit rejection of any of the FTC’s proposed findings.

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1 of the Federal Trade Commission Act (“FTC Act”) by operating SBH and VOZ Travel as 2 unlawful pyramid schemes, by making false representations in the course of operating 3 those ventures, and by engaging in certain product-shipping and refund practices that 4 violated rules promulgated by the FTC. (Lead Action, Doc. 205.)2 During the early stages 5 of the Lead Action, the FTC sought—and the Court granted—a temporary restraining order 6 and a preliminary injunction. (Lead Action, Docs. 19, 38, 106, 109.) These orders resulted 7 in the appointment of a receiver to operate SBH and an asset freeze, among other things. 8 As the proceedings in the Lead Action were unfolding, the FTC identified another 9 avenue for seeking relief, which stemmed from a different lawsuit the FTC had filed against 10 Noland in the District of Arizona nearly two decades earlier. In that lawsuit, which was 11 assigned case number 00-cv-02260 and will be referred to as the “Contempt Action,” the 12 FTC accused Noland of engaging in various forms of misconduct related to an MLM called 13 Bigsmart, which the FTC alleged to be a pyramid scheme. (Contempt Action, Doc. 1.) 14 During the early stages of the Contempt Action, Noland filed bizarre pleadings filled with 15 sovereign-citizen arguments.3 Later, in 2002, Noland agreed to settle the FTC’s 16 allegations. The settlement agreement, which clarified that Noland was not admitting any 17 wrongdoing, took the form of a stipulated permanent injunction that forbade Noland (and 18 others “in active concert or participation” with Noland) from engaging in certain practices. 19 (Contempt Action, Doc. 66.) As relevant here, the forbidden practices included 20 (1) operating a “prohibited marketing scheme,” including a pyramid scheme; (2) making 21 2 The abbreviation “Doc.” refers to where the cited document was filed as part of the docket. The abbreviation “Ex.” refers to the exhibit number at trial. The abbreviation “Tr.” 22 refers to the page number of the trial transcript. 23 3 See, e.g., Contempt Action, Doc. 38 (Noland’s “Request for Remedy,” which threatened to place the assigned judge into “involuntary bankruptcy” and asserted that, by 24 writing his name in the case caption in capital letters, the FTC had sued Noland’s “VESSEL,” a legal entity “registered with the Dept. of Transportation in Puerto Rico,” 25 rather than his person, which was the “secured/creditor/priority stockholder/holder-in-due- course” of his “VESSEL”); Contempt Action, Doc. 51 at 2-3 (order, explaining that 26 “Noland claims that this Court lacks jurisdiction over him because he did not consent to the federal government’s authority over him and because he claims that the FTC is acting 27 under a ‘secret jurisdiction’” and that “[n]othing in Noland’s motions to dismiss disputes the factual or legal allegations presented by the FTC. Instead Noland focuses on two 28 theories from the ‘Sovereign Citizens Movement’ that have been consistently rejected by the courts as ‘bizarre,’ ‘entirely frivolous,’ ‘meritless,’ and ‘unreasonable.’”).

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1 any “false or misleading statement . . . of material fact” in connection with an MLM; and 2 (3) failing to take “reasonable steps” to monitor compliance with the permanent injunction. 3 (Id. at 3-4, 6-7.) 4 In the FTC’s view, Noland violated these provisions through his operation of SBH 5 and VOZ Travel. Accordingly, in February 2020, the FTC filed a motion in the Contempt 6 Action for an order to show cause why Noland should not be held in contempt for violating 7 the permanent injunction. (Contempt Action, Doc. 78.) In response to the show-cause 8 motion, Noland submitted declarations from Harris and Sacca in which they acknowledged 9 that Noland had advised them of the permanent injunction and of the limitations imposed 10 by it. (Contempt Action, Docs. 82-1, 82-2.) Based on that evidence, the FTC moved for 11 an order to show cause why Harris and Sacca, too, should not be held in contempt. 12 (Contempt Action, Doc. 91.) 13 In July 2022, the Court issued an order consolidating the Lead Action and the 14 Contempt Action for all purposes. (Lead Action, Doc. 516.) 15 B. The Receivership 16 As noted, the Court granted the FTC’s request, made at the outset of the case, to 17 appoint a receiver to assume control over SBH, VOZ Travel, and other related entities. 18 Although this decision has been the subject of intense criticism by Defendants (and some 19 SBH affiliates) over the past three years, the evidence presented during the bench trial 20 leaves no doubt in the Court’s mind that it was the correct decision. 21 The receivership also provides the backdrop for various developments that bear on 22 the remaining disputed issues in this case. For example, as part of the preliminary 23 injunction, the Court authorized the receiver to resume SBH product sales in the hope that 24 such sales would “provide some relief to the Affiliates who feel harmed by the TRO.” 25 (Lead Action, Doc. 106 at 28.) The Court “allow[ed] the receiver to reactivate shipping 26 and sell what SBH products she has in her possession.” (Id.) The receiver reopened sales 27 in mid-May 2020. (Tr. 368.) However, the receiver did not reactivate the SBH commission 28 structure. (Tr. 366, 381, 397.)

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1 SBH product sales plummeted after these changes were instituted. In the years 2 before entry of the TRO, affiliates bought an average of $6,694.23 in SBH products per 3 day. (Ex. 38 at 11-12.) In contrast, during the 275-day period in which the receiver sold 4 SBH products, SBH product sales averaged $413.56 per day (id. at 12)—a decrease of 5 nearly 95% from pre-TRO sales. The relevance of these developments is discussed in more 6 detail in later portions of this order. 7 After assuming control over SBH, the receiver also identified various irregularities 8 in how Defendants had been operating the business. For example, the receiver discovered 9 “that one of the products [G-Burn] contained an ingredient banned by the FDA” and thus 10 discontinued selling that item. (Tr. 370, 397.) The receiver also became concerned that 11 Defendants lacked “substantiation of the products’ claims that they had been making on 12 their website and in other promotional materials” and, after defense counsel was unable to 13 provide any substantiation materials, arranged for “the website . . . to be changed and all 14 of the product descriptions on the website . . . to be changed.” (Id. at 370.) The receiver 15 also discovered that SBH had been operating in Kentucky without registering with the 16 state, lacked commercial liability insurance, and had not been collecting sales tax on 17 product sales. (Id. at 368-69.) 18 Separately, Defendants were required to “immediately” provide a copy of the TRO 19 to each “affiliate, . . . employee, . . . and representative of any Defendant.” (Lead Action, 20 Doc. 38 at 27.) The TRO also barred Defendants from “[t]ransacting any of the business 21 of the Receivership Entities.” (Id. at 23.) Nevertheless, after being served with the TRO 22 on January 13, 2020, Noland went to the beach and broadcasted a six-minute statement to 23 SBH affiliates, never mentioning the TRO but instead mentioning some “legal matters that 24 we’re dealing with right now” and stressing how Defendants “do[] things the right way, 25 bringing tons of integrity, transparency to the industry.” (Ex. 121 at 5:5-10.) Defendants 26 did not disclose the existence of the TRO to SBH affiliates until January 24, 2020. (Lead 27 Action, Doc. 351-2 at 7.) The relevance of these developments is discussed in more detail 28 infra, primarily in relation to the necessity and scope of injunctive relief.

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1 Finally, the discussion of the receiver’s role in this case would not be complete 2 without noting that, in April 2021, the Supreme Court held in AMG Capital Mgmt., LLC v. 3 FTC, 141 S.Ct. 1341 (2021), that the FTC may not obtain “equitable monetary relief such 4 as restitution or disgorgement” pursuant to its authority under § 13(b) of the FTC Act. Id. 5 at 1344. After AMG Capital was decided, Defendants argued that the receivership and 6 asset freeze should be lifted. (Lead Action, Doc. 383.) In a September 2021 order, the 7 Court disagreed, explaining in relevant part that “AMG Capital does not undermine the 8 receivership component of the original order granting a preliminary injunction. The 9 purpose of the receivership was not merely to preserve assets in anticipation of a future 10 award of monetary remedies pursuant to the FTC’s § 13(b) claims—to the contrary, a key 11 reason why the Court imposed the receivership was to prevent ongoing and future harm, 12 by ousting the Individual Defendants from their management positions in entities that were 13 likely functioning as pyramid schemes and making false income representations.” (Lead 14 Action, Doc. 412 at 6.) 15 C. Encrypted Communications 16 Before trial, the Court granted the FTC’s motion for spoliation sanctions. (Lead 17 Action, Doc. 401.) The conduct underlying that motion, which related to Defendants’ use 18 of the encrypted communication services Signal and ProtonMail, was also the subject of 19 extensive discussion during trial.4 Because these issues are relevant to all of the FTC’s 20 outstanding claims against Defendants—they have the potential to affect the Court’s 21 findings both as to liability and as to remedies—the Court addresses them here. As 22 summarized below, the Court finds that Defendants engaged in at least 10 discrete acts of 23 dishonesty that relate, in one way or another, to Signal and ProtonMail. 24 4 The order granting the FTC’s sanctions motion explained that there was no need for 25 an evidentiary hearing because Defendants “ma[d]e no effort to identify the evidence they would attempt to submit during such a hearing or explain how it would differ from the 26 voluminous evidence already submitted by the parties in relation to the FTC’s motion.” (Lead Action, Doc. 401 at 26.) The Court continues to believe that approach was correct 27 but notes that the bench trial functionally served as an evidentiary hearing, as Defendants presented an array of evidence during trial concerning why they deleted Signal and other 28 related matters. After hearing all of that evidence and evaluating Defendants’ credibility, the Court reaches the same conclusions it reached in the sanctions order.

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1 The first act of dishonesty is Defendants’ initial decision to begin using Signal and 2 ProtonMail. The relevant facts are as follows. On May 15, 2019, Wells Fargo 3 inadvertently disclosed to Noland that the FTC had subpoenaed bank records related to him 4 and his companies. (Lead Action, Doc. 401 at 3-4.) The very next day, Noland instructed 5 the “SBH Leadership Council,” which included Harris and Sacca, to install the Signal 6 messaging application on their phones. (Id.) Signal emphasizes user privacy, highlighting 7 its end-to-end encryption, and promises that messages cannot be seen by Signal or others. 8 (Id.) Defendants installed and began using Signal that same day. (Id.) Around the same 9 time, Defendants also switched to using ProtonMail, a Swiss encrypted email service that 10 emphasizes user privacy. (Id.) On May 29, 2019, the FTC asked that Defendants “suspend 11 any ordinary course destruction of documents, communications, and records.” (Id.) Rather 12 than suspend document destruction, Defendants instructed each other (as well as other SBH 13 employees and affiliates) to use Signal or ProtonMail for “anything sensitive” or 14 “important things.” (Id.) The Court concludes, in its capacity as finder of fact, that 15 Defendants’ purpose in switching to Signal and ProtonMail was to conceal evidence from 16 the FTC. 17 This finding dovetails with the second act of dishonesty. During their testimony at 18 trial, Defendants sought to provide various innocent explanations for their decision to begin 19 using Signal the day after learning about the FTC’s investigation. Noland testified that the 20 timing was a “coincidence.” (Tr. 1560-61.) The Court found this testimony to be 21 incredible and damaging to Defendants’ credibility. In particular, the Court was 22 unpersuaded by the explanation that Defendants chose to begin using Signal because a rival 23 had just launched a competing travel business and they suspected the rival had learned 24 about (and stolen) their idea for the travel business by hacking their phones. (See, e.g., Tr. 25 757, 817-18, 1578.) Not only is there no evidence (apart from Defendants’ testimony) that 26 Defendants had begun developing their travel business idea before the rival’s 27 announcement, but Noland testified elsewhere that he orally told Luke Curry about the 28 travel business idea and suspected that Curry was the source of the leak. (Tr. 1488-93.)

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1 Assuming this is true, there would have been no reason to suspect the leak had actually 2 been accomplished through phone hacking (and, thus, to switch to Signal to avoid future 3 phone hacking). 4 In a related vein, the Court was unpersuaded by Defendants’ testimony at trial that 5 they only used Signal’s messaging feature for non-substantive logistical texts (such as 6 scheduling phone calls) and reserved their substantive discussions for phone calls 7 conducted via Signal. (See, e.g., Tr. 765, 821-22, 1501, 1566, 1869.) This explanation 8 was not credible for at least two reasons. First, before switching to Signal, Defendants 9 exchanged a large volume of substantive text messages via the “SBH Leadership Council” 10 group chat on WhatsApp, but after switching to Signal, the volume of such messages 11 dwindled. (Tr. 1568-70.) It is implausible that Defendants simply stopped engaging in 12 substantive text message conversations after switching messaging platforms—the more 13 logical inference is that Defendants began using Signal’s messaging feature for these 14 conversations. Second, the FTC presented evidence at trial of one instance in December 15 2019 where Harris sent the following text to Noland via the iOS app: “Please text me on 16 signal.” (Ex. 388.) This text undermines Defendants’ testimony about how they used 17 Signal’s messaging function, which was only to make logistical arrangements for Signal 18 phone calls. If that were true, Harris would have simply texted “Please call me on 19 signal”—there would have been no need to switch over to Signal’s messaging platform 20 simply to then send another text message saying “Please call me on signal.” The inference 21 is that Defendants were using Signal’s messaging function for substantive purposes but 22 chose to testify untruthfully about that conduct at trial. 23 The third act of dishonesty occurred in the aftermath of the TRO. Among other 24 things, the TRO required Defendants to “immediately transfer or deliver to the Temporary 25 Receiver,” inter alia, “[a]ll Documents of or pertaining to the Receivership Entities, 26 including all communications occurring via electronic mail, electronic message service, or 27 encrypted messaging service,” “[a]ll computers, electronic devices, mobile devices, and 28 machines used to conduct the business of the Receivership Entities,” and relevant

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1 passwords. (Lead Action, Doc. 38 at 21-22, emphasis added). As a result, the receiver 2 asked Defendants to “turn over all of their electronic mail, electronic messages, or 3 encrypted messages relating to the receivership entities.” (Tr. 343.) In response, 4 Defendants “[n]ever turn[ed] over any messages they sent using the Signal messaging app” 5 and never disclosed “that they had used the Signal messaging app to communicate about 6 company business.” (Id.) Separately, the receiver asked Defendants to “turn over all of 7 their electronic devices and mobile devices related to company business.” (Tr. 344.) 8 However, after then-defense counsel advised the receiver—falsely, as it turns out—that 9 “the mobile devices didn’t contain anything that hadn’t already been produced to [her],” 10 she dropped the production request. (Tr. 344-45.) This conduct was deceptive and 11 constituted a violation of a court order. 12 The fourth act of dishonesty occurred during Noland’s first deposition on February 13 5, 2020. During that deposition, the FTC asked Noland a series of questions about whether 14 he used any encrypted messaging services or applications. In response, Noland failed to 15 disclose his use of Signal and ProtonMail: 16 Q. Have you ever used any type of encrypted communications to conduct 17 Success By Media business? 18 A. I’m not sure what you mean, sir. 19 Q. Have you used any type of phone application or software system that encrypts the substance of the communication from point to point? 20 A. I mean, I think it’s like standard practice now. I don’t know. It’s 21 standard practice. 22 Q. Do you do that in your course of your work for Success By Media? 23 A. I don’t know. Whatever communication. I mean, it’s a phone call. The encrypted, what Verizon offers. 24 Q. Do you do anything separately to encrypt your communications apart 25 from what a Verizon provider may do on their end? 26 A. Just have, you know, I think WhatsApp uses that now. 27 (Lead Action, Doc. 259-1 at 130.) In its proposed findings of fact, the FTC urges the Court 28 to find that Noland “feigned confusion and then lied” during this portion of the deposition.

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1 (Lead Action, Doc. 528 at 156 ¶ 749.) As harsh as these words may be, the Court agrees 2 in its capacity as factfinder that this is an accurate description of what transpired. 3 The fifth, related act of dishonesty arises from Noland’s testimony during the bench 4 trial about his February 2020 deposition testimony. In essence, Noland blamed the FTC’s 5 attorney for cutting him off before he had a chance to complete his answer. (Tr. 1570-71.) 6 Noland also seemed to blame his then-counsel for the omission. (Tr. 1572-73.) These are, 7 respectfully, not credible excuses for Noland’s failure to disclose his use of Signal and 8 ProtonMail during the February 2020 deposition. 9 The sixth act of dishonesty occurred in mid-2020, when Noland used his ProtonMail 10 account to send an email to Robert Mehler. (Ex. 355.) In the Court’s view as factfinder, 11 this email was not (as the defense sought to portray it at trial) some clumsily written but 12 well-intentioned attempt to gather evidence—instead, it was essentially a script that Noland 13 hoped SBH affiliates would follow when submitting declarations intended to bolster the 14 defense’s position in this case. The Court reaches this conclusion not only based on the 15 substance of the email but because of what followed. After sending the email to Mehler, 16 Noland deleted it and failed to produce or disclose it to the FTC. (Lead Action, Doc. 276 17 at 3 n.3.) Separately, Mehler failed to disclose the email in response to a subpoena from 18 the FTC, a follow-up email from the FTC, and a subsequent letter from defense counsel. 19 (Tr. 1094-1104.) Although Mehler attempted to explain at trial why his failure to produce 20 the email in response to these inquiries was a good-faith mistake, the Court did not find 21 this testimony credible. Attempting to coach witnesses and then hide the evidence of the 22 witness-coaching is deeply troubling behavior. 23 The seventh act of dishonesty occurred on August 17, 2020, when Defendants 24 engaged in a coordinated effort to delete the Signal app from their phones, which were due 25 to be turned over for imaging the next day. These deletion efforts prevented the forensic 26 recovery of any Signal-related information from the phones. In the sanctions order, the 27 Court described Defendants’ coordinated deletion of the Signal app as “an outrageous 28 maneuver that raises a strong inference of bad faith.” (Lead Action, Doc. 401 at 24.) The

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1 Court stands by that description now, after hearing the evidence during the bench trial. 2 The eighth, related act of dishonesty is Defendants’ testimony during the bench trial 3 about why they chose to delete Signal in this fashion. Essentially, Defendants testified that 4 they only reason they did so was because they feared the FTC would otherwise be able to 5 use the information in the Signal app to identify which individuals were making donations 6 to their legal defense fund in this case and then harass those individuals with overbroad 7 subpoena requests. (See, e.g., Tr. 760-61 [Lina Noland]; Tr. 1260-61 [Sacca]; Tr. 1499- 8 1501 [Noland].) This testimony is problematic for two reasons. First, even assuming that 9 protecting donor identities was one reason why Defendants chose to delete the Signal app,5 10 the Court does not accept that it was the only reason. Given the sheer scope of the 11 dishonesty surrounding the use and concealment of Signal and ProtonMail, the Court infers 12 that Defendants also deleted it with the intent of destroying evidence that could otherwise 13 be used against them in this litigation. Their testimony to the contrary during trial 14 undermined their credibility and serves as further evidence of dishonesty. Second, and 15 more broadly, Defendants’ trial testimony on this point seems to presuppose that there 16 might be a good reason for intentionally violating a court order. There isn’t. Even 17 accepting their trial testimony, Defendants made a calculated, deliberate decision to violate 18 the TRO because they concluded it would be in their tactical interest. This is troubling 19 under any circumstance and is particularly troubling here, where the essential question 20 posed by some of the FTC’s requests for permanent injunctive relief is whether Defendants 21 can be trusted to follow future court orders. 22 The ninth act of dishonesty, which came as something of a surprise during trial, 23 concerns Noland’s effort in August 2020 to create a new ProtonMail email account with 24 the handle “breeze8.” (Tr. 2059.) The fact that Noland created this email account is not, 25 26 5 The FTC questions the sincerity of Defendants’ contention on this point, noting that Signal dialing records would not alone reveal which SBH affiliates were making donations 27 (and that the FTC has, at any rate, learned the identity of the donors through other means). The Court finds it unnecessary to decide whether Defendants’ professed desire to protect 28 donor identities was one of their motivations for deleting Signal because, as discussed in the text, the decision was dishonest and indefensible even if this was part of the rationale.

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1 alone, evidence of dishonesty—there is nothing inherently wrong with having multiple 2 email accounts. Instead, the dishonesty stems from the testimony that Noland provided 3 during his December 14, 2020 deposition in this case. During that deposition, Noland was 4 asked, point-blank, to identify “all email addresses you’ve used since January 1st, 2017” 5 and failed to identify the breeze8 account in his resulting answer. (Tr. 2063-65.) There is 6 no honest explanation for this omission.6 7 The tenth, related act of dishonesty is Noland’s testimony during the FTC’s rebuttal 8 case at trial, when he was finally confronted with his failure to disclose the breeze8 account 9 during his December 2020 deposition. In response, Noland took zero accountability for 10 the omission, refused to even acknowledge that he had made a mistake (explaining that the 11 previous testimony related “specifically in regard to that spoliation at that time”), and 12 instead tried to blame his former counsel. (Tr. 2068-71.) 13 D. Relevant Prior Rulings 14 This case has involved an unusual degree of pretrial motions practice, as evidenced 15 by the more than 500 pretrial docket entries. It is unnecessary here to provide a complete 16 summary of those pretrial rulings, which have been summarized in prior orders. (See, e.g., 17 Lead Action, Doc. 473 at 1-8.) Instead, the Court will identify only the prior rulings that 18 help frame the issues being resolved in this order. 19 As noted, the FTC’s claims in the Lead Action essentially fall into three categories: 20 (1) Defendants violated the FTC Act by operating SBH and VOZ Travel as a pyramid 21 scheme; (2) Defendants violated the FTC Act by making false and misleading statements 22 in the course of operating SBH and VOZ Travel; and (3) Defendants violated the FTC’s 23 Merchandise Rule, 16 C.F.R. § 435, and Cooling-Off Rule, 16 C.F.R. § 429, by not offering 24 and providing certain information and refunds. 25 In March 2021, the FTC moved for summary judgment as to liability on all of its 26 6 During his direct testimony at trial, Noland also failed to disclose the breeze8 27 ProtonMail account in response to questioning by his own counsel. (Tr. 1494-95.) Although this episode could potentially be characterized as another instance of dishonesty, 28 the Court acknowledges that the questions posed by counsel were somewhat ambiguous (and certainly not as clear as the questions posed during the December 2020 deposition).

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1 claims in the Lead Action. (Lead Action, Doc. 285.) In September 2021, the Court granted 2 this motion in part. (Lead Action, Doc. 406.) On the one hand, the Court found there was 3 no genuine dispute of material fact that (1) VOZ Travel was a pyramid scheme, (2) 4 Defendants promoted VOZ Travel using false claims that consumers could reasonably 5 expect to earn substantial income, and (3) Defendants provided the means and 6 instrumentalities for others to violate the FTC Act by promoting VOZ Travel. (Id. at 35- 7 37, 43-44, 48.)7 The Court also found no genuine dispute of material fact that Defendants 8 violated the Merchandise Rule and Cooling-Off Rule. (Id. at 50-52.)8 On the other hand, 9 the Court declined to grant summary judgment in the FTC’s favor with respect to whether 10 SBH was a pyramid scheme and whether Defendants made misrepresentations about SBH 11 members’ potential income. (Id. at 40, 46.)9 12 In June 2021, the FTC moved for summary judgment with respect to monetary 13 remedies in the Lead Action. (Lead Action, Doc. 365.) Although the FTC indicated at the 14 outset of the case that it intended to seek damages of up to $8 million based on its claims 15 in the Lead Action (Lead Action, Doc. 163 at 19), the FTC clarified in its remedies-related 16 7 These determinations stemmed, in part, from Defendants’ failure to discuss (let 17 alone defend) VOZ Travel in their motion papers. (See, e.g., id. at 35 [“The Individual Defendants largely ignore the FTC’s evidence and arguments related to the VOZ Travel 18 program. Whatever the reason for this approach, it effectively dictates the outcome here— the FTC’s initial evidentiary submissions are sufficient to meet its burden of production on 19 the pyramid-scheme claim as applied to VOZ Travel and, because that evidence is essentially undisputed, it follows that the FTC is entitled to summary judgment [on Count 20 One].”]; id. at 43 [“The FTC is entitled to summary judgment on Count Two for the simple reason that the Individual Defendants do not even attempt to defend some of the categories 21 of misrepresentations identified in the FTC’s motion. As noted, the FTC specifically argues that Individual Defendants made false income claims regarding VOZ Travel.”].) 22 8 These determinations stemmed, in part, from Defendants’ concession that they had committed the alleged violations. (Id. at 50 [“[T]he Individual Defendants’ answer admits 23 that Merchandise Rule violations occurred, objecting only to the assertion that such violations were ‘numerous.’ This admission, standing alone, compels the entry of 24 summary judgment in the FTC’s favor on the issue of liability.”]; id. at 51 [“There is no genuine dispute of material fact as to Count Six—the Individual Defendants admit they 25 violated the Cooling-Off Rule.”].) 9 26 Although the Court initially suggested there would be no need for a trial on whether SBH was a pyramid scheme because Count One of the operative complaint in the Lead 27 Action only required a finding of pyramid-scheme liability as to SBH or VOZ Travel (Lead Action, Doc. 407 at 1), the Court later clarified that the SBH pyramid-scheme issue would 28 be resolved at the bench trial because it is relevant to the scope of relief being sought by the FTC in both actions (Contempt Action, Doc. 134 at 3).

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1 motion that, in light of AMG Capital, it was only seeking monetary remedies in the Lead 2 Action pursuant to its Rules-based claims and was not seeking monetary remedies pursuant 3 to its pyramid-scheme and false-statements claims. (Lead Action, Docs. 351, 365.) This 4 reduced the damages sought in the Lead Action to approximately $1.1 million. (Lead 5 Action, Doc. 365 at 1.) In November 2021, the Court denied the FTC’s remedies-related 6 motion, concluding that the FTC’s methodology for calculating the damages associated 7 with the Rules violations was overbroad. (Lead Action, Doc. 438 at 7 [“Although the Court 8 does not foreclose the possibility that consumers suffered some form of cognizable harm 9 from the violations, the all-or-nothing methodology presented in the FTC’s motion papers 10 is flawed because it fails to account for the inherent value of the product that consumers 11 ultimately received.”].) 12 Separately, in the Contempt Action, the FTC’s essential theory is as follows: 13 (1) Noland, Harris, and Sacca violated the 2002 permanent injunction in various ways 14 through their operation of SBH and VOZ Travel; (2) these violations qualify as 15 “contumacious conduct”; (3) the Court may therefore impose compensatory sanctions 16 against Noland, Harris, and Sacca pursuant to the law of civil contempt; (4) such monetary 17 awards are not subject to the same limits that apply, post-AMG Capital, to the FTC’s claims 18 in the Lead Action; and (5) the Court should therefore award more than $7 million in 19 sanctions in the Contempt Action. (Lead Action, Doc. 532 at 64-66; Contempt Action, 20 Doc. 106.) 21 In June 2021, the FTC filed a motion in which it asked the Court to enter the 22 requested award in the Contempt Action without an evidentiary hearing. (Contempt 23 Action, Doc. 106.) In March 2022, the Court issued an order denying this motion without 24 prejudice. (Contempt Action, Doc. 130.) Although the Court recognized that “[t]he FTC 25 has established that the Contempt Defendants violated some provisions of the permanent 26 injunction,” the Court noted that “the FTC has not established, at least at this stage of the 27 proceedings, that the Contempt Defendants committed certain other alleged violations of 28 the permanent injunction. The FTC’s contempt motion is based, in part, on the assertion

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1 that SBH constituted a pyramid scheme and that the Contempt Defendants made false 2 income-related statements in the course of operating SBH (conduct that would, in turn, 3 violate Sections I, II, and III of the permanent injunction). However, in the summary 4 judgment order as to liability in the [Lead] Action, the Court concluded that the existence 5 of triable issues of fact precluded the entry of summary judgment in the FTC’s favor on 6 those particular issues. Because the FTC simply cross-references its summary judgment 7 evidence for purposes of establishing contempt liability, the Court concludes that the FTC 8 has not clearly and convincingly established, at this stage of the proceedings, that the 9 Contempt Defendants violated Sections I, II, and III of the permanent injunction through 10 their operation of SBH. The FTC will need to seek to establish those violations at an 11 evidentiary hearing.” (Id. at 7-9.) The Court further noted that “[b]ecause the FTC has not 12 established all of the violations alleged in its motion, it follows that the FTC has not 13 established an entitlement to the $7,012,913.25 compensatory contempt award sought in 14 its motion. To calculate that sum, the FTC added together the net revenues earned from 15 both SBH and VOZ Travel. But because the SBH-related violations have not been 16 established, the FTC’s requested sum is necessarily overstated.” (Id. at 9.)10 17 Given this backdrop, the outstanding issues to be resolved during the bench trial are, 18 broadly speaking: (1) whether SBH was a pyramid scheme; (2) whether Defendants made 19 false and misleading statements with respect to SBH; (3) the extent to which Noland, 20 Harris, and Sacca violated the 2002 permanent injunction (which depends, in part, on the 21 resolution of the first two issues); (4) the monetary remedies that should be imposed based 22 on the Rules violations in the Lead Action; (5) the monetary remedies that should be 23 imposed in the Contempt Action; and (6) the scope of injunctive relief. 24 … 25 … 26 … 27 10 The Court also identified two potential problems with the FTC’s methodology for 28 calculating damages in the Contempt Action. (Contempt Action, Doc. 130 at 9-11.) Those issues are addressed in more detail in later portions of this order.

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1 E. The Bench Trial And Witness Credibility 2 1. FTC Witnesses 3 During the bench trial, the FTC called five witnesses. The first, Dr. Stacie Bosley, 4 offered the opinions that “SBH was operating as a pyramid scheme” and that SBH “was 5 misrepresenting the opportunity to consumers.” (Tr. 55.)11 On the whole, the Court found 6 Dr. Bosley to be a credible and persuasive expert witness. Although defense counsel 7 attempted to poke holes in certain aspects of Dr. Bosley’s analysis and methodology, these 8 impeachment efforts did not undermine the overall persuasiveness of her opinions. 9 The FTC’s second witness was Adam Rottner, an FTC investigator who “made 10 undercover purchases [from SBH], joined the company as an affiliate and participated in 11 calls and Facebook Live events.” (Tr. 219-20.) The Court found Rottner to be a credible 12 witness and assigned particular significance to his testimony concerning VOZ Travel. 13 More specifically, Rottner testified that although Defendants included several very specific 14 product claims in presentations regarding VOZ Travel—i.e., VOZ Travel could “literally” 15 produce 70% savings on travel costs, VOZ Travel had a “complete gamification engine” 16 that would provide rewards in exchange for feedback, VOZ Travel was “developing an 17 exclusive travelers DNA tool,” and VOZ Travel was “working on artificial intelligence 18 named Dina that was comparable to Siri, Alexa, and Cortana”—there was no documentary 19 evidence that any of these claims were true. (Tr. 246-52.) 20 The FTC’s third witness was Elizabeth Miles, an FTC data analyst. The Court found 21 Miles to be a credible witness. Among other things, Miles calculated “that 94.7 percent of 22 23 11 See also Tr. 115 (Q: “You’ve testified that you found SBH met your economic definition of a pyramid scheme. Putting everything together, the plan, the program, the 24 training, instructions, practices, the approaches on safeguards, what is your conclusion on whether SBH operated as a pyramid scheme as defined by the Koscot test and FTC v. 25 BurnLounge?” A: “So I find, again, that affiliates did pay for the right to receive rewards where those rewards were for recruiting and unrelated to ultimate user sales. And, again, 26 the BurnLounge second principle says a system doesn’t have to be wholly unrelated to user sales. In practice as a whole, it’s designed to operate to give you rewards that are unrelated. 27 And so I find that it satisfies the Koscot test.”); Tr. 120 (Q: “Did you reach a conclusion on whether SBH’s income representations are false?” A: “I did, yes.” Q: “What was that 28 conclusion?” A: “That it does systematically misrepresent the earnings that would be achieved in this system.”).

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1 purchases from Success By Media were by affiliates” (Tr. 305); that only 420 affiliates 2 (out of more than 6,000) were in a net position greater than zero vis-à-vis SBH (Tr. 307; 3 Ex. 38 at 6-7);12 that affiliate “purchases [from SBH] on the last day of the month [were] 4 much, much higher than the rest of the month” (Tr. 311); and that affiliate purchases of 5 SBH products fell by 94% after the TRO (Tr. 314). As discussed in more detail infra, these 6 calculations form part of the foundation for the Court’s liability findings. Although defense 7 counsel attempted to identify methodological problems with several of Miles’s 8 calculations, these impeachment efforts did not undermine the overall persuasiveness of 9 her calculations. 10 The FTC’s fourth witness was Kimberly Friday, who served as the court-appointed 11 receiver from January 2020 through August 2021. The Court found Friday to be a credible 12 witness.13 Although defense counsel attempted to suggest, via cross-examination, that 13 Friday’s flawed post-TRO marketing strategy and failure to obtain a merchant account 14 were the real reasons for the post-TRO drop in SBH sales, the Court found this line of 15 questioning only partly effective. Friday was justified in taking the challenged steps she 16 took to resume sales—it would have been reckless for the receiver to continue making the 17 same income claims that had just been deemed problematic in the TRO and preliminary 18 injunction rulings or to continue making the same product claims that Defendants had been 19 unable to substantiate. At any rate, although the Court does not discount the possibility 20 that an array of factors may have contributed to the dramatic decrease in post-TRO sales, 21 the Court was persuaded (in its capacity as factfinder) that the absence of true customer 22 demand for SBH’s products—which was revealed only after the promise of recruitment 23 commissions was stripped away—was the primary reason for the decrease. 24 The FTC’s final witness was Roshni Agarwal, a forensic account employed by the 25 FTC. (Tr. 792.) The Court found Agarwal to be a credible witness. Agarwal’s limited 26 12 Miles acknowledged that her “loss position” calculations do not account for profits that affiliates may have earned from retail sales. (Tr. 324-25.) 27 13 Although Friday initially seemed to misremember certain details concerning the 28 purported offer by Dr. Maranakis to purchase all of SBH’s coffee inventory (Tr. 404-07), the Court viewed this as an isolated instance of an honest mistake.

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1 role was to calculate the amount of money that Success By Media transferred to Defendants 2 (or accounts and entities associated with Defendants) between July 2017 and January 2020. 3 (Tr. 798.) Agarwal calculated the overall figure to be about $1.7 million, consisting of 4 about $582,000 to Noland, about $404,000 to Lina Noland, about $450,000 to Harris, and 5 about $251,000 to Sacca. (Tr. 798-99.) 6 2. Defense Witnesses 7 During the bench trial, the defense called 14 witnesses. It is helpful to group them 8 into categories. 9 a. Affiliate Witnesses 10 Nine of the defense witnesses (Tevis Sherfield, Melanie Summers, Sye Head, James 11 McKee, Scott Cunningham, David Small, Clayton Miller, Francois Hewing, and Joe 12 Farley) are former SBH affiliates. From the Court’s perspective, the main points the 13 defense hoped to establish through these witnesses’ testimony were that (1) affiliates 14 genuinely enjoyed consuming SBH’s products and attending SBH’s (and Noland’s) 15 training seminars and believed they were deriving value from doing so; (2) affiliates did 16 not feel misled by Defendants’ income representations, in part because SBH made clear 17 that an affiliate’s income expectations should depend on whether the affiliate considered 18 himself a #1, a #2, or a #3; (3) retail sales were a point of emphasis within SBH; and (4) 19 affiliates were, in fact, able to earn meaningful profits through the retail sale of SBH 20 products. 21 The testimony of the nine affiliate witnesses was only partially successful in 22 establishing these points. As an initial matter, the affiliate witnesses were a mixed bag in 23 terms of credibility. The Court viewed some of the affiliate witnesses as honest and 24 credible, if at times exuberant.14 Nevertheless, even those witnesses’ testimony regarding 25 profits from retail sales must be discounted because, as discussed in more detail below, 26 they did not carefully track (and, in some instances, did not even understand the difference 27 14 For example, the Court was not persuaded by one witness’s contention that SBH’s 28 nutraceutical products literally caused his cranial plates to shift back into place 36 hours after he began taking those products. (Tr. 1806-07.)

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1 between) revenues and profits. 2 Other affiliate witnesses, in contrast, lacked credibility. For example, one affiliate 3 witness denied ever telling consumers that joining SBH would help them earn over 4 $100,000, only to be confronted with a Facebook post where he made that representation. 5 (Tr. 1919-20.) This witness then denied ever offering cash bonuses to affiliates for 6 recruiting someone into SBH to buy an accelerator pack, only to be confronted with a 7 Facebook post where he made that representation. (Tr. 1922-23.) This witness then denied 8 ever making the representation that “SBH is delivering people every day to financial 9 freedom,” only to be confronted with a Facebook post where he made that representation. 10 (Tr. 1923-24.) 11 Similarly, another affiliate witness initially testified that retail sales were “kind of 12 the backbone of everything [SBH] did” and “the backbone of the industry really, but 13 especially the company” and denied that Noland had ever suggested that recruitment 14 commissions (rather than retail sales) were the backbone of the company. (Tr. 434, 447, 15 545.) During cross-examination, however, the FTC played a video in which this witness 16 was shown telling affiliates that, according to Noland, a particular recruitment commission 17 was the heart and soul and backbone of the company. (Tr. 545.) This witness also testified, 18 during his direct examination, that he never bought products just to achieve or maintain a 19 certain rank within SBH. (Tr. 483-85.) However, during cross-examination, this witness 20 was confronted with a depressing text-message exchange in which he reached out in a panic 21 to Sacca on the last day of the month because “the bank declined [his] SBH auto-order for 22 insufficient funds” and he was fearful he would lose his SBH rank if he did not place a 23 qualifying order by the end of the month. (Tr. 553, 556-58.) 24 It also came out during cross-examination that this witness, as well as other affiliate 25 witnesses, donated large sums of money to Defendants’ legal defense fund. Although 26 affiliates are, of course, free to use their money however they see fit, such donations 27 undermine the donors’ credibility as fact witnesses (because they suggest the witnesses are 28

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1 not neutral and have an incentive to shape their testimony to assist the defense).15 2 With these thoughts in mind, the Court was generally persuaded by the affiliate 3 witnesses’ testimony that they enjoyed consuming SBH’s products and attending SBH’s 4 (and Noland’s) training seminars and believed they were deriving some value from doing 5 so. The significance of this testimony is discussed in more detail in later parts of this order. 6 The Court was less persuaded by these witnesses’ testimony concerning SBH’s 7 income representations and purported emphasis on retail sales. Although the Court 8 accepts, particularly in light of the testimony concerning Zone 1 stories, that retail sales 9 were one of the things that SBH and Defendants discussed during conversations with 10 affiliates, the Court does not accept that retail sales were the main focus. Instead, after 11 weighing all of the voluminous evidence in this case (including the video clips introduced 12 by both sides, the written marketing materials, and the various witnesses’ testimony), the 13 Court concludes that SBH’s main focus was on the lucrative commissions that affiliates 14 could earn by recruiting others. It is telling that SBH’s official “Retail Sales Script” 15 instructed affiliates to only attempt to make one retail sale before showing how the product 16 could be purchased at wholesale pricing. (Tr. 1916, citing Ex. 8.) 17 Finally, the affiliate witnesses’ testimony concerning the profitability of retail sales 18 is summarized as follows: 19 • Sherfield: Sherfield testified that he paid about $28,000 for SBH products. (Tr. 20 526.) Sherfield did not, in contrast, identify how much money he earned from selling those 21 products. (See, e.g., Tr. 470-71 [asserting that he “made money” (and rejecting any 22 insinuation that he lost money) between December 2017 and November 2018 but not 23 providing any explanation or quantification].) This, alone, undermines any suggestion that 24 Sherfield’s experience is proof of the profitability of retail sales within SBH. 25 At any rate, other aspects of Sherfield’s testimony suggest that his profits from retail 26 sales were small-to-nonexistent and paled in comparison to the profits he earned (and 27 15 In a related vein, one of the affiliate witnesses joined the defense team at counsel 28 table after he was done testifying and spent the remainder of the trial helping the defense team operate its trial computer and display electronic exhibits.

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1 hoped to earn) from commissions. For example, Sherfield testified that he and his wife 2 “personally” used the great majority of the products he purchased. (Tr. 529 [“[M]y wife 3 and I purchase around 350 to $500 worth of product per month and sometimes more for 4 bulk discounts or to prepare for vendor events. We used around $300 worth personally 5 and retail or sample the rest.”].) Assuming, per this testimony, that Sherfield and his wife 6 consumed about 75% of the $28,000 in products he purchased, this means that Sherfield 7 had only about $7,000 worth of products left to sell. And assuming, per some of the other 8 testimony in the case, that SBH products could be sold at a 50% markup, this means that 9 Sherfield could have earned, at most, $10,500 in revenue from retail sales, which would 10 represent $3,500 in profit on the products he chose to use for retail sales rather than for 11 consumption.16 This $3,500 figure pales in comparison to the near $20,000 in commissions 12 that Sherfield earned from SBH. (Tr. 527.) 13 Putting aside this comparison between the profits from retail sales and from 14 commissions (which is relevant to the pyramid-scheme analysis infra), Sherfield’s 15 testimony painted a bleak overall picture of the viability of SBH as a business opportunity. 16 Using the figures discussed in the preceding paragraph, Sherfield paid $28,000 to SBH for 17 products but earned only $30,500 in overall revenue (commissions plus retail sales 18 revenue) despite working “full-time on SBH” from December 2017 to January 2020, minus 19 a few months where he focused on his work as a physical therapist. (Tr. 524-25, 533, 552- 20 53.) Even accepting that this comparison does not tell the full story—because it does not 21 capture the utility that Sherfield derived from his personal consumption of some of the 22 products—it represents an abysmal return on time and capital that is difficult to reconcile 23 with the rosy income representations that appeared in SBH’s marketing materials and were 24 made by Defendants. (Tr. 546 [Sherfield, acknowledging that he would train other SBH 25 affiliates that, consistent with SBH’s marketing materials, they could earn $54,000 per year 26 16 This $3,500 estimate is consistent with (and, if anything, is generous in light of) 27 Sherfield’s testimony during direct examination that the most money he ever earned from retail sales after moving to Dallas was “probably 3[00] to $500 in a day or two of profits” 28 (Tr. 474) and that he only attended, at most, five vendor events at which such sales were made (Tr. 521-22).

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1 from retail sales and $1,173,500 per month from commissions].) This comparison also 2 does not account for the fact that Sherfield paid over $18,000—separate from the $28,000 3 or so he spent on SBH products—to attend various SBH-related training events. (Tr. 536- 4 37, 561-62, 569.) Sherfield also acknowledged that, during his tenure as a full-time SBH 5 affiliate, his bank declined one of his orders for SBH products due to insufficient funds, he 6 had to take out a credit card intended “for individuals with no credit, limited [credit], or 7 fair credit” in order to obtain a cash advance to buy SBH products, and he considered 8 getting a title loan at one point in order to be able to afford more SBH products. (Tr. 553- 9 60.) The fact that Defendants chose to call Sherfield as their first witness and held him up 10 as an example of the legitimacy of SBH as a business opportunity speaks volumes—if this 11 is the best example Defendants can proffer, it is a damning indictment of SBH. 12 • Summers: On direct, Summers testified that she became an SBH affiliate in late 13 2019, bought about $9,000 of SBH products, and earned a profit of between $3,200 and 14 $3,300 from engaging in retail sales of those products, which was much more than the 15 $1,100 or $1,200 she earned in commissions. (Tr. 593, 599, 602.) However, during cross- 16 examination, Summers stated that she only earned $3,200 in revenue from retail sales. (Tr. 17 614.) Summers also acknowledged that, in her 2019 tax forms, she reported only $1,169 18 in revenue from SBH retail sales and claimed to have sustained a net loss of more than 19 $13,000 from her SBH-related activities. (Tr. 616-17.) Finally, in response to follow-up 20 questioning by the Court, Summers confirmed that the $3,200 figure she had mentioned 21 during her direct testimony was “the total amount of revenue that [she] brought in from 22 making retail sales to other people.” (Tr. 625.)17 23 As with Sherfield, it is difficult to see how Summers’s testimony could serve as 24 17 25 Although Summers later made statements, in response to leading questions by defense counsel, that the $3,200 figure represented her net profit from retail sales (Tr. 625- 26 26), Summers then confirmed in response to the FTC’s follow-up questioning that she “received about 3200 in cash from retail sales” (Tr. 627). Given these conflicts in 27 Summers’s testimony—not to mention the bias issues arising from the fact that Summers and her husband have donated $800,000 to the legal defense fund in this case (Tr. 618)— 28 the Court concludes in its capacity as factfinder that the $3,200 figure represents Summers’s gross revenues from retail sales, not her net profit from retail sales.

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1 proof of the predominance of retail sales within SBH or proof that the income opportunity 2 offered by SBH was, in practice, anywhere near as lucrative as it was described by 3 Defendants and in SBH’s marketing materials. If Summers made only $3,200 in revenue 4 from retail sales, the profit she could have earned from those sales was a fraction of that 5 figure (because the revenues must be offset by the cost of the goods sold). Also, Summers 6 reported a large net loss on her SBH activities in 2019. Once again, it is telling that 7 Summers was, from the defense’s perspective, one of best examples of financial success 8 out of the thousands of SBH affiliates. 9 • Head: Head testified that he was an SBH affiliate between October 2017 and 10 September 2019. (Tr. 856, 902.) Head also testified that he ultimately chose to leave SBH 11 due to a lack of financial success: “[I]t was a mental struggle, it was a lot of mental struggle 12 and emotional struggle. And then it began to become a financial struggle. So I decided to 13 take time off. And that’s when I decided to pursue traditional business again, basically to 14 make sure my mortgage was paid, essentially.” (Tr. 902.) Although Head’s testimony was 15 not particularly detailed regarding the specifics of his financial performance,18 Head did 16 not deny telling the FTC that he had personally made only $1,100 or so in profits from 17 retail sales over the course of his two-plus years at SBH. (Tr. 873 [not denying that he 18 made the statement: “I never had the greatest luck at retailing. I maybe had about $4,000 19 in gross from retail sales selling about 2900 in wholesale product costs.”].) Head also 20 testified that he stopped personally engaging in retail sales once he was able to recruit 21 others and earn commissions based on their activity. (Tr. 873 [“[A]fter my team knew how 22 to retail, I myself did not retail any more, going door-to-door, because my team was doing 23 so well . . . .”]; Tr. 858 [explaining that once he “finally comprehend[ed] and understood 24 the commission plan, [he] immediately started recruiting my direct family and friends”].) 25 18 26 Before trial, Head was interviewed by an FTC representative and provided with a draft declaration to sign. (Tr. 869-72.) After reviewing the draft declaration, Head declined 27 to sign it. (Id.) Much of Head’s direct examination at trial concerned the accuracy of various statements in the draft declaration. The defense’s apparent purpose in eliciting this 28 testimony was to show that the FTC is biased. The Court did not find this line of questioning to be persuasive.

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1 Additionally, Head testified that he had five tote bags’ worth of unused SBH products at 2 the time he quit. (Tr. 916.) Finally, Head testified that he suffered a net loss in 2019 on 3 his SBH activities. (Tr. 893 [“I did report a loss for 2019 on my taxes from SBH.”].)19 4 As with Sherfield and Summers, it is difficult to see how Head’s testimony could 5 be seen as helpful to the defense’s case. Head barely made any money from engaging in 6 retail sales, stopped even attempting to make retail sales once he realized he could earn 7 more money from commissions, and sustained a net loss from his SBH experience in 2019 8 before ultimately quitting due to a lack of financial success (at which time he had a large 9 stockpile of unused SBH products sitting in his house). 10 • McKee: McKee testified that he became an SBH affiliate in 2018 and regularly 11 engaged in retail sales afterward, going door-to-door or selling at church or the mall. (Tr. 12 919, 925.) Although McKee did not purport to calculate the overall amount of profit he 13 made from such retail sales, he testified that he sold, in the aggregate, between 210 and 14 320 bags of SBH coffee. (Tr. 929.) McKee also testified that, by January 2020, he was 15 making about $300 to $500 per month from SBH, although he did not specify how much 16 of that money came from retail sales and how much came from commissions. (Tr. 934.) 17 During cross-examination, McKee did not dispute that he earned about $2,200 in 18 commissions from SBH. (Tr. 938.) McKee also acknowledged that he spent about $7,500 19 on training sessions offered by SBH and Noland. (Tr. 937-38.) 20 Although the Court perceived McKee to be an honest and credible witness, the 21 imprecision of his testimony regarding retail sales diluted that testimony’s persuasive 22 value. McKee did not appear to carefully track his retail sales and did not distinguish 23 between the profits he earned from retail sales and the money he earned from commissions. 24 Additionally, assuming that McKee made a profit of $20 for each bag of SBH coffee he 25 sold—which is the estimated profit margin that other defense witnesses provided (Tr. 613, 26 1741, 1905)—McKee would have made, at most, $640 in profit from the 210-320 bags of 27 19 Head offered an elaborate explanation for this loss, which related to Luke Curry’s 28 departure from the company. Like much of the other testimony at trial related to Curry, the Court did not find this testimony particularly relevant.

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1 coffee he sold, which is a small fraction of the $2,200 in profit he made from commissions 2 and pales in comparison to SBH’s income representations. 3 • Cunningham: During direct examination, Cunningham testified that he became 4 an SBH affiliate after being introduced to SBH’s coffee products and came to engage in 5 retail sales by setting up an SBH coffee cart at his health club. (Tr. 943-44, 950-52.) 6 Cunningham estimated that he would make $60 to $200 in profit each time he operated the 7 coffee cart (Tr. 952) and estimated that he did so about five times (Tr. 955). However, 8 during cross-examination, Cunningham acknowledged that he paid about $23,000 for SBH 9 products, earned only about $7,100 in commissions, and believed (although he wasn’t sure) 10 that he had declared a net loss on his tax returns related to SBH. (Tr. 957-59.) Additionally, 11 during redirect, Cunningham stated that he was not sure of the difference between revenue 12 and profit. (Tr. 960-61.)20 13 The Court views Cunningham’s testimony as similar to McKee’s testimony. 14 Although Cunningham presented as an honest and sincere witness, it is difficult to view 15 his testimony as helpful to the defense in light of its imprecision. In any event, 16 Cunningham’s testimony at most shows that it was possible for an SBH affiliate to eke out 17 a few hundred dollars in profits from retail sales. This is not how the income opportunity 18 was described by SBH or Defendants. Additionally, even Cunningham, who seemed 19 unusually focused on retail sales in comparison to other affiliates, appears to have earned 20 more from commissions ($7,100) than he did from his own retail sales. 21 • Small: Small is a professional disc jockey who became an SBH affiliate after 22 sampling and enjoying SBH’s coffee products. (Tr. 1722-25.) Small testified that he “sold 23 [a] lot of” SBH’s coffee products, would typically make retail sales at “homecoming 24 events” and “flea markets,” and did “hundreds of events in multiple locations” over a three- 25 year period. (Tr. 1725-26.) During his direct examination, Small declined to provide an 26 20 Although defense counsel asked a series of leading and hypothetical questions 27 during redirect intended to show that Cunningham earned a profit from his SBH activities (Tr. 961-63), the Court did not find this portion of the testimony to be persuasive, 28 particularly because Cunningham acknowledged that he did not understand some of the financial distinctions that counsel was attempting to draw (Tr. 963).

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1 “exact figure” for the profit he derived from these sales activities but stated that “it was 2 enough to pay a good portion of the rent and keep some food in the refrigerator for the 3 family.” (Tr. 1726-27.) During cross-examination, Small agreed with counsel that it was 4 “possible” he had made a total of only $8,000 in profit from retail sales over at two-year 5 period, which does not include his travel expenses. (Tr. 1742-43.) Small also agreed that 6 he earned $2,400 in commissions during the same period. (Tr. 1742.) On redirect, Small 7 testified that it was “very likely” that his retail-sales profits exceeded $8,000. (Tr. 1744.) 8 Small was perhaps the most helpful affiliate witness to the defense, in that he 9 credibly testified (albeit without any corroborating documentation) that he earned a few 10 thousand dollars each year from retail sales and that his retail-sale profits exceeded what 11 he was earning from commissions. With that said, the Court does not view Small’s 12 testimony as particularly helpful to the defense in the overall scheme of things. Like 13 Cunningham, Small focused his energy on retail sales in a manner that was not 14 representative of the typical SBH affiliate, yet despite that focus, Small was only able to 15 earn (at most) about $4,000 in annual profits from retail sales—a sum that pales in 16 comparison to what SBH and Defendants claimed could be reasonably expected. 17 • Miller: Miller testified that he became an SBH affiliate in June 2019, made retail 18 sales to approximately 25 friends and family members, and also recruited several 19 acquaintances to become SBH affiliates. (Tr. 1809, 1812-15.) Notably, when asked to 20 estimate how much money he was making from SBH, Miller testified: “I really couldn’t 21 tell you that. It would be really vague but I do know that it was—it was making a 22 difference, yeah.” (Tr. 1818.) And during cross-examination, Miller acknowledged that 23 he purchased about $10,000 of SBH products, paid nearly $5,000 to attend SBH-related 24 training events, and earned about $3,200 in commissions. (Tr. 1820-22.) 25 Miller’s testimony regarding retail sales was unhelpful to the defense for the simple 26 reason that he did not even purport to estimate how much profit he earned from those sales. 27 Additionally, the few concrete figures that did emerge from Miller’s testimony suggest that 28 Miller’s profits (if any) from retail sales were meager, that Miller earned more from

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1 commissions than he did from retail sales, and that Miller’s overall experience from the 2 SBH business opportunity was not nearly as lucrative as SBH’s marketing materials 3 portrayed it to be (and may have resulted in a net loss). 4 • Hewing: Hewing testified that he regularly engaged in retail sales after becoming 5 an SBH affiliate by selling coffee at trade shows and farmer’s markets. (Tr. 1903.) During 6 his direct examination, Hewing initially testified that he would usually sell coffee by the 7 cup at a 300% markup over his cost and coffee by the bag at a 30% markup over his cost. 8 (Tr. 1904.) However, Hewing later stated that he actually sold coffee by the bag at a 100% 9 markup over his cost. (Tr. 1905.) Hewing also testified that he made an overall profit of 10 $30,000 during his 20 months as an SBH affiliate, which included both commissions and 11 profits from retail sales, and estimated spending about $3,000 or $4,000 on SBH products. 12 (Tr. 1906.) However, during cross-examination, Hewing acknowledged that he actually 13 spent about $8,300 on SBH products. (Tr. 1912.) Hewing also acknowledged that he 14 incurred about $5,000 in expenses when traveling to the trade shows and other forums 15 where he engaged in retail sales. (Tr. 1913.) 16 As an initial matter, the Court is hesitant to uncritically accept Hewing’s testimony 17 regarding retail sales in light of some of the credibility considerations identified earlier in 18 this order—Hewing was repeatedly impeached by the FTC, has donated to the defense fund 19 since this case began, and appears to be involved in Defendants’ ongoing business ventures. 20 Hewing was also imprecise and inconsistent when it came to recounting some of the basic 21 details that would be necessary to calculate the profitability of retail sales, such as the cost 22 of goods sold and the markup rate. Nevertheless, even accepting that Hewing bought 23 $8,300 of SBH products (rather than the $3,000 or $4,000 he initially estimated), sold bags 24 of coffee at a 100% markup (rather than the 30% figure he initially provided), and incurred 25 $5,000 in travel and other expenses in the course of making retail sales, this would result 26 in a net profit from retail sales of only about $3,500—a miniscule figure for 20 months of 27 work that pales in comparison to the profits Hewing earned from commissions. Again, it 28 is telling that this is the best the defense can muster when it comes to demonstrating the

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1 supposed primacy and promise of retail sales. 2 • Farley: Farley testified that he believed SBH’s products were “life changing” 3 because they helped him lose weight, alleviate his pain, and accelerate his recovery after 4 he was involved in a serious accident that caused him to suffer broken bones and a head 5 injury. (Tr. 1947-48.) As for his experience as an SBH affiliate, Farley testified that he 6 “retailed some, but I didn’t retail like a lot of people did.” (Tr. 1945-46.) In contrast, 7 Farley testified that he recruited between 50-100 other people to become SBH affiliates. 8 (Tr. 1948.) Farley also testified that, due to memory loss caused by the accident, he has no 9 memory of how much money he made from SBH. (Tr. 1950 [“I can’t remember the money. 10 A lot of things I can’t remember, because it’s been so long. Between that and—a lot of 11 things I lost memory on on the wreck that I’ve had.”].) During cross-examination, Farley 12 estimated that he lost money on SBH at first but “probably” was making money toward the 13 end. (Tr. 1951.)21 Farley also acknowledged donating more than $10,000 to the legal 14 defense fund in this case. (Tr. 1961.) 15 Farley’s testimony regarding retail sales was unhelpful to the defense because, due 16 to his memory problems, he could not even estimate the profitability of those sales. 17 Additionally, other portions of Farley’s testimony suggested that he focused far more of 18 his time and energy on recruiting efforts than on retail sales. 19 b. Employee/Affiliate Witness 20 Robert Mehler became one of the first SBH affiliates, then served as SBH’s director 21 of sales for a portion of 2019, and then resumed participating in SBH as an affiliate until 22 the TRO was issued in January 2020. Additionally, Mehler played a role in the 23 dissemination of the witness-coaching email from Noland’s ProtonMail account. 24 On direct examination, Mehler testified that he focused heavily on retail sales during 25 his 25 months as an SBH affiliate and earned an overall profit of $38,667 during that period, 26 21 During redirect, defense counsel asked a series of leading questions to Farley that 27 were intended to establish his profits from retail sales. (Tr. 1964-66.) The Court did not find this line of testimony persuasive. Farley admitted on direct that he could not recall 28 these details (due to his memory problems) and also admitted that he did not engage in much retail sales activity.

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1 consisting of about $28,800 in profits from retail sales and another $15,835 in commissions 2 (and offset by several thousand dollars in expenses). (Tr. 1070-71.) 3 The Court does not assign much weight this testimony for several reasons. First, 4 Mehler was thoroughly impeached on an array of topics during cross-examination. In 5 particular, the Court was unpersuaded by Mehler’s explanations for failing to disclose 6 Noland’s ProtonMail email in response to the FTC’s subpoena, the FTC’s follow-up email, 7 or the letter from then-defense counsel. (Tr. 1085-1105.) Other credibility-impairing 8 topics include Mehler’s contention that it was permissible to pass off medical claims for 9 SBH products under the guise of “coincidences” (Tr. 1106-07) and Mehler’s involvement 10 in promoting a spurious “clinical trial” involving an SBH weight loss product, which was 11 actually conducted by a high-ranking SBH affiliate who was later convicted of federal 12 fraud charges. (Tr. 1140-43.) Second, at any rate, Mehler offered little to corroborate his 13 claimed profits from retail sales and made statements that were difficult to reconcile with 14 his calculations. For example, although Mehler testified on direct that his “purchases from 15 the company were $27,000, and [his] retail profit, meaning cash to me over and beyond the 16 cost of goods was $28,800 . . . [s]o I was working a slightly more than 100-percent margin” 17 (Tr. 1071), the FTC introduced evidence during cross-examination that depicted Mehler 18 selling SBH products at only a 50% markup over his cost (Tr. 1113-17). The FTC also 19 introduced evidence that Mehler previously claimed to have personally consumed between 20 $250 and $400 of the products he purchased each month. (Tr. 1120.) There is no way 21 Mehler could have earned anywhere near $28,000 in retail-sales profits if he was only 22 selling at a 50% markup and consuming such a hefty portion of his inventory. Third, 23 putting aside all of these reasons to question the validity of Mehler’s claim that he earned 24 $28,000 or so in profits from retail sales during his 25 months as an affiliate, Mehler 25 testified that these sales figures made him “one of the top retailers” in SBH. (Tr. 1126, 26 1132.) This hurts the defense more than it helps—Mehler’s claimed profits from retail 27 sales amounted to a little more than $1,000 per month, which is less than what an individual 28 would earn from a full-time minimum wage job. This sum pales in comparison to what

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1 Defendants and SBH’s marketing materials claimed could be reasonably expected. 2 Finally, putting aside Mehler’s testimony about retail sales, other aspects of 3 Mehler’s testimony were affirmatively harmful for the defense. For example, Mehler 4 testified that he wasn’t even aware of the 2002 permanent injunction during his tenure in 5 2019 as SBH’s director of sales. (Tr. 1108.) This was a surprising revelation, given that 6 Noland was required under the 2002 permanent injunction to “take reasonable steps 7 sufficient to monitor and ensure that all of [Noland’s] agents . . . comply with Paragraphs 8 I, II, and III of this Order” (Contempt Action, Doc. 66 at 6) and hopes to persuade the Court 9 in this case that he can be trusted to follow future court orders. 10 c. Defendant Witnesses 11 All four Defendants testified during the defense’s case-in-chief. 12 • Lina Noland: The first to testify was Lina Noland. On direct, Ms. Noland testified 13 about various calculations and summaries she made using SBH’s internal data and records, 14 including shipping records. (Tr. 633-78, 731-43.) Although some of this testimony was 15 persuasive and somewhat helpful to the defense (including some of the testimony 16 concerning shipping records), not all of it was. In particular, the Court was unpersuaded 17 by the calculations that seemed intended to establish that non-affiliates were legitimately 18 interested in SBH’s products and composed a significant segment of the purchasing 19 population. (Tr. 638 [testifying that 31% of SBH’s purchasers were “ultimate 20 customers”].) During cross-examination, the FTC persuasively demonstrated that, when 21 the data in the spreadsheets is correctly tabulated, only 5.4% of the purchases in 2019 and 22 only 1.8% of the purchases in 2018 were by non-affiliate customers (and that even these 23 figures are potentially overstated because some of the purchases that were considered when 24 calculating these figures were made by affiliates who may have been misclassified as non- 25 affiliate customers in the spreadsheet). (Tr. 841-46.) 26 During her direct examination, Ms. Noland also testified at length about the so- 27 called “complaining witnesses” and sought to impeach their credibility. (Tr. 703-31.) This 28

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1 was a recurrent point of emphasis in the defense case 22 and, from the Court’s perspective 2 as finder of fact, it largely fell flat. Even accepting that the complaining witnesses were 3 biased against Defendants (and, thus, those individuals’ claims and accusations should be 4 viewed with skepticism), the FTC’s case is not based on the claims of a handful of 5 witnesses but rather on a veritable mountain of other evidence. Indeed, the FTC did not 6 even call any of the complaining witnesses at trial. Additionally, to the extent the exhibits 7 related to the complaining witnesses contained references to retail sales, those references 8 were too fleeting and undeveloped to provide any meaningful support for Defendants’ 9 position in this case. 10 Ms. Noland also attempted to address the spoliation issue related to Signal. (Tr. 11 750-61.) Like Noland, she testified that it was a “coincidence” that and she “and the other 12 defendants downloaded, installed and started using Signal with within about a day of 13 learning of the FTC’s investigation.” (Tr. 763.) This testimony was not credible, for the 14 reasons discussed elsewhere in this order, and the resulting lack of credibility tainted Ms. 15 Noland’s testimony on other topics. 16 Ms. Noland’s credibility was also undermined by her testimony regarding the 17 property in Panama. (Tr. 975.) As background, the Nolands appeared in a video shot in 18 Panama, which was broadcast to SBH affiliates in 2019, in which Noland suggested that 19 he owned a particular oceanfront property that could be seen in the background. (Ex. 350- 20 48 at 1:28-1:51.)23 Afterward, Ms. Noland gestured to the property and told SBH affiliates 21 that they could “get all this” if they just followed the basics. (Id. at 5:10- 7:40.) In fact, 22 the Nolands never owned the property—although both claimed (without corroboration) 23 that Noland had made some preliminary steps to purchase the property in 2012, both 24 acknowledged that Noland never actually purchased it. (Tr. 976-78, 998-99, 1643.) It 25 22 For example, a significant portion of Defendants’ proposed findings of fact relate to the complaining witnesses, their purported lack of credibility, and FTC’s purported failure 26 to properly evaluate their allegations. (Lead Action, Doc. 529 at 16-38 ¶¶ 91-252.) Defendants also emphasized these topics in the Final Pretrial Order. (Lead Action, Doc. 27 532 at 46-48, 50-51.) 28 23 Noland also suggested to affiliates that he would be purchasing (“highly likely”) adjacent lots “on a private beach.” (Ex. 350-48 at 2:20-5:10.)

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1 should go without saying that the Nolands’ claims in the video were deceptive—they 2 attempted to pass off a property they didn’t own as proof of the luxurious lifestyle they had 3 achieved (and affiliates could hope to achieve) through SBH. Ms. Noland (and later 4 Noland) then made things even worse by attempting, via their trial testimony, to defend the 5 accuracy of those indefensible claims. 6 • Sacca: Sacca explained that he has experienced significant health problems in 7 recent years (including the onset of blindness, a heart attack, and the potential onset of 8 multiple sclerosis) that have eroded his memory of many of the events at issue in this case. 9 (Tr. 1183-84, 1202, 1270-71.) Due to these limitations, defense counsel was allowed to 10 use extensive leading questions during Sacca’s direct examination. (Tr. 1191.) 11 Although Sacca struck the Court as generally honest and credible, the Court did not 12 credit his testimony regarding the adoption, use, and deletion of Signal and ProtonMail. 13 (Tr. 1255-61.) Additionally, Sacca’s memory problems undermined the utility of much of 14 his testimony. Finally, Sacca made admissions on several topics that are harmful to the 15 defense. For example, Sacca admitted making impermissible income claims from time to 16 time during his tenure at SBH. Sacca’s proffered justification for these claims—that his 17 listeners knew he didn’t really mean what he was saying—is speculative and unpersuasive. 18 (Tr. 1210 [Q: “Now, do you have a habit of using the word ‘guarantee’ in some of your 19 discussions with people?” A: “Yeah, I do. It’s a word I use often, you know, right, wrong, 20 or indifferent, I do use it. So—but in every conversation I ever had, everybody knew we 21 were not guaranteeing any income.”].) Sacca also testified that Noland never disclosed— 22 and possibly mischaracterized the scope of—the 2002 permanent injunction, even though 23 Sacca served as one of the individuals responsible for training and compliance within SBH. 24 (Compare Tr. 1285-88 [“I was not aware of any permanent injunction. I only knew that 25 there was a record-keeping thing that had to happen like for—I think it was for six years, 26 to 2008 maybe. That was all I was aware of.”], with Contempt Action, Doc. 82-2 ¶ 4 [Sacca 27 declaration: “Prior to launching [SBH], Jay Noland advised me of the 2002 Permanent 28

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1 Injunction entered against him and of the limitations imposed by that Injunction.”].)24 As 2 discussed in relation to Mehler, this approach undermines the notion that Noland can be 3 trusted to ensure compliance with a future court order related to his operation of MLMs. 4 Finally, and in a related vein, Sacca admitted that he and the other Defendants allowed two 5 high-ranking SBH affiliates—including the one who operated the misleading “clinical 6 trials” that Mehler touted—to continue serving as unsupervised “founders” even after they 7 were indicted on federal fraud charges. (Tr. 1297-1304.) Again, this approach undermines 8 any suggestion that Defendants prioritized compliance over profits. 9 • Noland: Noland was not a credible witness. Although the Court accepts a few 10 isolated components of his testimony—among other things, the Court accepts that he 11 trained several individuals at Organo Gold who went on to become big earners, that he 12 subjectively (if incorrectly) believed at one time that his stake in Organo Gold was worth 13 $44 million, and that Zone 1 stories were included during Heat Calls from the inception 14 (and were not, as the FTC sometimes seemed to suggest, only a belated addition after 15 learning about the FTC’s investigation)—his testimony on many other issues was not 16 worthy of credence. 17 As an initial matter, the voluminous examples of dishonesty related to Signal and 18 ProtonMail, which are summarized earlier in this order, undermine the entirety of Noland’s 19 testimony. Once a witness is shown to have repeatedly violated court orders and made 20 false under-oath statements with respect to one topic, that witness’s testimony on other 21 topics must be viewed with skepticism. 22 There are also independent reasons for discounting Noland’s testimony on other 23 topics. For example, Noland testified that SBH’s use of senior field advisors resulted in 24 “the most effective form of compliance I believe in the industry.” (Tr. 1421.) Noland also 25 cited the existence of senior field advisors as one of the reasons he didn’t think it was 26 necessary for SBH to track retail sales by affiliates (Tr. 1429) and identified the senior field 27 24 28 Sacca acknowledged that he had made statements to the contrary on this topic in a pretrial declaration. (Tr. 1286-87.)

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1 advisors as one way he attempted to “go[] above and beyond to [en]sure compliance with” 2 the 2002 permanent injunction (Tr. 1440, 1603). These assertions were not credible for an 3 array of reasons. As an initial matter, it is nonsensical that two or three senior field advisors 4 would be better at tracking retail sales by SBH’s thousands of affiliates than a formal 5 tracking system. Any such tracking by senior field advisors would necessarily be anecdotal 6 and incomplete. The Court recognizes that Noland has proposed adding a formal tracking 7 system if allowed to resume control over SBH—a proposal discussed in more detail in later 8 portions of this order—but his insistence that SBH’s previous approach was some sort of 9 best-in-the-industry solution is unpersuasive. Separately, the evidence during the bench 10 trial showed that Noland did not disclose the existence of (and may have mischaracterized 11 the scope of) the 2002 permanent injunction to Sacca, who was one of SBH’s senior field 12 advisors (Tr. 1286-88); also did not disclose the 2002 permanent injunction to Mehler, who 13 was SBH’s one-time head of sales (Tr. 1108-09); and installed Harris as his other main 14 senior field advisor after learning that Harris was subject to various cease-and-desist orders 15 issued by state regulatory agencies regarding compliance failures in earlier businesses (Tr. 16 1874-79).25 This is hardly a serious approach toward compliance. 17 Noland also undermined his credibility through his many false statements regarding 18 his personal wealth (and his defense of those false statements at trial). The statements 19 regarding the Panama property are already discussed above with respect to Lina Noland. 20 As noted, these were outrageous claims and Noland made things even worse by attempting 21 to defend their accuracy. (Tr. 1642-43.) 22 Another example of a false statement regarding Noland’s wealth was his statement 23 to an audience of SBH affiliates that “I’ve been financially free, completely time and 24 money free since I was 36.” (Tr. 1636-37, citing Ex. 350-34 at 11:19.) This statement was 25 false and misleading—at the age of 36 (i.e., in 2004 or 2005), Noland had not yet started 26 27 25 More specifically, Harris answered yes when asked whether he “told Mr. Noland about the California orders against you” and then answered yes when asked whether “after 28 you told him that, he appointed you as a senior field advisor for Success By Health.” (Tr. 1879.)

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1 Organo Gold, was working in the mortgage industry, and was living (or was about to start 2 living) off credit cards. (Tr. 1637, 1699.) Nevertheless, during trial, Noland offered a 3 variety of unpersuasive justifications and rationalizations for this statement and other 4 similar statements. For example, Noland repeatedly denied ever describing himself as a 5 millionaire or even strongly implying that he was a millionaire. (Tr. 1631-35.)26 Noland 6 also flatly denied ever making any false or deceptive statement, on any topic, during his 7 tenure at SBH and VOZ Travel. (Tr. 1623 [Q: “Do you believe you ever made a statement 8 while you were running SBH and VOZ Travel that was deceptive or misleading?” A: “No. 9 I don’t believe I ever did so.”].) These denials betray a lack of candor and accountability— 10 it is obvious that statements about being financially free since the age of 36 (Tr. 1636-37), 11 being financially free to the point of one’s grandchildren never having to work again (Tr. 12 117, citing Ex. 25 at 57), owning luxury properties in Panama and around the world (Tr. 13 1643), and “I probably give away a couple million a year [but] [d]on’t even feel it, though 14 . . . [because] I got freedom” (Tr. 1639, citing Ex. 74 at 11) would imply millionaire status. 15 Another series of false statements, and credibility-impairing attempted justifications 16 for those false statements, concerned VOZ Travel. One of the VOZ Travel presentations 17 included such statements as “We have a complete gamification engine that rewards you 18 heavily for providing feedback and insights regarding our curated experiences,” “Our 19 Artificial Intelligence engine utilizes heuristics to determine your ‘traveler DNA,’” and 20 “Our A.I. is named ‘Dina’ and you can think of her as being like Siri, Alexa, Cortana, or 21 Google Assistant.” (Ex. 299 at 28, 36.) As noted above, the FTC established through 22 Rottner’s testimony (or, at least, established to the Court’s satisfaction in its capacity as 23 factfinder) that these statements were untrue—Defendants had not developed any such 24 gamification engine or artificial intelligence engine, let alone an artificial intelligence 25 engine named “Dina” that rivaled the competing engines created by Google, Amazon, and 26 26 27 The Court acknowledges that, in the course of making these denials, Noland agreed that he had made statements intended to convey that he was a millionaire. (Tr. 1633, 1635.) 28 This seems like an awfully fine semantic distinction, and the entire line of questioning at pages 1631-35 did not create a positive impression of Noland’s truthfulness and candor.

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1 other multi-billion dollar companies. (Tr. 246-52.) And if making such misrepresentations 2 weren’t bad enough, Noland then attempted, in vain, to defend the accuracy of the 3 misrepresentations during his trial testimony. (Tr. 1584-89.) 4 Finally, the Court was also unpersuaded by Noland’s testimony regarding the ECF 5 royalty agreement. The background details concerning the royalty agreement are set forth 6 in the Court’s August 6, 2020 order. (Lead Action, Doc. 177.) In a nutshell, the royalty 7 agreement purports to require SBM to pay ECF (an entity also controlled by Noland) a 8 lump-sum payment of $500,000 and then 15% of its net profits over a 10-year period in 9 return for the right to use ECF’s in “trademarks, service marks and secret ingredients.” (Id. 10 at 2-3.) Following the issuance of the TRO and preliminary injunction, the receiver took 11 control of both SBM and ECF. (Id. at 13.) In response, either ECF or Defendants filed a 12 motion for ECF to be released from the receiver’s control. (Id. at 5 n.4.) The motion 13 intimated that, if ECF were freed from the receiver’s control, ECF would then sue the 14 receiver and SBM to recoup the missing payments owed to ECF under the royalty 15 agreement. (Id. at 13.) In response to the motion, the FTC and the receiver “hotly 16 disputed” the “provenance and legitimacy” of the royalty agreement. (Id. at 3, 13.) 17 At trial, the FTC presented evidence intended to establish that Noland had fabricated 18 a backdated version of the royalty agreement after the start of litigation in this case. (Tr. 19 242-46 [Rottner].) In an attempt to dispute these accusations, Noland testified that he 20 actually signed the royalty agreement in 2017 and then placed it in a file folder in his home 21 in Las Vegas. (Tr. 1521-22, 1677-78.) During cross-examination, the FTC pointed out 22 that, in certain pretrial filings, Noland’s counsel had represented that Noland did not sign 23 the document until April 2018. (Tr. 1678.) Initially, Noland suggested that his counsel 24 had been wrong and that 2017 was the correct signing date. (Id.) The FTC then questioned 25 Noland about an email from his accountant in April 2018 expressing concern about the 26 lack of a signed agreement. (Tr. 1679-80.) At that point, Noland stated that the signing 27 date was actually April 2018. (Tr. 1680-81.) The FTC then offered Noland an opportunity 28 to address the evidence of fabrication it had presented earlier. (Tr. 1681-83.) Notably, this

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1 evidence included an email from August 2019 in which Noland had been emailed a “draft” 2 version of the royalty agreement. (Tr. 243-44, discussing Ex. 245.) Noland’s resulting 3 explanation was unsatisfactory, at least from the Court’s perspective as the factfinder—at 4 no point did Noland explain why it would have been necessary to send him a draft version 5 of the agreement in August 2019 if he had already signed it in 2017 (as he initially testified) 6 or in April 2018 (as he testified after the 2017 date was shown to be wrong). Nor did 7 Noland provide a satisfactory explanation during his testimony on redirect. (Tr. 1712- 8 14.)27 9 Although this list of unpersuasive testimony is lengthy, it is not exhaustive—the 10 Court also found Noland’s testimony on other topics to be unpersuasive and at times 11 incredible. The Court has simply attempted to provide a representative, if lengthy, list 12 because its evaluation of Noland’s credibility and truthfulness plays a key role in its 13 evaluation of the scope of injunctive relief that is necessary in this case. 14 • Harris: Harris’s testimony regarding the adoption, use, and deletion of Signal (Tr. 15 1858-69, 2023-26) was not persuasive. The Court was also troubled by Harris’s 16 representation to SBH affiliates that, since working for Equinox, he’s “never had an issue 17 making six figures a year.” (Tr. 2015.) In his sworn financial disclosures in this case, 18 Harris admitted making only a mid-five-figure income in 2015, 2016, and 2017. (Tr. 2015- 19 17, citing Ex. 311.) Although Harris’s six-figure income claim wasn’t as much of a 20 whopper as some of Noland’s income claims, it was still false. Nor did Harris help his 21 credibility by attempting to defend the accuracy of that claim during his testimony on 22 redirect. (Tr. 2049-50.)28 23 Finally, Harris acknowledged that he is the subject of several cease-and-desist and 24 27 Additionally, Noland’s claim during redirect that he lacked any motive to fabricate the ECF royalty agreement (Tr. 1714) is belied by the record—as noted, the motion to 25 release ECF from the receiver’s control intimated that Noland wished to rely on the royalty agreement to sue the receiver and SBM for unpaid royalties. (Lead Action, Doc. 157 at 12 26 n.4.) 27 28 Some of the FTC’s other attempts to impeach Harris’s credibility concerned his application for a PPP loan and his omission (in securities filings) from the list of SBM’s 28 officer and directors. From the Court’s perspective, these lines of inquiry were not wholly successful, as there may be honest explanations for the omissions at issue.

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1 other orders pertaining to regulatory failures arising from his work at other companies 2 before joining SBH. (Tr. 1873-79.) Harris also acknowledged that, after telling Noland 3 about those orders, Noland installed him as a senior field advisor at SBH. (Tr. 1879.) 4 Regardless of whether Harris was personally responsible for the issues the led to the 5 issuance of the cease-and-desist orders—an issue that was disputed at trial—this was not a 6 reassuring approach to regulatory compliance. 7 II. Outstanding Claims 8 With this backdrop in mind, the Court now makes the following additional factual 9 findings, which are grouped into categories that correspond with the outstanding claims to 10 be resolved during the bench trial.29 11 A. SBH—Pyramid Scheme 12 1. Overview Of Commission Plan 13 SBH promoted a “six-phase” commissions plan (with six more phases added in 14 August 2019) and other bonuses. (Ex. 13; Ex. 14.) Other than Phase 1 of the SBH 15 commission plan (which did not involve any actual payments by SBH to affiliates), each 16 form of compensation paid by SBH required recruiting, but not sales to ultimate users, to 17 earn any meaningful amount of money.30 18 Phase 1 (Retail Sales) of the SBH commission plan did not involve any money paid 19 by SBH to affiliates. Rather, it simply referred to affiliates’ (and non-affiliates’) ability to 20 buy products from SBH at a “wholesale price” and resell them at a mark-up. (Ex. 13 at 2.) 21 Phases 2-6 of the SBH commission plan provided cash payments or product credits 22 based solely on purchases from SBH by an affiliate and the affiliate’s recruits (and those 23 24 29 Of course, some of the categories of factual findings correspond with more than one of the outstanding claims. For example, the factual findings regarding the profitability of 25 retail sales (or lack thereof) are relevant both to the pyramid-scheme claim and to the claim alleging false and misleading income misrepresentations. Thus, the Court’s placement of 26 factual findings under a particular heading should not be viewed as an indication that the findings are irrelevant to other issues. 27 30 Also, for commissions to be paid out to an affiliate at all, SBH required affiliates to 28 buy at least $200 in SBH products (or have others do the same through the affiliate’s URL). (Doc. 222 ¶ 1 [admitting Doc. 205 ¶ 27].)

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1 recruits’ recruits, and so on), rather than sales to ultimate users of the SBH products. In 2 each phase, Defendants paid rewards without regard to whether affiliates ever consumed 3 the products or sold them to someone who did. 4 More specifically, Phase 2 (Auto Orders) of the SBH commission plan provided 5 “product credit” to affiliates who made recurring purchases from SBH, and whose direct 6 recruits did, too.31 (Ex. 13 at 3.) Defendants described Phase 2 as “[l]oyalty rewards on 7 yours and your referrals’ recurring purchases.” (Ex. 16 at 44.) 8 Phase 3 (Accelerator Bonus) of the SBH commission plan paid a cash bonus to 9 affiliates whose newly enrolled recruits purchased $500 “Accelerator Packs” or $1,995 10 “Super Accelerator Packs” from SBH. (Ex. 13 at 3.) Noland encouraged affiliates to take 11 advantage of Phase 3 by “step[ping] up to the plate and . . . building a real home-based 12 business [for] 500 bucks, and you go out there and personally refer three other people, and 13 they’re doing [$]500 each.” (Ex. 54 at 10:18-22.) 14 Phase 4 (6-Tier Commissions) of the SBH commission plan rewarded affiliates for 15 purchases from SBH by themselves and their downline teams. (Ex. 13 at 4.) Defendants 16 told affiliates to take advantage of the 6-Tier commissions through the “Power of Ten”— 17 i.e., by recruiting ten affiliates who bought hundreds of dollars of products per month and 18 19 themselves recruited ten affiliates to do the same (with the chain continuing through six

20 tiers). The Power of Ten is discussed in additional detail below. Defendants emphasized

21 that the 6-tier commissions provided for “UNLIMITED Income,” with “NO LIMIT” on

22 the number of affiliates one could recruit into the program. (Ex. 13 at 4.)

23 Phase 5 (Infinity Bonus) of the SBH commission plan paid SBH affiliates who 24 achieved a rank of “SBA1” an additional commission on certain purchases by their recruits. 25 (Ex. 13 at 4-5.) Defendants explained that the purpose of Phase 5 was to “encourage[] you 26 to develop a deep, strong Affiliate Team.” (Ex. 3 at 22.) 27 31 Product credits were only available to affiliates with a “$60 Monthly Auto-Order.” 28 (Ex. 13 at 3.) Phase 2 “helps incentivize your affiliate team to place consistent orders, thus producing more income for you and for them.” (Id.)

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1 Phase 6 (BAM Bonus) of the SBH commission plan paid “one-time ‘hit’ bonuses” 2 to SBH affiliates who achieved the “Power of Ten” structure promoted by SBH. (Ex. 13 3 at 5; Ex. 16 at 57.) The smallest BAM bonus for completing a “10x10” structure (recruiting 4 ten affiliates who each recruited ten affiliates, with each of those 100 affiliates ordering 5 $100 per month), was $1,000, while the largest (for a completing a “10x10x10x10x10” 6 with each affiliate ordering $500 per month) was $5 million. (Ex. 16 at 57.) Although 7 Defendants promoted the BAM Bonus as providing “relatively fast lump sum bonuses” 8 (Ex. 3 at 23), Defendants never paid a single BAM bonus, even at the $1,000 bonus level, 9 because no affiliate ever completed a “10x10.” (Ex. 83 at 20:2-9 [“There’s been nobody 10 doing a ten-by-ten.”]; Lead Action, Doc. 222 ¶ 1 [admitting Lead Action, Doc. 205 ¶ 73].) 11 Finally, affiliates’ compensation within the SBH commission plan also varied, to 12 some extent, based on their SBH “rank.” Affiliates’ ranks, in turn, were based solely on 13 purchases from SBH by the affiliate or the affiliate’s downline team or customers. (See, 14 e.g., Ex. 14 at 4 [defining “team volume”].) SBH ranks ranged from “Business Affiliate,” 15 which required $5,000 in monthly purchases from the affiliate or the affiliate’s downline 16 team or customers, to “5 Star Diamond,” which required $1.25 million in purchase volume. 17 (Ex. 14 at 4.) Affiliates’ ranks reset every month. (See, e.g., Ex. 166 at 2 [“Where you 18 19 finish the volume month his month will be the Rank that you are ‘PAID AS’ the entire

20 following month.”].) Training materials instructed affiliates to “Focus on Rank

21 Advancing.” (Ex. 5 at 22.)

22 2. Other Recruiting-Based Bonuses And Promotions

23 Defendants offered other rewards—outside of the six-phase commission plan—for 24 recruiting new SBH affiliates. For example, the “Power 500” and “Power 1000” bonuses— 25 for affiliates “looking to jumpstart their business”—paid affiliates who bought a product 26 pack (for at least $125) and, within 14 days, recruited new affiliates who also made 27 purchases exceeding a certain price threshold. (Ex. 16 at 48.) The “5x5 bonus” paid up to 28 $10,000 for recruiting five new affiliates, each of whom bought a $500 “Accelerator Pack”

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1 and themselves recruited five new affiliates who also purchased Accelerator Packs.32 (Ex. 2 18; Doc. 222 ¶ 16 [admitting in part Doc. 205 ¶ 34].) Defendants also paid a $200 SBH 3 product credit bonus to each month’s “Top Referrer”—i.e., the top recruiter. (Ex. 144; Ex. 4 142; Ex. 327.) 5 During one promotion, Defendants provided product credits as a reward for 6 recruiting ten new affiliates. (Ex. 210; Ex. 211.) For another promotion, Defendants gave 7 product credits to affiliates who enrolled at least 20 new affiliates, while recognizing 8 anyone who enrolled at least 10 new affiliates as a “top performer.” (Ex. 169.) Separately, 9 an SBH “USA Tour Challenge” awarded $1,000 for the top recruiting affiliate. (Ex. 240.) 10 To earn points, the challenge offered a breakdown system which awarded the highest 11 number of points (10) to “[e]ach Global Ambassador Pack” purchased by a personally 12 referred person, and the lowest number of points (1) to each “Affiliate personal referral.” 13 (Id.) 14 Defendants did not, in contrast, pay any bonuses based on affiliates’ retail sales— 15 i.e., sales from an affiliate’s personal inventory to third-party ultimate users. One affiliate 16 testified that he managed to qualify for a reward trip to Aruba tethered only to achieving a 17 certain “rank” in SBH (which is determined by qualifying volume purchased by the affiliate 18 19 or their downline team from SBH). (Tr. 1960-61.)

20 3. Instructions To Focus On Recruiting

21 Defendants reinforced their recruitment-focused commission plan through their

22 training documents and instructions to affiliates.

23 a. Four Steps To Success 24 For example, Defendants promoted “Four Steps to Success” to “Hit the Ground 25 Running as a new SBH Affiliate.” (Ex. 16 at 68.) Notably, the “Four Steps to Success” 26 omit retail sales to ultimate users. 27 32 28 These bonuses were not automatic. To qualify, the affiliate needed to submit a form to an SBH email account. (Ex. 18.)

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1 More specifically, in Step 1 (“Get Started”), Defendants urged consumers to make 2 large, up-front purchases of “business packs,” which cost up to $1,995. (Ex. 16 at 64-66, 3 68; Ex. 5 at 17.) Defendants added that starting with a more expensive pack would create 4 “more initial commission plan benefits.” (Ex. 5 at 17.) 5 In Step 2 (“Be a Product of the Product”), Defendants told consumers to set up a 6 monthly product “auto-order” to get products “to [u]se, [s]ample, and to [s]ell.” (Ex. 5 at 7 18.) By “sample,” Defendants instructed affiliates to “hand out [free] samples to at least 8 60 people within your first 30 days,” and continue to give products away for free to induce 9 consumers to join SBH. (Id. at 21.) Defendants told consumers to auto-order at least $60 10 per month (or $500 for an affiliate seeking “financial freedom”). (Ex. 16 at 44; Ex. 58 at 11 25:1-4 [“Do you have a 500 auto-order set up minimum . . . to prove that you’re ready to 12 go after these millions?”]; Ex. 17 [“Million Dollar Contract . . . . I will stay at least [an auto 13 order minimum of $500] for a minimum of 18 months.”]; Ex. 228 [reminding new “Global 14 Ambassadors” to “set up at least a $250 (preferably $500) Auto-Order”].) Although 15 Defendants sometimes equated buying $500 in products per month from SBH with selling 16 six bags of coffee to consumers per week (Ex. 58 at 25:1-4; id. at 27:9-14), affiliates’ 17 compensation depended only on their purchases from SBH, not what they ultimately did 18 19 with the products. As explained, SBH also did not track what affiliates did with the auto-

20 ordered products. (Tr. 1886.)

21 In Step 3 (“Build A Team”), Defendants focused on recruiting. They instructed

22 affiliates to “[b]e sure to Personally Refer at least 2 new SBH Affiliates within your first

23 48 Hours if you are aiming for Financial Freedom” or “within your first 7 Days if you are 24 aiming to Replace Your Income (No More Job).” (Ex. 5 at 19, 21.) After the first seven 25 days, affiliates were encouraged to “Keep Building Every Month,” “Duplicate this 26 System,” and “Focus on Rank Advancing.” (Id. at 22.) 27 In Step 4 (“Pay Attention to Training and Duplicate”), Defendants told SBH 28 affiliates to use SBH-provided materials to “[t]each your team to do the same” steps

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1 identified above. (Ex. 16 at 68.) Defendants described “DUPLICATION” as the “key to 2 long term success” as an SBH affiliate. (Ex. 5 at 2.) 3 b. Power Of Ten 4 Defendants’ “Power of Ten” model also encouraged recruitment over profits from 5 retail sales. Defendants highlighted their “Power of Ten” “success strategy,” in which 6 affiliates “need to get ‘my 10’ Affiliate Team Members” and teach new recruits to “do the 7 same.” (Ex. 16 at 50.) Defendants told affiliates they could achieve the full “Power of 8 Ten” by recruiting ten affiliates as their “Tier 1,” each of whom would recruit ten as the 9 initial affiliate’s “Tier 2,” and so on through Tiers 3-5. (Ex. 16 at 50-52.) An SBH 10 presentation for recruits and new affiliates included the following visual directing Affiliates 11 to “get ‘my 10’ Affiliate Team Members” and to “teach[] each new Team Member to do 12 the same thing, get ‘their 10’”: 13 14 15 16 17 18 19 20 21 22 23 24 (Ex. 16 at 50.) Defendants also promoted an example of the “Power of 10” wherein each 25 of the top affiliate’s 111,110 downline affiliates (through five tiers) generated purchases 26 from SBH of $500 per month, for a cumulative monthly purchase volume of over $55 27 million. Defendants used visuals to highlight that the top affiliate in this example receives 28 a $1,173,500 monthly commission:

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 (Ex. 16 at 52.) Additionally, upon completing the full Power of Ten, an affiliate became 15 eligible to receive the full $5 million “BAM Bonus.” (Ex. 16 at 57.) 16 Defendants admit urging affiliates to achieve the Power of Ten. (Doc. 222 ¶ 1 17 [admitting Doc. 205 ¶¶ 69-72].) For example, Noland told affiliates: “You need to – out 18 19 of the seven billion people in the world, you need to find 10. . . . You need 10.” (Ex. 84 at

20 44:23-25; id. at 45:7-10.) In one video posted to Facebook, Harris told affiliates: “[Y]our

21 ten-by-ten is the most important thing you can ever build in this company. The most

22 important thing you can do is think about it every day, I’ve got to get my ten . . . .” (Ex.

23 86 at 26:16-19.) In another video, Harris told affiliates: “You want that to be the most 24 important thing in the world to everybody in your team, that you’re trying to fill in your 25 first ten as quickly as possible, that will either order a hundred or [$]500 in product . . . .” 26 (Ex. 86 at 27:10-18.) In yet another Facebook video post, Noland told affiliates: “If you’re 27 not creating a ten-by-ten, you’re not doing your job. Until you get ten-by-tens, you got to 28 be relentless, because that’s the job we need done to become number one.” (Ex. 83 at 34:6-

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1 12.) A few minutes later, Noland emphasized the gravity of the situation: “[A]nybody that 2 tells me that they want financial freedom and will not go . . . get these ten, they are an 3 enemy. They are an imposter. They’re a spy. They come in to the camp to steal from you. 4 Steal what? Your time. They want to talk to you, though. They want to—hey, they want 5 to have meetings. They want to have strategy sessions. They want to do everything but 6 get them ten.” (Id. at 44:8-15.) 7 During a Facebook video post, Sacca told affiliates that the SBH commission plan 8 is “driven 100 percent, not—not 95, not 85, not 75—it’s driven 100 percent by our [Power 9 of Ten BAM] bonus. . . .” (Ex. 82 at 11:6-16; Lead Action, Doc. 106 at 4 n.4.) Sacca 10 emphasized that he had come to this realization “last week, with Mr. Noland and Mr. 11 Harris.” (Ex. 82 at 11:6-16.) Three days after Sacca’s statement, Noland emphasized that 12 he fully agreed with Sacca: “Tommy Sacca did a phenomenal training the other night when 13 he talked about the ten sheets. He was with me. I trained him on ten sheets . . . . As a 14 matter of fact, it’s the greatest training since I’ve met Tommy Sacca that he’s ever done.” 15 (Ex. 83 at 11:16-12:7.) 16 c. Other Recruiting Instructions 17 Defendants reinforced their recruiting-focused program through explicit recruiting 18 19 instructions. For example, Noland told affiliates that the goal of one cash promotion was

20 to focus them on “what you should be focusing on right now, which is new people getting

21 into the company.” (Ex. 117 at 24:18-21.) At a live training event, Noland remarked,

22 “[Y]ou know what to do. You know you’re supposed to recruit your ass off. Freedom.”

23 (Ex. 74 at 33:6-9.) At the 2018 “RED” event, Harris told affiliates to “have a plan to recruit 24 everybody you meet.” (Ex. 64 at 8:2-5.) Just before that comment, Harris told affiliates 25 that when people ask him, “[I]s this one of those pyramid things?,” he says, “[H]ell, yeah 26 it is. If it wasn’t, I wouldn’t be doing it. Do I look dumb enough to go get a job again?” 27 (Ex. 64 at 7:15-21.) 28 At the following year’s RED event, Harris made a statement to the same effect:

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1 “Some people are embarrassed or ashamed to say they’re in direct sales because people ask 2 stupid questions like, ‘is this one of those pyramid things?’ I’m like, ‘hell yeah. If it 3 wasn’t, I wouldn’t be doing it.’ . . . And I explain residual income. And I’m like, ‘you 4 damn right I’m doing this.’ . . . Or I could be a wage slave.” (Ex. 91 at 7:7-18.) At another 5 event, Noland predicted dire consequences for any new affiliate who did not recruit 6 someone within 48 hours: “[S]oon as I bring you in, you better put somebody in in 48 7 hours, or I am almost never going to talk to you again . . . . Guess what will happen if you 8 go slow. More than likely you’re going to die. More than likely, you’re going to quit.” 9 (Ex. 90 at 9:13-23.) On a training call, Noland stated: “When a person joins [SBH], I’m 10 like, ‘great, way to go.’ But I’m not super fired up until that person recruits somebody else 11 to join. When they recruit somebody else to join, I go, ‘All right, now okay, I got somebody 12 now. I’ve got me an inviter.’ See the most important thing in this industry if you want 13 residual income, you have got to recruit inviters.” (Ex. 116 at 11:11-20.) 14 Defendants’ slide deck from the June 2018 SBH “Bootcamp” event bluntly told 15 affiliates: “You Have To Get Great At RECRUITING.” (Ex. 21 at 24.) At the October 16 2018 “MVP” event, Noland went around the room asking affiliates, in front of the whole 17 audience, how many new affiliates they had recruited recently and criticized them for not 18 19 doing more. (Ex. 74 at 14:13-24:3; see id. at 24:11-19 [“I love you and I want you to be

20 extremely successful. And the best way for me to get you to be successful is to go find

21 new people that will outperform you.”].) On one conference call, SBH’s then-director of

22 sales, Mehler, explained that although retail sales could help affiliates “make some extra,

23 part-time money,” “recruiting is key” and affiliates should pursue getting a “10x by 10 by 24 10 by10 by 10”: 25 I’ll tell you something, folks. I’m thinking about this. We got a couple calls 26 to close out with. I’m thinking about most of these calls have been about retailing. Okay? And a little bit – Sonya had one about recruiting. Folks, 27 let me clue you into something. Retailing is a great way to make some extra part-time money, to make some quick, quick money to be able to put in your 28 pocket and to plant some seeds in the business. You know, planting seeds

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1 that can turn into more. 2 But remember I spoke earlier about multiplying . . . . You do something once 3 and you make money over and over and over again. But it’s also multiplicative. That’s the key about this. When you look at how we 4 structured 10 by 10 by 10 by 10 by 10, all of a sudden 10 by 10, it’s 100 5 people. 10 by 10 by 10, it’s 1,000 people. . . . How many more lives can we change if we have 1,000 people doing it instead of just ourselves or instead 6 of 10 or instead of 100? So, you know recruiting is key. 7 (Ex. 94 at 20:8-23:25, emphases added.) 8 Defendants’ internal discussions suggested that this recruiting focus was deliberate. 9 In one series of text messages from Noland to Harris and Sacca, Noland made clear that 10 “RECRUITING” is the “MAIN FOCUS.” (Ex. 288.) 11 4. Retail Sales 12 The Court previously stated that “there is evidence that retail sales of coffee would 13 not and could not provide a significant source of income for Affiliates.” (Doc. 406 at 39.) 14 The evidence at trial powerfully confirmed this. As noted in earlier portions of this order, 15 the testimony from the affiliates who were called as defense witnesses at trial—which one 16 might expect to showcase the very best examples of the profitability of retail sales— 17 revealed that affiliates often lost money. Additionally, even the affiliates who were able 18 to eke out a small profit from retail sales generated miniscule net earnings that were often 19 less than could be earned at a minimum-wage job and paled in comparison to the profits 20 that could be earned from commissions. 21 The evidence presented by the FTC supports the same conclusions. In particular, 22 the Court credits the testimony of Dr. Bosley concerning the structural impediments to 23 profitable retail sales that SBH created. (Tr. 95-98 [noting that retail sales are “not 24 25 fundamentally altering or playing into the way in which people are rewarded from the

26 company”].) Defendants also placed other restrictions on retail sales that limited their

27 viability. For example, Defendants barred affiliates from making retail sales on Amazon

28 or eBay. (Ex. 241 [“No one is allowed to sell SBH products on Amazon or eBay.”]; Ex.

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1 204 [Harris to Noland: “Amazon Sales against policies and procedures”].) Defendants’ 2 products also lacked UPC barcodes, which created another obstacle for affiliates looking 3 to resell products through local retail businesses, like grocery or convenience stores. (Tr. 4 233.) Defendants also barred affiliates from selling products below the suggested retail 5 price. (See, e.g., Ex. 254 at 1 [Sacca, pledging to “have compliance get involved” because 6 an affiliate was selling G-Burn for $79 instead of $89; affiliate writes: “I was told in no 7 uncertain terms that if I didn’t change my sale price to the retail of $89 immediately I could 8 be terminated so it was changed that very day I was notified!”].) Such price floors not only 9 prohibited consumers from pricing products at a level that consumers wanted to pay, but 10 also prohibited them from competing with Defendants themselves, who offered products 11 direct to the public at “wholesale” rather than “retail” price. (Cf. Ex. 380 [“I’m not sharing 12 my link on [Facebook]-want to keep the retail sales in the short term. I’ll post my link in 13 places to attract business. But not to cannibalize what I have going . . . .”].) 14 5. Limited Emphasis On Retail Sales 15 Above, the Court has summarized some of the evidence showing that Defendants 16 placed heavy emphasis on recruiting. Defendants failed to place anywhere near a similar 17 level of emphasis on retail sales.33 18 19 For example, many of Defendants’ training materials did not instruct affiliates that

20 retail sales were important to their financial success. Defendants’ “One Year Commitment

21 Form” for new affiliates (Ex. 6), which they asked all affiliates to sign (Ex. 5 at 18),

22 required affiliates to make ten commitments, none of which involve selling products to

23 non-Affiliate consumers. Defendants’ “Four Steps to Success” also do not mention sales 24 33 Thus, the Court specifically rejects some of Defendants’ proposed findings of fact 25 on this issue, such as their suggestion that “[w]hile presentations to Affiliates included training on how to develop and operat[e] Teams, the primary focus at SBH was sales of 26 products.” (Lead Action, Doc. 529 at 2 ¶ 11.) Although some documents, such as SBH’s “Terms And Conditions,” included statements such as “[w]ithout question, the sale of 27 products to end consumers is the basis of the companies [sic] affiliate Commission program and must be emphasized while referring other affiliates” (Lead Action, Doc. 529 at 3-4 28 ¶ 17, citing Ex. 522), the inclusion of these self-serving statements does not change the reality of what was emphasized.

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1 to actual users of the SBH products. (Ex. 16 at 68.) 2 Defendants’ primary recruiting pitch deck—the “Affiliate Business Tour” (Ex. 3 16)—told consumers (implausibly) that they could make an extra “$54,000 per year” from 4 offline retail sales, but that doing so would require locating 100 retail customers who 5 purchase products at “retail” prices monthly. The same pitch deck, by contrast, showed 6 how affiliates could earn over $1 million per month by recruiting just 10 affiliates to start 7 their Power of Ten pyramid. (Ex. 16 at 43, 49-52.) 8 Defendants also told affiliates that “Units” needed to be a “MAJOR focus.” (Ex. 9 147.) They defined Units as “sale[s] in the SBH Online System,” which they made clear 10 were “Not Retail.” (Id.) Thus, Defendants trained affiliates that their purchases from 11 SBH—the “sales” that generated commissions—were “Not Retail.” (Id.) 12 To be clear, Defendants did not ignore retail sales. Nevertheless, as discussed 13 above, retail sales did not (and could not) provide a significant source of income to 14 affiliates. Indeed, Defendants sometimes told affiliates to give away products for free 15 and/or treat retail sales as a one-off recruiting tool. For example, SBH’s “Fast Start 16 System” training directed affiliates to first give away 60 product samples in their first 30 17 days for free (at a loss to affiliates) to induce recipients to become affiliates. (Ex. 5 at 21.) 18 19 Defendants then told affiliates to tell recipients of the samples that they could get the

20 products for “FREE” by enrolling as an affiliate—which Defendants claim “[m]ost people”

21 will take. (Id.)

22 Similarly, Defendants’ “retail sales script” directed affiliates to ask their friends or

23 family members to “help me out by buying at least a bag or two of coffee from me one time 24 at Retail Pricing.” (Ex. 8, emphasis added.) The affiliate was told to say, “If you like it, I 25 will show you how to get it at Wholesale Pricing” directly from SBH. (Id.) Harris, 26 similarly, directed affiliates to tell potential retail customers: “I just started a new coffee 27 business; would you do me a favor and just buy a few bags of coffee from me at retail? It 28 would mean a lot to me. And if you love this coffee as much as I do, and I believe you

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1 will, I can show you how to get it at wholesale or even for free.” (Ex. 113 at 23:21-24:4, 2 emphasis added.) Noland responded approvingly when an SBH affiliate posted to the SBH 3 “Heat” Facebook group his strategy for approaching consumers: “Would you help me out 4 and buy a bag or two bags from me this one time TODAY at retail and if you like it I’ll 5 show you how to get it at a discounted price.” (Ex. 334, emphasis added.) 6 6. Excessive Purchases And Lack Of Inventory-Loading Safeguards 7 Despite the many obstacles to earning profits through retail sales, Defendants urged 8 consumers to join SBH and buy large product packs, telling them that the “more inventory 9 you have to start your business, the faster your business typically will grow.” (Ex. 5 at 17.) 10 For example, and as noted above, Step 1 of the “Four Steps to Success” included directing 11 affiliates to “[d]ecide on Accelerator Pack.” (Ex. 4 at 12.) Defendants also instructed 12 affiliates to tell their new recruits that the “[t]he higher the Pack you initially start with, the 13 more money you can make” and that, by buying a $2,000 product pack, they could “[m]ake 14 50% Profit on your money FAST!” (Ex. 10 at 7.) As another example, Defendants’ “Fast 15 Start System” told affiliates that a “very simple way” to achieve a higher SBH “rank” after 16 enrolling is “for you to start with a [$2,000] Super Accelerator Pack and then have the 17 initial 2 people you [recruited] start with a Super Accelerator Pack. . . . This way you 18 19 immediately [get] B.A. Qualified.” (Ex. 5 at 3-4.) Referencing the need to “get started”

20 with a $2,000 product pack, Noland told recruits that they could just use “other people’s

21 money”: “What I’m going to do is[,] I’m going to put it on a credit card. I’m going to use

22 other people’s money.” (Ex. 84 at 67:11-17.)

23 SBH “Founders Packs” cost between $2,495 and $3,495 (plus $95-$150 shipping 24 and handling), contained thousands of dollars in SBH products, and entitled the purchaser 25 to “Founder” status, which included a share of the company’s revenues over a limited 26 period and membership in the purportedly forthcoming (but never-created) SBH 27 “retirement pool.” (Ex. 170 at 6; Ex. 130; Ex. 131; Ex. 53 at 9:23-11:7.) SBH “Global 28 Ambassador Packs” cost $4,995, plus $225 shipping and handling. (Ex. 324 at 4; Ex. 149.)

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1 Like the Founders Packs, Global Ambassador Packs contained various products and other 2 benefits, including, again, a share of the company’s revenues over a limited period and 3 membership in the purportedly forthcoming (but never-created) SBH “retirement pool.” 4 (Ex. 149.) To remain a Global Ambassador, the affiliate was also required to maintain an 5 additional $250 a month auto-order until “the last SBH Global Ambassador is sold” and 6 then maintain a $500 a month auto-order. (Ex. 324 at 3.) 7 Defendants told affiliates seeking financial freedom (#3’s) that they needed to 8 become Founders and Global Ambassadors. On an early SBH “Heat” conference call, for 9 example, Noland told affiliates that #3’s should, “first and foremost,” “step up and get a 10 Founders Pack.” (Ex. 346 at 23:3-23.) At the “ICON” training event, Noland demanded 11 of attendees (who already had paid thousands of dollars to attend, Ex. 329 at 11): “If you 12 want to be an ICON, are you at least a country founder? . . . If you are not a country 13 founder, stand up. . . . So if you’re going to be an ICON, do iconic stuff. Don’t leave no 14 money on the table. Don’t let cost cost you everything . . . . You got to get to the point 15 where you ain’t standing up during those sessions because the only reason you stood up is 16 because of what? You’re looking at the [cost.] You ain’t looking at the [value.]” (Ex. 109 17 at 8:1-25.) For those still worried about the cost of the Founders Pack, Noland reminded 18 19 them: “Now, all you got to do is use OPM if you ain’t got your own money. Use other

20 people’s money [OPM]. Stick it on a credit card, or borrow somebody’s credit card. The

21 only reason you won’t do it is because you’re too prideful. . . . The problem is you’re too

22 prideful, and that’ll keep you in the cellar. Call some people, I need to borrow your credit

23 card, I need some help. If they’re not going for financial freedom and you are, don’t they 24 need you? They going to need you, so go on and help me out, let me use your credit, I’ll 25 get that paid back. . . . It should take you 30 days, 60 days max, right? Paying 18 percent 26 interest . . . . Let me use your credit card, and then I’ll pay whatever interest charges you 27 get.” (Ex. 109 at 11:20-12:25.) 28 Noland then touted the benefits of the more expensive Global Ambassador Pack:

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1 “You’re going to be an ICON, and you sitting in the room at the ICON training, and you 2 ain’t a global ambassador?” (Ex. 109 at 13:23-14:1.) He continued: “[I]f they say they 3 want to be wealthy in SBH and you ain’t global ambassador, you making an extremely— 4 let me be raw—unwise decision that you are for sure—listen to me—going to regret. Fact: 5 if you’re not a global ambassador and you want financial freedom, and it was sitting in 6 front of your face, and all it took was for you to hustle to get the money that’s not going to 7 evaporate, it’s going to come right back to you in product, that you can just turn right back 8 into the money that you went and got, if you just hustle . . . .” (Ex. 110 at 8:7-21.) 9 Separate from the emphasis on purchasing Founders Packs and Global Ambassador 10 Packs, Defendants encouraged new affiliates to establish monthly “auto-orders” of SBH 11 products, explaining that their success in the company depended on doing so. (Ex. 7 at 2- 12 3 [“If you don’t sign up on our Auto-Order Program then you have approximately a 96% 13 chance of quitting within 2 years and, therefore, not earning commissions.”]; Ex. 5 at 18.) 14 After affiliates enrolled, Defendants continued to push them to make monthly product 15 purchases untethered to retail demand. At the end of each month, for example, Defendants 16 sent emails telling affiliates to “qualif[y] to the Highest Affiliate Rank Possible!” and 17 reminding them that “your Personal Orders count toward” rank advancement. (Ex. 166 at 18 19 2-3, 7-9, 12-20, 23-25, 28-40, 43-49, 52-57.) Defendants posted accompanying messages

20 on their “SBH Heat” Facebook group. (Id. at 1, 5-6, 10-11, 21-22, 26-27, 41-42, 50-51.)

21 In one end-of-month video message to affiliates, Harris boasted about the purported

22 benefit of inventory loading: “If you’ve got $1,000 worth sitting in your house,

23 congratulations. If you’ve got four or $5,000 worth, congratulations. If you’ve got more 24 than that, congratulations. Mr. Noland and I [in a prior MLM business] used to carry 25 around 10, 15, 20, $25,000 or more in products.” (Ex. 95 at 30:11-17.) In another end-of- 26 month message, Harris encouraged affiliates who were $2,000-3,000 away from hitting a 27 higher SBH “rank” to simply buy the products themselves, despite the fact that those 28 “ranks” reset every single month and affiliates might find themselves in the exact same

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1 situation the following month. (Ex. 93 at 14:23-15:9 [“I’m two or [$]3,000 away from 2 ranking up, I’m going to buy those products.”]; Tr. 556.) Affiliates heeded Defendants’ 3 warnings, with affiliates’ purchase volume skyrocketing at the very end of each month. 4 (Tr. 310-11 [Miles, testifying that purchases on “[t]he last day of the month [were] 283 5 percent higher than the average of all of the other days of the month”].) 6 Defendants also encouraged excessive product purchases untethered to product 7 demand by inventing “elite” (but sometimes non-existent) groups for affiliates in which 8 they would receive purportedly exclusive benefits. In November 2017, Defendants 9 released a set of “base requirements” for the “CORE Team,” which would have “exclusive 10 advantages” within SBH and “help us build out the key leaders and trainers for the 11 company’s future.” (Ex. 133.) The November 2017 CORE “base requirements” included 12 recruiting three new affiliates within two weeks, each of whom placed a $100 product 13 order. (Ex. 133.) There was no requirement to make any retail sales. SBH affiliates 14 reported to Defendants that they had completed the “CORE” base requirements, including 15 by recruiting three new affiliates. (Ex. 332.) In 2018, Defendants declared it was now 16 “time for us to build the SBH CORE Team!” (Ex. 140.) That team would include 20 17 affiliates and would be the “only way to be on the same page mentally with [Noland] on 18 19 this Millionaire Making SBH Journey.” (Ex. 140.) However, Defendants never actually

20 selected a CORE team.

21 Separately, in early 2018, Noland hosted a series of “Millionaire Insider” conference

22 calls. (Ex. 167.) Defendants wrote that “if you are truly focused on Financial Freedom,

23 you can’t miss these calls,” adding that their mission was “to build and create 1,000 24 Millionaires. It’s going to fun [sic] watching it happen!” (Ex. 167 at 1, 3, 4, 9.) To join 25 the Millionaire Insider calls, affiliates had to satisfy certain “criteria.” Those criteria 26 included personally purchasing $500 or $1,000 in products from SBH within a four-day 27 window or recruiting a new affiliate to do the same. (Ex. 167 at 1, 3, 4, 9.) There was no 28 retail-sale requirement.

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1 Separately, in mid-2018, Defendants began promoting an SBH “All Out, All In” 2 Team. (Ex. 168.) Defendants explained: “These are the most committed people in SBH. 3 These are the people who are ready to go for Financial Freedom with all they’ve got. . . . 4 The elite of the elite from SBH will come out of this group.” (Id.) Defendants sent an 5 email to interested affiliates, laying out the qualifications for the All Out, All In team. (Ex. 6 267 at 1.) Among other things, Defendants required affiliates to buy $1,500 in SBH 7 products (or recruit a new SBH affiliate to do the same) and buy two of Defendants’ 8 training programs at a cost of approximately $1,500. (Id.; Ex. 309 [showing cost of 9 Defendants’ “Think & Grow Rich” and “Million Dollar Energy” courses].) There was no 10 retail-sale requirement. 11 Shortly after an event at which “All Out, All In” candidates obtained front-row seats, 12 Defendants posted another “All Out/All In Challenge” to their Facebook group. (Ex. 145.) 13 Just like the last challenge, it required, inter alia, affiliates or their new recruits to purchase 14 $1,500 in products from SBH. (Id.) Once again, there was no retail-sale requirement. 15 Despite encouraging affiliates to make large (and, in some cases, automatic and 16 recurrent) product purchases, Defendants lacked policies and safeguards to ensure that 17 affiliates’ inventory ended up in the hands of ultimate users. For example, Defendants’ 18 19 official policy prohibiting refunds “for any reason whatsoever” (Ex. 2 at 3) left consumers

20 who were unable to sell their personal inventory with no realistic option but to take losses.

21 The Court acknowledges that Defendants presented evidence of certain informal efforts to

22 provide refunds even after the adoption of the official no-refunds policy (Lead Action, Doc.

23 532 at 49-50), but those efforts were insufficient to address the problems posed by the 24 adoption of the official policy. 25 Defendants also failed to track retail sales and placed no restrictions on affiliates’ 26 ability to order more products while they still had excessive inventory on hand. 27 Referencing what are sometimes known as Amway safeguards, Dr. Bosley explained that 28 “SBH has no minimum retail sales requirement, no 70 percent rule (requiring Affiliates to

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1 certify that 70% of their purchases were made to actual consumers of the products) or other 2 specific inventory loading rule, and does not allow refunds.” (Ex. 25 at 98-99 ¶ 159.) Dr. 3 Bosley added that “MLM firms, even those that have been prosecuted for pyramid scheme 4 activity, typically pay—at a minimum—lip service to safeguard policies including a 5 minimum retail requirement, 70 percent rule, and refund policy.” (Id. See also Tr. 110-12 6 [Dr. Bosley’s trial testimony on Amway safeguards].) The Court found it significant that 7 SBH lacked these safeguards.34 8 B. SBH—False And Misleading Statements 9 Defendants promised financial success in three related ways: (1) offering “financial 10 freedom,” or other lucrative rewards, to those who followed their instructions; (2) telling 11 consumers they would achieve the same fictitious wealth as Noland if they followed his 12 instructions; and (3) promising consumers that even if they did not want to push for 13 “financial freedom,” they could still earn hundreds or thousands of dollars per month.35 14 1. “Financial Freedom” 15 a. The Representations 16 Defendants told current and prospective SBH affiliates there were three types of 17 affiliates—those looking to supplement their income (#1s); those looking to “[r]eplace 18 [their] Income (No More Job)” (#2s); and those looking to obtain “Financial Freedom” 19 (#3s). (Ex. 3 at 33.) Defendants stated that the choice of what type of affiliate to be is 20 “yours” (Ex. 3 at 33), but that if an affiliate chose to seek financial freedom (i.e., be a #3) 21 and “pa[id] close attention,” the affiliate would “be able to get out of that job in about six 22 months” and attain financial freedom in 18 months. (Ex. 54 at 9:5-9; Ex. 84 at 41:2-9.) 23 34 The Court was not persuaded that SBH’s limitations on the number of “packs” an 24 affiliate could purchase (see, e.g., Tr. 458 [describing that SBH had a “policy against” buying more than one of any specific type of pack]) or SBH’s application process to 25 become a founder (see, e.g., Tr. 477-78, 1219-21) came anywhere close to severing as adequate safeguards. 26 35 In its proposed findings of fact, the FTC identified a fourth category of false income 27 representations (“touting the purported success of Noland’s prior students”). The Court has not included this category because, as noted elsewhere in this order, the evidence 28 regarding the falsity of this particular category of representations was not as strong as the FTC’s evidence regarding other categories.

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1 SBH did not keep track of how affiliates self-identified. (Tr. 716, 1279.) 2 Noland also told affiliates they could have a “reasonable expectation” of replacing 3 their job income in six months by being “result-oriented and focused” (Tr. 1624), adding 4 if they “just applied [his system], without fail, you should be able to be finally free in 18 5 months” (Ex. 72 at 7:23-8:16). On another occasion, Noland said: “Y’all got to just listen 6 to me. Because in this room tonight, it’s going to be somebody that walks in for the first 7 time, 18 months from now will never have to work again.” (Ex. 84 at 41:2-9.) Similarly, 8 on another occasion, Noland said: “[Y]ou listen to me and you listen to our top leadership 9 council and our top leaders that are developing with SBH, you’re going to be able to get 10 out of that job in about six months if you pay close attention.” (Ex. 54 at 9:5-9.) 11 Although Defendants suggested during the bench trial that “financial freedom” was 12 an amorphous term that could mean different things depending on the context (and might 13 mean simply making enough money to pay a utility bill), this suggestion was not credible 14 and was belied by the voluminous evidence establishing that Defendants characterized 15 “financial freedom” as a level of income beyond merely being able to quit a job. For 16 example, on an early SBH “Heat” conference call, Noland explained: “I’m talking about 17 financial freedom, where you just do not have to work again and money keeps coming in, 18 over and over and over again.” (Ex. 346 at 13:9-16. See also Ex. 84 at 13:1-3 [“Have 19 financial freedom. Do what you want, when you want, wherever you want.”].) Later, he 20 explained that “financial freedom” meant, at a minimum, a perpetual stream of $20,000 21 monthly payments: “[W]hen we talk about financial freedom, independence, and wealth, . 22 . . [w]e got to get to that [$]20,000-plus a month coming in consistently. Whether you 23 work or not, here comes [$]20,000 every month.” (Id. at 14:4-8. See also Ex. 74 at 53:3- 24 16 [“Some people in this room, 12 months. That’s the fastest I’ve had it done. Complete 25 time and money freedom. . . . Never have to work again. Ever. No less than [$]20,000 a 26 month.”].) On another SBH Heat call, Noland defined “financial freedom” as “[n]ever, 27 ever, ever having to work again, and having executive-style income, minimum six figures 28 per year, whether you work or not, for the rest of your life. . . . [People seeking financial

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1 freedom] want to spend the majority of their years doing what they want to do, living their 2 dreams, exploring the world, having all the things that most people will never even touch. 3 . . . I’m talking about six figures, maybe even seven figures, per year . . . . [A]nd it just 4 keeps coming in, and you don’t do any work that day.” (Ex. 349 at 9:4-10:2.) 5 Defendants also used images of yachts and cars, piles of cash, and exotic vacations 6 to promote consumers’ potential financial earnings. (Ex. 350-84 at 0:41-0:51. See also 7 Ex. 21 at 15.) At the SBH “Wealth Warriors Bootcamp” training event, Noland offered 8 attendees the opportunity to “Get Paid Like A Professional Athlete” through “RESIDUAL 9 INCOME” via SBH. (Ex. 21 at 9.) On another occasion, Noland called SBH a “literal 10 golden goose” and “perpetual money and health machine” that would make affiliates 11 millions of dollars. (Ex. 67 at 10:3-5.) Noland repeatedly vowed to create “1,000 12 millionaires” in SBH. (Ex. 60 at 18:16-22; Ex. 58 at 28:10-21; Ex. 136; Ex. 59 at 39:22- 13 40:9 [“I want a thousand real millionaires. . . . I want 2,000 millionaires, when they reach 14 retirement they’ve got a million dollars, a year, coming in, not from the stock market, but 15 from coffee that people re-order . . . .”]; Ex. 59 at 44:6-11 [“I’m going to create a thousand 16 millionaires that make a million dollars residual income a year.”].) 17 Defendants stated that achieving this form of financial freedom was not simply 18 theoretically possible, but reasonably likely—and, in some case, a virtual certainty—if 19 affiliates followed Noland’s training. In a 2018 video, “How to be a MILLIONAIRE in 20 SBH,” Noland stated, “You will be a millionaire if you apply this training, you’re going to 21 be a millionaire. You can go and look in the mirror and say I’m going to be a millionaire 22 if I apply the training that J. Noland just gave me.” (Ex. 71 at 42:13-21.) At another 23 training, Noland told affiliates: “If I’m sitting down, working with you personally, . . . I 24 know within three years, if you listen to me, I’m going to make you a millionaire.” (Ex. 25 62 at 20:23-21:1.) Separately, during the October 2018 “MVP” event, Noland told the all- 26 SBH affiliate audience (Ex. 148): “Y’all going to be rich. Don’t worry about it. I’ll make 27 you a millionaire. Y’all got that? You three, I’m going to make you millionaires. Boom.” 28 (Ex. 74 at 28:19-24.) He added: “[Y]a’ll going to see me go do billions and create multi-

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1 multi-multi-millionaires. So they’re all going to make at least several million. . . . Some 2 of y’all can be hanging around the fire and catch a little flame and make you a few million. 3 That’s cool.” (Id. at 29:8-13.) Meanwhile, Harris told one SBH affiliate by text message: 4 “You’ll make $100k+ in 2018.” (Ex. 280.) Mehler, SBH’s then-director of sales, once 5 told affiliates that a five-figure monthly income was not a “theoretical example” but instead 6 a “fact” based on Noland’s past results. (Ex. 337 at 6:23-7:5.) And Duvon Botero, SBH’s 7 then-vice president of sales, quoted Noland to affiliates in October 2019, telling them: 8 “[T]his is Mr. Noland, I’m quoting Mr. Noland, ‘If you’ll follow my system, I can 9 guarantee you’ . . . . This is a call for people who are looking for the business opportunity. 10 ‘But I can guarantee you, you will find success with our company because the system is a 11 proven system.’” (Ex. 763 at 0:06-0:11, 15:55-16:35).36 12 b. Proof Of Falsity 13 Dr. Bosley modeled scenarios in which affiliates followed Defendants’ instructions 14 about how to maximize earnings under the SBH commission plan. Based on that modeling, 15 Dr. Bosley concluded “that this is a structure that’s built on a pay-and-recruit model that 16 will leave the vast majority in a loss position.” (Tr. 98. See also id. at 79-80 [“So what I 17 find in SBH is that their ability to profit is dependent on their ability to recruit.”].) Thus, 18 Dr. Bosley concluded that “SBH’s income representations [were] false,” because they 19 “systematically misrepresent[ed] the earnings that would be achieved in this system.” (Tr. 20 21 36 Defendants’ occasional use of disclaimers did not alter the net impression created by these and other income representations. As noted, some of the representations were not 22 accompanied by any disclaimers, but instead phrased as guarantees. And even when Defendants did provide disclaimers, they would often undo the “theoretical example” 23 cautionary note by explaining the example was only theoretical “[b]ecause you just ain’t done it yet” and adding, “But are there people that do it? . . . Yes. I got people in my 24 network globally, they make that look silly.” (Ex. 84 at 53:20-54:5; see also Ex. 115 at 9:5-13 [“So if we talk about anything with theoretical examples, we say they’re theoretical 25 because you haven’t done it yet. If you do it, you get paid. If you don’t do anything, you don’t get paid.”].) These disclaimers were also, in many instances, buried within training 26 materials in small-print, faint text at the bottom of the page, whereas the income projections were highlighted in a contrasting color and much larger font. (Ex. 16 at 50.) At any rate, 27 clarifying that a particular income level is not “guaranteed” is different from clarifying that the income level should not be reasonably expected (which Defendants failed to do). 28 Indeed, at the same time Defendants claimed that ncome was not “guaranteed,” they provide assurance that financial freedom was “achievable for the masses.” (Ex. 10 at 6.)

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1 120.) The Court found this testimony credible. 2 Separately, Miles, the FTC’s data analyst, created a “comprehensive spreadsheet 3 that identifies each product and [event] ticket purchased from Success By Media, the date 4 and amount of each purchase, and, for each affiliate, the total commissions (earned and 5 disbursed).” (Ex. 38 ¶¶ 4-5.) Miles then prepared a “summary profile that for each affiliate 6 and consumer shows the total value of purchases, the first and last invoice date for 7 purchases, the total value of ticket sales, the total value of VOZ purchases, the total value 8 of product credits, and total commissions (earned and disbursed).” (Ex. 38 ¶ 5.) 9 Miles determined that SBH affiliates paid $6,205,551.29 (excluding purchases 10 made with product credits) for SBH products. (Ex. 38 ¶ 12.)37 Miles further determined 11 that SBH affiliates earned $2,174,301.09 in commissions. (Id.)38 Thus, in relation to SBH, 12 affiliates suffered a net loss of more than $4 million (which does not include the additional 13 cost of tickets for training events or certain other costs, such as travel and marketing 14 expenses). 15 In addition to looking at the aggregate financial picture, Miles also identified the 16 percentage of SBH affiliates who were in a net-loss position in relation to SBH. Miles 17 determined that less than 6% of affiliates (420 of the 6,957 total affiliates) received more 18 money from SBH than they paid to SBH. (Ex. 38 ¶ 17.) Miles further found that only 110 19 affiliates (less than 2%) netted over $100 from SBH. (Ex. 38 ¶ 18.) Miles also testified 20 that 65% of affiliates who attended trainings were in “a net loss position of greater than a 21 thousand dollars” compared to 10% of affiliates who had not attended a training event. (Tr. 22 309-10.) 23 Although these figures do not account for revenue from affiliates’ offline retail sales 24 (which Defendants did not track), the Court has no hesitation concluding, in its capacity as 25 finder of fact after hearing all of the evidence at trial (including the testimony from the 26 37 This figure excludes shipping and taxes, which Defendants omitted in the spreadsheet Miles used. Defendants calculated those costs at $437,072.96. (Ex. 350-79, 27 “Data Pie Charts” tab, Cell H24.) 38 28 Affiliates did not receive all of these funds because some left money in their SBH “e-Wallets.”

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1 defense’s handpicked best examples of supposedly successful retail sales activity), that the 2 revenue from retail sales was nowhere near enough to offset the losses calculated by Miles. 3 Similarly, although Miles’s figures omit the value of products personally consumed by 4 SBH affiliates, consideration of that value would not change the overall conclusion that the 5 great majority of SBH affiliates were net losers and the few who may have eked out a net 6 positive outcome did not obtain anything close to the “financial freedom” that was being 7 offered. 8 Finally, it is notable that Noland, Harris, and Sacca themselves did not earn, during 9 their 29 months sitting atop the SBH pyramid, anything close to what Defendants claimed 10 top affiliates could reasonably expect to achieve in just 18 months. Noland received 11 $206,009.29 in commissions, or $7,103.77 per month over the relevant 29-month 12 period. (Ex. 350-79, Tab 3a, “ID” number 400000, 90225.)39 Noland also purchased only 13 $300 in SBH products (Ex. 350-82, Row 275 - “Affiliate#” 400000) and admitted making 14 “de minimis sales of his personal inventory.” (Ex. 44 at 2 ¶ 12.) Thus, Noland averaged 15 just over $7,000 per month over 29 months, not the $20,000 per month that Defendants 16 told #3s they could reasonably expect, at a minimum, after 18 months. 17 Next, Harris received $120,812.22 in SBH commissions, or $4,165.94 per month, 18 over the relevant 29-month period. (Ex. 350-79, Tab 3a, “ID” number 400003.) Harris 19 admitted making “few if any” offline retail sales. (Ex. 44 at 2 ¶ 12.) Again, these earnings 20 are far below what Defendants told #3s they could reasonably expect after 18 months. 21 Finally, Sacca received $108,712.67 in SBH commissions, or $3,748.71 per month, 22 over the relevant 29-month period. (Ex. 350-79, Tab 3a, “ID” number 400005.) Sacca 23 admitted “de minimis sales of personal product.” (Ex. 44 at 2 ¶ 12.) As with Noland and 24 Harris, Sacca’s SBH earnings were thus far below what Defendants told #3s they could 25 reasonably expect after 18 months. 26 … 27 39 No non-Defendant SBH affiliate came close to that figure. Next in line was Jo Dee 28 Baer, at $99,002.46 in commissions over roughly the same 29-month period. (Ex. 350-79, Tab 3a, “ID” number 400013.)

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1 2. Noland’s Wealth 2 a. The Representations 3 Defendants repeatedly used Noland’s purported wealth to recruit new affiliates and 4 convince existing ones to spend more money. 5 At one event, for example, Noland rhetorically asked: “Jay, just please tell me how 6 you created a financial freedom life to where your son before he was born was already 7 retired? And his kids are retired, and his kids’ kids are retired? I’m now working on my 8 fourth generation. . . . [I]t’s going to be somebody that walks in here for the first time, 18 9 months from now will never have to work again.” (Ex. 84 at 40:15-41:5.) At the same 10 event, Noland claimed he had been “financially free, completely time and money free since 11 I was 36” and had not “had to work a job . . . [s]ince I was 27,” due to “this thing called 12 residual income.” (Ex. 84 at 14:19-15:1.) Noland made effectively the same claim on an 13 early Heat call, claiming that as of 2004, he already “had reached complete time and money 14 freedom” and had been “generationally set-up for a long time.” (Ex. 350-93 at 24:20- 15 25:01.) Noland told another audience he had “made more [money] than most people will 16 make in 10 lifetimes, or maybe even 20.” (Ex. 55 at 7:25-8:7.) At another event, Noland 17 claimed to have given away “a couple million per year” to family, friends, and others, 18 adding that he did not “even feel it, though” because he had “freedom.” (Ex. 74 at 36:18- 19 37:6.) Additionally, there are the misrepresentations discussed elsewhere in this order 20 related to the purported property in Panama on the private beach. 21 b. Proof Of Falsity 22 As already discussed above, in relation to Noland’s credibility, these representations 23 were false.40 In his January 2020 sworn financial statement, Noland reported he had a 24 negative net worth and owed over $210,000 in state and federal taxes. (Ex. 310 at 8, 10.) 25 At his deposition, Noland was unable to identify a time he ever had a positive net worth. 26 (J. Noland Dep. Tr. (2/5/20) at 37:14-18 [“I would have to ask my accountant.”].) Noland 27 40 The cited representations would remain false even if Noland believed for a time that 28 his claimed stake in Organo Gold (which he did not acquire until 2008) was worth millions of dollars.

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1 admitted to the tax advocate assisting him in dealing with the IRS that he was “living on 2 Credit Cards” in 2005 and 2006 and that, in 2007, the IRS ordered him to pay $187,000 in 3 back taxes (which Noland admittedly “did not have the ability to pay”). (Ex. 201.) 4 3. Income Potential Short Of “Financial Freedom” 5 a. The Representations 6 Defendants stated that even if an affiliate did not wish to become a #3 and obtain 7 financial freedom, SBH could provide the steps needed to earn substantial income. 8 Defendants told affiliates they were giving them “simple” steps to meet those goals, even 9 if the steps would not be “easy.” (Ex. 346 at 21:5-6 [“And here’s what so crazy. Getting 10 wealthy is simple. I didn’t say easy.”].) 11 For #1s (those looking to “supplement” their income), Defendants explained that 12 with minimal commitment, affiliates could expect to make “$300 to $500, maybe $1,000 13 extra a month.” (Ex. 347 at 13:13-15. ; See also Ex. 510 [#1s “want to Supplement Their 14 Income (Make and [sic] extra $300 - $1,000/mo)”]; Ex. 346 at 30:6-8 [“I’m telling you, 80 15 percent need to just make an extra $2-, $300, maybe an extra $1,000 a month.”]; Ex. 349 16 at 6:9-12 [“Number ones, these are people that are just looking to supplement their income. 17 They’re looking for maybe an extra $300, $500, maybe tops an extra $1,000 per month.”)].) 18 Defendants were clear that the money #1s would earn, without much effort, would 19 make a substantial difference in their lives: “[A]n extra $300 a month changes most 20 people’s lives and keeps them from ever filing for bankruptcy. . . We are impacting lives 21 all over!” (Ex. 529, ellipses in original. See also Ex. 349 at 6:19-25 [“[M]ost people would 22 be shocked to know if they just added an extra $100 to $300 per month to their mortgage 23 [payment], they would . . . knock off years, some cases a decade [if] you had a 30-year 24 mortgage.”].) To be a #1, affiliates needed to “ask two people per week for money to join 25 [their SBH] business.” (Ex. 349 at 17:6-10. See also Ex. 20 at 22; Ex. 21 at 34; Ex. 22 at 26 29; Ex. 23 at 64; Ex. 24 at 43.) 27 Defendants also estimated that #2s (those trying to replace their income) would 28 make a minimum of about $2,500 to $3,000 per month. (See, e.g., Ex. 346 at 16:12-16 [“I

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1 think that replacement income comes right around the $2,500 to $3,000 a month mark 2 . . . .”].) Defendants told affiliates they could get to the job-replacement level and quit their 3 jobs in six months, if they spent just one or two hours per day, five days per week, asking 4 two people per day to join their SBH business. (Ex. 346 at 16:25-17:4 [referencing married 5 couple: “[B]oth of us gonna take at least an hour a day during the next six months, and 6 we’re getting out of this job.”]; Ex. 347 at 26:4-13 [“If you’re a number two, what you can 7 get out of your job, you just simply ask two people a day for money to join the business; 8 you do it five days a week . . . . You’re going to do that for six months. . . . It usually takes 9 an hour or two a day out of [your] life.”]; Ex. 349 at 18:15-22 [“So over the course of six 10 months, five days a week, you’re going to ask people, what, two times per day for money 11 to join the business. That’s what I’ve watched in 22 years of people who consistently break 12 through and never have to work again . . . . They replace their income. And it typically 13 takes a person around six months.”]; Ex. 20 at 22; Ex. 21 at 34; Ex. 22 at 29; Ex. 23 at 64; 14 Ex. 24 at 43.) 15 Noland also told #2s that it did not matter what their current income was; as long as 16 they spent one or two hours per day, five days per week, asking two people to join SBH, 17 they could expect to replace their income in 6 months: “[E]verybody that I know that is a 18 beast on that . . . [u]sually, they’re out of their job within six months. They don’t ever have 19 to work again. They’ve replaced their income. And it’s funny, no matter what their income 20 is, when they go ahead and ask at least two people a day . . . [they’re] going to grow it to 21 whatever their income is, it’s just weird . . . .” (Ex. 347 at 26:14-27:1.) 22 b. Proof Of Falsity 23 The evidence discussed in Part II.B.1.b above, which bears on the falsity of the 24 “financial freedom” income representations, also bears on the falsity of the representations 25 concerning income potential short of “financial freedom.” 26 … 27 … 28 …

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1 C. SBH Rules Violations 2 1. Shipping Delays 3 Defendants consistently took orders for products that were out of stock and, in some 4 cases, would not exist for 6-12 months. 5 a. Founders Packs 6 For example, Defendants sold over 150 Founders Packs before November 10, 2017 7 (Ex. 131) and had sold 200 by January 23, 2018 (Ex. 137). The purchasers spent 8 approximately $570,000 on these Founder Packs. (Ex. 170 at 6 [pre-November 10 price 9 of $2,495 plus $95 shipping and handling]; Ex. 131 [150 packs sold at pre-November 10 10 price]; Ex. 130 [post-November 10 price of $3,495, plus $150 shipping and handling]; Ex. 11 137 [remaining 50 packs sold at post-November 10 price].) Nevertheless, as of March 13, 12 2018—49 days after the final Founders Pack purchase and over four months after at least 13 150 Founders Pack purchases—Defendants still had not delivered approximately $370,000 14 in SBH products to these Founders Pack purchasers. In particular, as of March 13, 2018, 15 Defendants still owed Founders Pack purchasers 6,208 packages of Latte ($136,576, at $22 16 per package), 570 packages of Black Coffee ($11,400, at $20 per package), 1,322 bottles 17 of “G-Drops” ($38,338, at $29 per bottle), 420 bottles of “Life 120” ($33,180, at $79 per 18 bottle), 458 bottles of “Aller G Stop” ($17,862, at $39 per bottle), 704 bottles of “G-Burn” 19 ($41,536, at $59 per bottle), 592 bottles of “G-Shield” ($23,088, at $39 per bottle), 564 20 bottles of “Fruit & Veggie” ($33,276, at $59 per bottle), 552 bottles of “Essential” 21 ($21,528, at $39 per bottle), and 334 bottles of “G-Clear” ($13,026, at $39 per bottle). (Ex. 22 180 [amount of each product owed to consumers]; Ex. 236 [cost of each product].) 23 b. Hot Cocoa 24 Defendants also routinely exceeded their estimated shipment dates for “pre-orders.” 25 For example, on April 13, 2018, Defendants told SBH affiliates they had started “pre- 26 production” of their Hot Cocoa product. (Ex. 143 at 1.) That same day, Defendants began 27 accepting “pre-orders” for Hot Cocoa, with an estimated shipping date of June 20, 2018. 28 (Id.)

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1 Nevertheless, as of November 29, 2018, Defendants had not finalized the 2 formulation of the Hot Cocoa product. (Ex. 225.) Defendants did not begin shipping Hot 3 Cocoa until January 10, 2019 at the earliest—seven months after the estimated shipping 4 date. (Ex. 151 [“SBH R&D Hot Cocoa just hit the warehouse and the Pre-Orders start 5 shipping out today!”].) Between April 2018 and December 11, 2018 (30 days pre- 6 shipment), Defendants accepted $51,337 in Hot Cocoa pre-orders. (Ex. 350-79 [Tab 6, 7 filter Column L for “SBH Gourmet Hot Cocoa” and sum all orders between April 13, 2018 8 and December 11, 2018]; Ex. 143 [add $29 shipping and handling per order].) 9 c. Rooibos Tea 10 Similarly. on March 26, 2018, Defendants claimed to have started “pre-production” 11 of their “Rooibos Tea” product. (Ex. 184 at 1.) That same day, Defendants opened pre- 12 orders of Rooibos Tea with an estimated shipping date of May 20, 2018. (Id.) 13 Eleven months later, on February 24, 2019, Defendants ordered Rooibos Tea from 14 their supplier. (Ex. 234.) At that time, Noland admitted that he was “really behind the 8- 15 Ball on this,” with “many Pre-Orders . . . outstanding for over 6 months.” (Id.) Defendants 16 did not start shipping Rooibos tea until March 8, 2019 at the earliest—almost a full year 17 from the first pre-orders and over nine months after the estimated shipping date—and did 18 not claim to have shipped all pre-orders until May 24, 2019. (Ex. 268 at 51-59 [first 19 appearance of Rooibos on inventory report is March 8, 2019 and first non-zero entry for 20 Rooibos is June 1, 2019]; Ex. 152 [Rooibos “about to hit the SBH Warehouse”]; Ex. 154 21 [May 24: “ALL Back Orders have been Shipped Out”].) 22 Between March 2018 and January 31, 2019 (at least 36 days pre-shipment), 23 Defendants accepted over $25,000 in Rooibos Tea orders. (Ex. 350-79 [Tab 6, filter 24 Column L for “R&D MycoCafe Gourmet Rooibos Tea (15 POUCHES) PRE-ORDER” 25 and sum all orders between March 26, 2018 and December 11, 2018]; Ex. 184 at 1 [add 26 $29 shipping and handling per order].) 27 d. Chai Tea 28 On March 5, 2018, Defendants announced that they had started “pre-production” of

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1 a Chai Tea product. (Ex. 139.) That same day, Defendants began accepting “pre-orders” 2 of Chai Tea, with an estimated shipping date of April 20, 2018. (Id.) 3 Defendants did not start shipping Chai Tea until September 18, 2018, at the earliest. 4 (Ex. 328.) Noland admitted that “most” pre-orders did not ship until December 2018. (Ex. 5 150. See also Ex. 268 at 37-47 [no Chai Tea in stock from October 6, 2018 to January 11, 6 2019].) 7 Between March 5, 2018 and August 19, 2018 (30 days pre-shipment), Defendants 8 accepted $60,230 in nonrefundable Chai Tea orders. (Ex. 350-79 [Tab 6, filter Column L 9 for “MycoCafe Chai Tea Pack (12 Pouches)” and “Chai Tea (12 Pouch Pack) 10 [subscription]” and sum orders between March 26, 2018 and December 11, 2018]; Ex. 139 11 [add $29 shipping and handling per order].) 12 e. Time Capsule 13 On September 9, 2019, Defendants launched pre-orders of their “anti-aging” “Time 14 Capsule” product, claiming it was “about to be here!” (Ex. 157.) However, as of 15 September 14, 2019, Defendants had not chosen the vendor that would manufacture this 16 product. (Ex. 250.) Defendants did not start shipping Time Capsule until November 17, 17 2019 at the earliest. (Ex. 161.) 18 Between September 8, 2019 and October 10, 2019 (at least 38 days pre-shipment), 19 Defendants accepted at least $47,955 in Time Capsule pre-orders (excluding shipping and 20 handling). (Ex. 350-79 [Tab 6, filter Column L for “Time Capsules (PRE-RELEASE 6 21 BOTTLES)” and “Time Capsules (PRE-RELEASE CASE – 12 BOTTLES),” and sum all 22 orders between September 8, 2019 and October 10, 2019].) 23 f. G-HCBD AM/PM 24 On February 26, 2019, Defendants opened pre-orders of one of their CBD products: 25 G-HCBD AM/PM (“AM/PM”). (Ex. 153.) Defendants did not start shipping AM/PM 26 until April 26, 2019 at the earliest. (Ex. 268 at 56 [first appearance of “AM/PM” on 27 inventory reports].) 28 Defendants sold over $37,000 in AM/PM products (excluding shipping and

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1 handling) on or before March 26, 2019 (30 days pre-shipment). (Ex. 350-79 [Tab 6, filter 2 Column L for “SBH R&D G-HCBD AM/PM (PRE-SALE 6 Pouches)” and “SBH R&D 3 G-HCBD AM/PM (Case – 12 Pouches)” and “SBH R&D G-HCBD AM/PM (1 Pouch – 4 30 day supply),” and sum all orders between February 26, 2019 and March 26, 2019].) 5 Additionally, Defendants made $24,796 in AM/PM sales (excluding shipping and 6 handling) between June 14 and October 10, 2019, notwithstanding that they had no 7 AM/PM in stock during that period. (Ex. 268 at 60-78 [no AM/PM in stock between June 8 14, 2019-November 15, 2019]; Ex. 160 [Noland announcing AM/PM coming back in 9 stock]; Ex. 350-79 [Tab 6, filter Column L for “SBH R&D G-HCBD AM/PM (PRE-SALE 10 6 Pouches)” and “SBH R&D G-HCBD AM/PM (Case – 12 Pouches)” and “SBH R&D G- 11 HCBD AM/PM (1 Pouch – 30 day supply),” and sum all orders between June 14, 2019 and 12 October 10, 2019].) 13 g. Other Shipping Delays 14 The shipping delays identified above, which are the only delays for which the FTC 15 seeks monetary relief, are just a portion of Defendants’ missing or late shipments. 16 One internal SBH document, for example, identifies “[h]ow much we owe on 17 backorders” as of March 13, 2018. (Ex. 181.) The document lists 403 pouches of Latte 18 (at $22 per pouch), 442 pouches of “Black Coffee” (at $20 per pouch), 39 bottles of “Life 19 120” (at $79 per bottle) and 97 bottles of Aller G Stop (at $39 per bottle). (Ex. 181; Ex. 20 236 [for cost of products].) The cumulative cost of these products is almost $25,000. 21 Separately, as of late April 2018, Noland admitted Defendants were “Back Ordered 22 like crazy” on “Aller-G-Stop” and had “been out for about a month.” (Ex. 189.) A 23 February 2018 internal document listed over 100 “backorders” of a variety of products. 24 (Ex. 178.) In October 2018, an SBH employee emailed Lina Noland: “Is there a chance to 25 know when G-Burn will become available again? I have several affiliates inquiring for the 26 G-Burn orders.” (Ex. 219 at 5.) Lina Noland responded: “people should not be contacting 27 us for that because [Jay Noland] said in a call about G-Burn being on backorder.” (Id.)41 28 41 The FTC provided extensive proposed findings of fact on other issues related to shipping, such as whether SBH’s shipping records are sufficient to determine which orders

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1 2. Response To Refund Requests And Inquiries About Shipping Delays 2 When affiliates questioned the status of late shipments or asked for refunds, 3 Defendants would sometimes falsely respond that the orders had “shipped” or threaten the 4 questioning party with removal from the company or other discipline. 5 For example, one affiliate asked why her team member’s three-month-old Chai Tea 6 order had not been sent even though the back office (i.e., SBH’s internal purchasing 7 system) said it was “shipped.” (Ex. 230.) Defendants responded that the Chai Tea was 8 “still on backorder.” (Ex. 230.) Another affiliate questioned the status of his one-month- 9 old Chai Tea order because the back office said it was “shipped.” (Ex. 218.) In response, 10 an SBH staff member confirmed the product was “still on backorder.” (Ex. 218 at 2 11 [bottom of page].) 12 Even if consumers did figure out that an order labeled “shipped” had not actually 13 shipped, Defendants dissuaded them from seeking refunds (or even asking about the order 14 status). SBH’s official policy was that refunds were categorically prohibited. (Lead 15 Action, Doc. 205 ¶¶ 98-99; Lead Action, Doc. 222 ¶¶ 55-56; Ex. 2 at 3 [official policy was 16 to allow no refunds “for any reason whatsoever”]; Lead Action, Doc. 529 at 16 ¶ 87 17 [Defendants’ proposed findings of fact, acknowledging that “SBH moved to a no-refund 18 policy on purchase of products in January 2018” but claiming that refund requests were 19 occasionally honored despite this official policy].) In one example, an affiliate asked 20 Defendants to “[p]lease refund me the chai tea order from 4 months ago and put the money 21 back in my wallet. I [haven’t] received it after being promised it months ago. I could use 22 the money for the holidays.” (Ex. 223.) Defendants responded by stating, “we do not do 23 refunds for orders already processed.” (Ex. 223.) In another example, an affiliate wrote: 24 “It’s been well over 4 months since I placed that order. I’m going to need you to please 25 return my money because your customer service is not up to par so, I’m not interested in 26 27 actually shipped. Lina Noland also testified at length during the bench trial about shipping issues. The Court finds it unnecessary to address this topic in the same level of detail as it 28 has addressed other topics because the Court’s ultimate rulings (both as to liability and remedies) do not turn on the disputed shipping-related issues.

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1 what your policy says.” (Ex. 227.) An SBH employee responded: “Per our policies and 2 procedures any order cannot be cancelled once processed. Chai is on backorder right now.” 3 (Ex. 227.) 4 On some occasions, Defendants went further than barring refunds—they threatened 5 customers seeking refunds or questioning their order status with termination from the 6 company, not only for themselves, but also for the person who recruited them. (See, e.g., 7 Ex. 114 at 5:23-12:3 [“I’m driving in the car right now, you ever get like a little gnat going 8 around, that’s what I feel like when people are complaining . . . You like swatting, like 9 stop, get out of here. So I’ve got some people I’ve got to prune.”].) In one case, Defendants 10 “[s]uspended pending [t]ermination” an affiliate’s membership because, in the Defendants’ 11 words, the affiliate “complained about not receiving [his pre-order] of Chai Tea among 12 other things,” which violated SBH’s “very strict stance against negativity in any shape, 13 form, or fashion.” (Ex. 196.) Defendants also threatened to punish violations of their no- 14 refund policy in other ways: “Each time an AFFILIATE violates the No Refund Policy 15 and files a chargeback or disputes a purchase they made from the Company, the liquidated 16 damages will be three (3) times the amount of each of AFFILIATE’s disputed payments(s) 17 [sic] to the Company, but not less than $1,000 . . . .” (Ex. 2 at 3.) Consistent with 18 Defendants’ policy against “negativity,” Noland once told affiliates, “if you complain, 19 great chance you’re going to be terminated, out, bam. Isn’t that amazing. You can’t 20 complain. People says, ‘I can’t complain?’ Nope, can’t complain, you can’t. It’s one of 21 the rules.” (Ex. 59 at 20:4-15.)42 22 … 23 … 24 25 42 During trial, the defense presented evidence that refund requests were occasionally 26 granted, despite the official policy forbidding them, and that Defendants sometimes made efforts to find another affiliate who was willing to purchase a refund-seeking affiliate’s 27 unused product. The defense also presented evidence that Defendants were particularly sensitive to chargebacks due to a coordinated spate of unfounded chargeback requests by 28 the complaining witnesses. Even if those contentions were accepted as true, the outcome here would not change.

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1 D. VOZ Travel43 2 In late August 2019, SBH’s accountant, Crystal Roney, sent Noland “internal 3 reporting” showing that SBM’s net operating income for the year was negative, with SBH 4 product sales plummeting nearly 33%. (Ex. 246 at 1, 9.) Roney warned Noland that he 5 needed an “income run.” (Id. at 1.) In October 2019, Defendants announced that they 6 would start selling memberships in their “VOZ Travel” program. (Ex. 115 at 36-69.) The 7 VOZ program required enrollees to buy $1,000-$2,795 “packs” to access a (never- 8 completed) travel platform. 9 Defendants promoted VOZ Travel in much the same way as SBH—with promises 10 of immense wealth potential. In one VOZ Travel sales video, Sacca boasted: “Yes, there 11 will be [VOZ] Travel ETAs making over [$]1.5 million per year. We cannot guarantee 12 you income . . . . We can guarantee you that, if you go to work, you’re going to change 13 your life.” (Ex. 118 at 17:14-18:8.) Noland introduced VOZ Travel to SBH affiliates by 14 telling them they could make a “six-figure income just saving people money on travel.” 15 (Ex. 115 at 51:19-25.) Defendants’ VOZ Travel recruiting presentation touted consumers’ 16 ability to earn $230,000 per year with “casual effort” and $1.53 million per year by being 17 “on the ball.” (Ex. 298 at 48-49.) Defendants told VOZ Travel recruits: “You will MAKE 18 significant earnings on sharing the [VOZ] platform with others.” (Ex. 298 at 35.) 19 Defendants elaborated: “Our lucrative compensation and rewards model presents a fun and 20 profitable path towards financial independence.” (Ex. 298 at 42.) As with SBH, 21 Defendants claimed VOZ Travel would allow affiliates to “Literally replace your current 22 income from Customer Savings alone.” (Ex. 297 at 4.) VOZ Travel also utilized SBH’s 23 “Power of Ten” pitch, as affiliates were told they could earn $115,000 per month by 24 completing the VOZ Power of Ten. (Ex. 297 at 7.) 25 On October 7, 2019, when Noland announced VOZ Travel, Defendants had not yet 26 43 Although the Court already granted summary judgment in the FTC’s favor with 27 respect to liability on the VOZ Travel-related claims in the Lead Action, it is helpful to provide some additional findings here because the VOZ Travel bears on the scope of 28 injunctive relief to be imposed in both actions and on the scope of monetary relief to be imposed in the Contempt Action.

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1 retained a travel service provider to provide the service they were selling. Despite this, 2 Noland told listeners on the October 7, 2019 webinar that VOZ Travel members would 3 save “up to 75 percent” on hotel and rental car prices available through Priceline, Orbitz, 4 or similar “competitors.” (Ex. 115 at 39:5-16.) Later, he reiterated that consumers could 5 “literally save up to 70 to 75 percent on all your travel” and that VOZ Travel members’ 6 savings would be so impressive that “[t]ravel agencies are going to also become some of 7 your customers.” (Ex. 115 at 48:2-17.) 8 On October 18, 2019, Defendants (still lacking a travel service provider) posted the 9 VOZ PowerPoint presentation used by Noland on October 7 to the “SBH Heat” Facebook 10 group. (Ex. 158; promoting version of presentation that is Ex. 299.) That presentation 11 promised “discounts up to 75%+ from retail prices,” adding users would “SAVE on all 12 your travel, all the time.” (Ex. 299 at 32, 41.) The presentation made elaborate promises 13 about travel features beyond mere savings. For example, it promised to determine 14 members’ “travel DNA” (or “tDNA”) “by collecting a host of data points . . . from your 15 online behavior” to create the “highest level of personalization for your travel.” (Id. at 28.) 16 It also promised VOZ Travel users access to an artificial intelligence assistant, “Dina,” 17 similar to “Siri, Alexa, Cortana, or Google Assistant.” (Id.) And it promised VOZ Travel 18 members a “unique rewards engine,” or “complete gamification engine,” that would reward 19 VOZ Travel members for “providing feedback and insights regarding our curated 20 experiences.” (Id. at 23, 36.) 21 On October 21, 2019—after making the promises described above—Defendants 22 contracted with a vendor (Advantage Services) to provide the VOZ Travel service. (Ex. 23 295.) Shortly afterward, Advantage Services expressed concerns about the benefits 24 Defendants had promised to consumers. (Ex. 251 at 2-4.) Advantage Services’ Vice 25 President of Business Development, Tanya Yeager, explained to Defendants that their 26 claim that members “will save on all your travel all the time” was not true because “[n]ot 27 all travel will have a savings, for example [a]irfare.” (Id. at 4.) Yeager also wrote, in 28 response to Defendants’ promises to create “travel DNA”: “This is not a thing.” (Id. at 3-

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1 4.) Yeager added that Advantage Services had no “unique rewards engine” as Defendants 2 had promised. (Id. at 3.) After flagging even more concerns with the presentation, Yeager 3 asked Defendants to “please remove [the presentation] from use.” (Id. at 4.) 4 After receiving Yeager’s email, Defendants asked affiliates to stop using the 5 existing VOZ Travel presentation so that Defendants could “perform our final compliance 6 verifications” and make “minor revisions.” (Ex. 159.) Confusingly, Defendants added, in 7 bold font: “To be clear, the nature of the VOZ program and future benefits as presented 8 and sold remain unchanged.” (Id.) 9 Even after revising the VOZ Travel presentation in response to Yeager’s email, 10 Defendants continued to promise travel discounts “up to 75%+ from retail prices,” without 11 even mentioning any exclusion for airfare. (Ex. 298 at 24.) Additionally, rather than 12 remove references to “tDNA,” the virtual assistant named “Dina,” the “complete 13 gamification engine,” and other services that did not exist, Defendants simply added a 14 “VOZ Tomorrow” stamp to some, but not all, slides referencing these purported offerings. 15 (Id. at 28-31 [“VOZ Tomorrow” stamp], 32, 38-39 [no “VOZ Tomorrow” stamp].) 16 Defendants’ claims regarding their VOZ offerings were false, unsubstantiated, or 17 both. At his deposition, Noland’s only defense of the 75%-savings claims was to reference 18 his own, undocumented, “market research.” (J. Noland Dep. Tr. (12/14/20) at 138:11- 19 140:17.) Noland also testified that Defendants themselves (and not Advantage Services) 20 were developing, or maybe already developed—Noland, confusingly, was unsure—the 21 “tDNA” system, the Siri-like virtual assistant Dina, and the “complete gamification 22 engine” that they promised to consumers. (J. Noland Dep. Tr. (12/14/20) at 151:17-152:9, 23 153:14-154:16, 169:5-170:13.) But Defendants have neither identified nor produced any 24 evidence of this. 25 By December 16, 2019, Noland knew VOZ Travel would not be ready to start that 26 month. (Ex. 252 [email to Noland discussing adding “3 weeks . . . to the timeline,” 27 resulting in a January 13, 2020 launch date].) Nevertheless, on December 18, 2019, Noland 28 reiterated that he would unveil VOZ “Beta Access” by year’s end. (Ex. 162.) He used that

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1 representation to convince consumers that December 18, 2019 was their final day to gain 2 “some fantastic benefits.” (Id. [including a graphic that says CUTOFF 12/18/2019 with a 3 sunset image].) 4 During a December 20, 2019 SBH conference call, Noland disclosed the delay in 5 releasing VOZ Travel but claimed it was because “two weeks ago something mega 6 happened . . . the biggest travel deal ever.” (Ex. 119 at 13:17-14:7.) He continued: “I want 7 to scream, I want to run out of here, I want to shout, it just happened, a multi billion dollar 8 inked deal, it’s happened, and you’re all a part of it.” (Ex. 119 at 14:15-18.) Noland called 9 the new contract the result of weeks of negotiations involving “all kind of attorneys” and 10 involving “hotels, cruise lines, airlines, [and] rental cars.” (Ex. 119 at 13:14-14:18.) This 11 claim was untrue—Defendants have admitted that there was no new contract at all. (Lead 12 Action, Doc. 222 at 7 ¶ 77.) Noland concluded the call announcing the VOZ Travel delay 13 by promising, “Some of y’all this time next year, you’re never going to have to work again, 14 I’m telling you. Not everybody, not a ton of people, but there’s going to be some people 15 . . . .” (Ex. 119 at 35:4-9.) 16 The relationship between Defendants and Advantage Services deteriorated shortly 17 after Noland announced the VOZ Travel delay. On January 6 and 8, 2020, both parties 18 expressed their intent to terminate the agreement. (Ex. 255 at 6; Ex. 563 at 1-2.) In 19 terminating the contract, Craig Morganson, Advantage Services’ CEO, expressed concern 20 about Defendants’ “desire[] to engage in misrepresentations and other deceptive business 21 practices.” (Ex. 255 at 5.) Morganson added that Defendants had “embellish[ed] and 22 misrepresent[ed]” the travel services offered by Advantage Services, which made it 23 “impossible for [Advantage Services] to fulfill as you have promised.” (Id. at 6.) 24 Morganson concluded: “[W]e have witnessed an escalating unwillingness to operate within 25 the confines of realistic expectations. In other words, you desire to market in ways that 26 sell memberships, but are resistant to marketing in a manner that can be realistically 27 serviced.” (Id.) 28 Defendants’ Chief Marketing Officer, Tony Potter, agreed that Defendants had

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1 oversold VOZ Travel’s purported benefits. In an email predating the termination, Potter 2 wrote that “in compiling comparatives” between Advantage Services and Travelocity, he 3 had “not seen nearly the level of discounts/savings that will catapult [VOZ Travel] to the 4 forefront of this race.” (Ex. 255 at 9.) Potter added that Noland had “terrible experiences 5 in trying to perform two real bookings.” (Id.) Noland agreed. (J. Noland Dep. Tr. 6 (12/14/20) at 181:18-182:9.) 7 Despite the contract’s termination (and the fact that Defendants would therefore be 8 starting from scratch with finding an actual travel provider), Noland and SBM’s then-Vice 9 President of International Sales, Duvan Botero, held a call on January 8, 2020 encouraging 10 affiliates to continue purchasing VOZ Travel “packs.” (Ex. 120.) Noland, apparently 11 recognizing his inability to actually provide a travel product, added that VOZ Travel is 12 more than “a discount on your travel”—it is “freedom,” “experiences,” and “memories.” 13 (Ex. 120 at 13:5-24.) 14 Based on the evidence summarized above, the Court previously found that “even 15 after the contract with Advantage Services fell through and no product was foreseeably 16 available, the undisputed evidence shows that the Individual Defendants continued to push 17 Affiliates to join VOZ Travel, purchase VOZ Travel packs, and recruit others to do so.” 18 (Lead Action, Doc. 406 at 36.) 19 Defendants’ own reporting shows their VOZ Travel revenues total $1,210,830. (Ex. 20 902.) Defendants disbursed at least $15,932.99 in commissions attributable to VOZ p 21 Travel urchases. (Ex. 38 ¶ 22.) Therefore, Defendants’ net revenue from VOZ Travel 22 sales is $1,194,897.01. 23 E. Post-Lawsuit Developments 24 Since entry of the TRO, Defendants have started, or attempted to start, various new 25 business ventures. 26 For example, in June 2020, Noland disclosed that he was forming a new business 27 entity called “MYB Publishing.” (Ex. 257.) At the time, Noland claimed to be MYB’s 28 sole officer, director, principal, manager, and employee. (Id.) Defendants since identified

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1 Lina Noland as MYB’s “Marketing Director” (Ex. 264 at 2) and Harris testified that he is 2 also “involved with the management of MYB Publishing.” (Tr. 2027.) Defendants initially 3 disclosed that MYB would engage in, among other things, “[p]roduction and dissemination 4 of information, literature, music, or media” and “[m]aking varied information available to 5 the general public.” (Ex. 257.) 6 As of July 2020, the MYB Publishing website had testimonials from “Charity R.” 7 and “Susan W.” (Ex. 300 at 1-2.) When the FTC asked for information about them, 8 Defendants, without explanation, claimed the testimonials “cannot be located without 9 dozens of man hours involved” and subsequently removed them. (Ex. 264 at 1.) 10 Since December 2020, Defendants, through MYB Publishing, have promoted their 11 “Confidence Tones” product—literal audio “tones” and “sound frequencies” that, 12 Defendants claim, can “help relieve body aches and pains without dangerous medications,” 13 “help you lose weight without starving yourself or living at the gym,” and “help you lower 14 blood pressure in a natural way.” (Ex. 301 at 28.) 15 In June 2022, Defendants, through MYB Publishing, also began promoting their 16 “Special Universal Edition” of a book called “The Science of Getting Rich”—originally 17 published in 1910. (Ex. 163.) Defendants used the book release to promote a companion 18 “Science of Getting Rich Mastery Course,” which sells for $795 (as a pre-order) and will 19 ultimately be sold for $1,497. (Ex. 305.) To promote the course, Defendants explain: “By 20 closely adhering to the principles outlined in this best-selling classic, we can finally ensure 21 our own success, wealth, and happiness without feeling the need to compete with anyone 22 or anything.” (Ex. 305.) 23 Through MYB Publishing, the Nolands and Harris also launched their “XPMentor” 24 business. (Ex. 264.) It is a monthly subscription that, they claim, is “tailored specifically 25 for entrepreneurs and personal growth seekers” and will help “[m]aximize the lifespan of 26 your business by setting up the appropriate corporate structures, minimize tax liabilities, 27 and legally maintaining compliance” and “[d]evelop and maintain the appropriate 28 conscious and subconscious mindset necessary to grow a profitable business.” (Ex. 306 at

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1 1, emphasis omitted.) In announcing the launch of XPMentor, Noland posted a Facebook 2 video comparing himself to Martin Luther King, Jr. and Ghandi: “[A] lot of people come 3 to me and say, how can you stay motivated with all the ‘ish’ you’ve been through the last 4 couple of years. I’m like, don’t you understand what people like Martin Luther King went 5 through, Mahatma Ghandi went through? Don’t you understand, even like people like 6 Muhammad Ali . . . . So what I know how to do—I just know how to do it . . . .” (Ex. 126 7 at 9:5-20.) 8 On November 10, 2020, Noland disclosed another new business, “Total Growth 9 Technologies.” (Ex. 260.) He described it as providing “[i]nformation technology services 10 that include, but [are] not limited to, the production and delivery of data, training, 11 knowledge, information, technology, and ongoing personal and professional 12 development.” (Ex. 260.) The Total Growth Technologies website identified a “team of 13 experts individually specializing in everything from development to delivery.” (Ex. 302.) 14 When the FTC asked about the “team of experts,” Noland, through counsel, explained that, 15 actually, the experts “had not been activated to fulfill any roles as of yet” but “may include 16 individuals within Mr. Noland’s global network.” (Ex. 263.) 17 In April 2022, Total Growth Technologies disclosed that its “first venture” would 18 actually be “[m]erchant processing . . . using the name Total Growth Payments.” (Ex. 262.) 19 Total Growth Payments markets itself to “high risk” businesses, among others. (Ex. 307.) 20 On September 16, 2020, Defendants disclosed to the FTC a “new” business: “VOZ 21 Travel.” (Ex. 273 at 1.) The “new” VOZ Travel, they claimed, was essentially the same 22 as the old VOZ Travel without the multilevel marketing component. (Ex. 273 at 2-3.) 23 Noland, Sacca, and Harris were VOZ Travel officers. (Id. at 1.) After the FTC pointed 24 out that the Receiver possessed the “VOZ” tradename, Defendants’ counsel responded: 25 “Okay. My clients will not use the name VOZ Travel or anything similar to it (TravelNU 26 is what they think will use).” (Ex. 259.) 27 In May 2021, Noland submitted a sworn declaration stating: “We have obtained a 28 new travel service provider.” (Lead Action, Doc. 335-6 at 3 ¶ 7.) In September 2021, after

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1 Defendants reiterated their plans for a new VOZ Travel, the FTC asked for details. (Lead 2 Action, Doc. 475-2 at 12.) In December 2021, Defendants’ counsel responded, providing 3 a website for the new business: www.TravelNU.net. (Ex. 339.) The TravelNU website 4 offered “Luxury Travel For Less” “at exclusive pricing unavailable to the general public,” 5 including “2.8 Million Accommodations,” “900+ Airlines,” and “345,000 Activities,” in 6 addition to “hundreds of thousands of hotels around the world at up to 80%+ off the best 7 rates you can find online” and “stunning hotels, condos, villas, and destination resorts all 8 around the world for as low as $10/person per night.” (Id. at 1, 3-4.) Defendants planned 9 to charge TravelNU customers approximately $1,500-$5,000 up front, plus a $50-100 10 monthly fee. (Id. at 4, 6, 7.) The vendor they hired to provide the travel service, by 11 contrast, offered to do so (in January 2020) for, at most, $12.27 per month per customer 12 without any apparent up-front charge. (Ex. 341 at 2.) When asked by the FTC to explain 13 the factual basis for certain TravelNU claims, Defendants moved the Court for an order 14 sanctioning the FTC for acting in “bad faith.” (Lead Action, Doc. 506 at 11-14.) The 15 Court denied that motion. (Lead Action, Doc. 518.) 16 Finally, in July 2021, Defendants disclosed their intent to start another not-quite- 17 new business: “SBH Products, Inc.” (Ex. 274.) The officers and directors would be 18 Noland, Harris, and Sacca. (Id.) Defendants explained: “The business will engage in the 19 sale of products previously sold by Success By Health via marketing that does not involve 20 multi-level marketing or commissions for sales. The business will commence 21 immediately.” (Id. at 2.) The Receiver and FTC both objected to the plan to resume sales 22 of SBH products because, inter alia, the right to sell SBH products belonged to the 23 Receiver. (See, e.g., Lead Action, Doc. 394-1 at 10.) Defendants then disclosed another 24 new business: “Vibra365 International.” (Ex. 261.) The officers were Noland, Harris, and 25 Sacca. (Id..) Vibra365 would offer “New Proprietary Nutraceutical Formulas, New 26 Beverage Formulas, and New Health Product Formulas in various forms.” (Id.) Currently, 27 Vibra365 is selling “mushroom infused coffee,” “mushroom infused latte,” “VDetox,” 28 “VDetox Lifestyle Pack,” “SuperImmune Complex,” and “BalaFlex” under the

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1 “Vibra360” tradename. Also for purchase is a $4,775.00 “VSuper Wholesaler Pack.” 2 F. Adverse Inference 3 The Court has already made, in earlier portions of this order, extensive findings 4 concerning Defendants’ spoliation efforts concerning Signal and Protonmail and the 5 associated acts of dishonesty surrounding those spoliation efforts. Before trial, the FTC 6 successfully moved, under Rule 37(e) of the Federal Rules of Civil Procedure, for an 7 adverse-inference sanction based on Defendants’ spoliation of electronically stored 8 information. (Lead Action, Doc. 401.) Accordingly, in its proposed findings of fact, the 9 FTC asks the Court to infer that, but for the spoliation, there would be various additional 10 categories of liability-generating documents. (Lead Action, Doc. 528 at 14 ¶ 74, 41 ¶ 210, 11 42 ¶ 213, 46 ¶ 232, 69-70 ¶ 346, 145 ¶ 779, 163 ¶ 31.) 12 In an abundance of caution, the Court declines to make such an inference. As 13 discussed below, there is already overwhelming evidence of liability, such that the inferred 14 existence of some additional documents would have no bearing on the outcome here. To 15 be clear, the spoliation efforts (and associated acts of dishonesty) remain relevant—they 16 bear on the scope of injunctive relief to be imposed. The Court simply declines to rely on 17 the adverse-inference sanction as the basis for inferring the existence of additional liability- 18 generating documents. 19 Defendants also include, in the Final Pretrial Order, their own request for an adverse 20 inference (or some other sanction) based on the destruction of “a warehouse computer and 21 warehouse records.” (Lead Action, Doc. 532 at 114.) The Court declines to impose any 22 such sanction for the reasons identified by the FTC—not only is the request untimely 23 without excuse, but “Defendants cite no legal authority for sanctioning a Court-appointed 24 Receiver over evidence not requested during discovery and later damaged by an Act of 25 God.” (Id. at 115.) 26 … 27 … 28 …

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1 CONCLUSIONS OF LAW 2 I. Lead Action, Count One—SBH Pyramid Scheme 3 In Count One of the Lead Action, the FTC alleges that SBH and VOZ Travel both 4 operated as pyramid schemes. Although the Court previously granted summary judgment 5 in the FTC’s favor with respect to VOZ Travel, it denied summary judgment with respect 6 to SBH due to the presence of material issues of disputed fact. (Lead Action, Doc. 406 at 7 33-42.) Having now considered the disputed evidence in its capacity as finder of fact, the 8 Court concludes that the FTC should also prevail on its pyramid scheme claim as to SBH.44 9 Section 5(a) of the FTC Act prohibits “unfair or deceptive acts or practices in or 10 affecting commerce.” 15 U.S.C. § 45(a)(1). “The operation of a pyramid scheme 11 constitutes an unfair or deceptive act or practice in or affecting commerce for the purposes 12 of § 5(a).” FTC v. BurnLounge, Inc., 753 F.3d 878, 880 (9th Cir. 2014) (citing In re Koscot 13 Interplanetary, Inc., 86 F.T.C. 1106, 1178, 1181 (1975)). 14 “Not all MLM businesses are illegal pyramid schemes.” Id. at 883. “To determine 15 whether a MLM business is a pyramid [scheme], a court must look at how the MLM 16 business operates in practice.” Id. “[A] pyramid scheme is characterized by the payment 17 by participants of money to the company in return for which they receive (1) the right to 18 sell a product and (2) the right to receive in return for recruiting other participants into the 19 program rewards which are unrelated to sale of the product to ultimate users.” Id. (internal 20 quotation marks and citations omitted). 21 44 22 Defendants have advanced the argument, in both the Final Pretrial Order (Lead Action, Doc. 532 at 3, 87, 90-92) and in their proposed findings (Lead Action, Doc. 529 at 23 43-46), that the Court lacks jurisdiction over the FTC’s claims in the Lead Action because the relevant statutes only apply to “consumers” and SBH affiliates were not consumers but 24 independent contractors. This argument lacks merit for the reasons stated by the FTC. (Lead Action, Doc. 532 at 87 [noting that “Section 5 of the FTC Act prohibits ‘deceptive 25 acts or practices in or affecting commerce’ without regard to the status of a victim” and “Section 19 of the FTC Act . . . empowers the Court to ‘grant such relief as the court finds 26 necessary to redress injury to consumers or other persons, partnerships, and corporations resulting from the rule violation or the unfair or deceptive act or practice, as the case may 27 be’” and thus “relief is not limited to whether someone is a ‘consumer’ but broadly includes all ‘other persons’”].) Indeed, during closing argument, defense counsel conceded that “I 28 kind of missed this earlier, but the statute does say, you know, consumers and others.” (Tr. 2148.)

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1 The first prong of the pyramid-scheme test “can be satisfied by a required purchase 2 to become [an affiliate]” or a “required purchase of non-returnable inventory to receive the 3 full benefits of the program.” FTC v. Vemma Nutrition Co., 2015 WL 11118111, *3 (D. 4 Ariz. 2015). In the summary judgment order, the Court determined that “[t]here is no 5 genuine dispute of material fact regarding the satisfaction of prong one of the Koscot test 6 with respect to SBH.” (Lead Action, Doc. 406 at 37.) More specifically, there is no 7 “dispute that consumers were required to pay an annual fee of $49 to be SBH Affiliates” 8 and that, “by paying this fee, Affiliates gained the right to sell SBH products on their 9 [replicated SBH] webpage.” (Id.) In the Final Pretrial Order, Defendants do not dispute 10 that the first prong of the test is satisfied—all of Defendants’ arguments pertain to the 11 second prong. (Lead Action, Doc. 532 at 8-11, 54-56.)45 12 Satisfaction of the second prong is “the sine qua non of a pyramid scheme and is 13 characterized by recruitment with rewards unrelated to product sales.” BurnLounge, 753 14 F.3d at 883-84 (internal quotation marks omitted). Put another way, the second prong is 15 satisfied when “participants purchase the right to earn profits by recruiting other 16 participants, who themselves are interested in recruitment fees rather than the sale of 17 products.” Id. (quoting In re Amway Corp., 93 F.T.C. 618, 716 (1979)). Notably, the 18 second element “does not require that rewards be completely unrelated to product sales.” 19 Id. at 885. If that were the rule, “any illegal MLM business could save itself from liability 20 by engaging in some retail sales.” Id. at 886. Thus, in the Ninth Circuit, an MLM business 21 may be considered an illegal pyramid scheme if “the rewards the participants received in 22 return were largely for recruitment, not for product sales.” Id. Also, “simply because a 23 MLM’s product has value does not render an unlawful pyramid scheme lawful.” FTC v. 24 Skybiz.com, Inc., 2001 WL 1673645, *10 (N.D. Okla. 2001), aff’d, 57 F. App’x 374 (10th 25 Cir. 2003). See also BurnLounge, 753 F.3d at 883, 885 (company was an illegal pyramid 26 45 27 Defendants also appear to concede, in their proposed findings of fact, that the first prong is satisfied. (Lead Action, Doc. 529 at 7 ¶ 36 [“For their $49 annual fee, SBH 28 provided . . . a website for each SBH Affiliate that allowed consumers to order directly from SBH with each Affiliate receiving a 10% commission from the purchase . . . .”].)

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1 scheme even though its “products had some value,” because it “motivated [affiliates] 2 through cash rewards earned by recruiting other participants”). 3 Here, the evidence from the bench trial overwhelmingly establishes that the second 4 prong of the pyramid-scheme test is satisfied. First, as a structural matter, SBH paid 5 commissions based on purchases from SBH, rather than on the resale of those products to 6 retail customers. Courts have repeatedly noted the potential problems posed by such a 7 commission structure. See, e.g., Webster v. Omnitrition Int’l, Inc., 79 F.3d 776, 782 (9th 8 Cir. 1996) (“In exchange for [the payment of money], the supervisor receives the right to 9 sell the products and earn compensation based on product orders made by the supervisor’s 10 recruits. This compensation is facially unrelated to the sale of the product to ultimate users 11 because it is paid based on the suggested retail price of the amount ordered from 12 Omnitrition, rather than based on actual sales to consumers.”) (citation and internal 13 quotation marks omitted); FTC v. Equinox Int’l Corp., 1999 WL 1425373, *6 (D. Nev. 14 1999) (“Rebates and bonuses, the primary compensation emphasized by Equinox, are 15 facially unrelated to sales to the ultimate user but are based on purchases made from 16 Equinox by the distributor and his downline.”). Although Defendants argue that purchases 17 from SBH are a proxy for retail sales—that is, one can assume that if a recruit is purchasing 18 products from SBH, the recruit must be using those products to make retail sales or for 19 personal consumption46—this assumption was not borne out by, and indeed contradicted 20 by, the evidence presented at trial. Cf. BurnLounge 753 F.3d at 887-88 (rejecting the 21 defendant’s argument that internal sales to other members automatically constitute sales to 22 ultimate users, while also rejecting the FTC’s argument that such transactions can never 23 constitute sales to ultimate users, and emphasizing that the ultimate characterization of 24 such transactions “depends on how [the MLM’s] bonus structure operated in practice”).47 25 46 See, e.g., Lead Action, Doc. 532 at 55 (“At SBH, there was no question that 26 Affiliates the resellers, were not the ultimate users of the Products or retail customers. . . . Thus, sales by SBH to Affiliates for resale negate the second prong of the Koscot test.”). 27 47 During closing argument, the FTC acknowledged that “[i]f, in a different set of facts, there was evidence that the downlines were turning around and really making robust 28 retail sales from these products, . . . that might not qualify as a pyramid scheme because of those retail sales.” (Tr. 2099.) Nevertheless, because such evidence was lacking here, the

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1 The FTC argues that the Ninth Circuit’s decision in Omnitrition supports a pyramid- 2 scheme finding under these circumstances. The Court agrees. In Omnitrition, the Ninth 3 Circuit noted that a company’s “product sales” were “driven by enrolling people” who 4 would then “buy exorbitant amounts of products that normally would not be sold in an 5 average market by virtue of the fact that [members] enroll, get caught up in the process, in 6 the enthusiasm. . . . It has nothing to do with the normal supply and demand in this world. 7 It has to do with getting people enrolled, enrolling people, getting them on the bandwagon 8 and getting them to sell product.” 79 F.3d at 782 (quoting witness testimony). Here, too, 9 Defendants drove SBH sales by pushing recruitment, taking advantage of the momentum 10 from recruitment to sell large up-front product packs, urging large monthly purchases to 11 stay on the path to financial freedom, and encouraging one’s recruits to do the same (i.e., 12 to “duplicate”). In Equinox, similarly, the court found the second prong satisfied (at least 13 at the preliminary injunction stage) where MLM participants were “given unrealistic 14 hypothetical examples that their profits will increase geometrically if distributors focus on 15 recruitment rather than retail sales.” 1999 WL 1425373 at *6. That conduct resembles 16 Defendants’ use of the “Power of Ten” to focus affiliates on recruiting (“getting ten”) rather 17 than retail sales. 18 Second, putting aside the basic, structural disconnect between commission 19 payments and retail sales in SBH, the evidence during the bench trial established that, in 20 practice, Defendants placed heavy emphasis on recruiting and relatively little emphasis on 21 retail sales. Defendants’ arguments to the contrary48 are simply belied by the record— 22 although Defendants are able to identify some references to retail sales in various 23 documents, training materials, and videos, those references were, from the Court’s 24 perspective as factfinder, not anything close to a primary point of emphasis. Tellingly, 25 Defendants’ “Four Steps To Success” did not even mention retail sales and Defendants’ 26 FTC’s concession on this point does not undermine its overall argument. 27 48 See, e.g., Lead Action, Doc. 532 at 9 (“Defendants focused their training, heat calls, Zone 1 Calls[,] Facebook posts, and livestream videos to emphasize product sales over 28 recruitment.”); id. at 43-44 (“SBH had a culture of retail sales.”); id. at 54 (“The FTC’s claims that SBH focused on recruitment and not retail sales is overstated.”).

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1 tier-based commissions, Generation Infinity Bonus, and BAM Bonus (which Sacca 2 characterized as the 100% driver of the SBH commission plan) depended on recruiting 3 massive downline teams. Defendants were often explicit about this, explaining that the 4 way to maximize tier-based commissions was to “get ten” recruits and that the Generation 5 Infinity Bonus was to “encourage[] you to develop a deep, strong Affiliate Team.” (Ex. 3 6 at 22; Ex. 16 at 50.) As noted, during one conference call, SBH’s then-director of sales 7 emphasized that “recruiting is key” and contrasted the massive rewards that affiliates could 8 earn from recruiting with the limited rewards that affiliates could earn from retail sales, 9 which were simply “a great way to make some extra part-time money.” (Ex. 94 at 20:8- 10 23:25.) The script that Defendants provided affiliates to assist them with retail sales 11 directed the affiliate to only sell to the customer one time, before showing the customer 12 how to obtain products directly from SBH instead. (Ex. 8.) These are just a few illustrative 13 examples of the overall focus on recruiting over retail sales, which is explored in more 14 detail in the findings of fact. 15 Third, it speaks volumes that SBH experienced a 95% decrease in sales volume after 16 the receiver took control and eliminated the commission structure that was previously in 17 place. Even accepting that there may have been other reasons, in addition to the elimination 18 of the commission structure, for the 95% decrease, the numbers are staggering. Such a 19 dramatic change suggests that the primary motivation for purchasing SBH products was 20 not true consumer demand, such as a desire to resell the products in retail transactions or 21 consume the products for personal satisfaction, but the hope that such purchases would 22 lead to (or maximize or preserve the availability of) commissions. 23 Fourth, in a related vein, the Court was struck by the evidence showing that 24 purchases of SBH products would spike on the last day of each month, that nearly 95% of 25 the purchases from SBH were made by SBH affiliates (Tr. 99), and that SBH affiliates 26 were economically incentivized (and aggressively encouraged) to use monthly purchases 27 to maintain the “rank” necessary to qualify for increased commissions. Taken together, 28 these considerations bolster the conclusion that the allure of recruitment-based

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1 commissions was the primary impetus for product purchases. Cf. Vemma, 2015 WL 2 11118111 at *2 (“Vemma’s own accounting records show that, in 2013, approximately 3 86% of its U.S. product sales were to participants classified as Affiliates . . . ; in 2014, 4 approximately 71% of U.S. product sales were to Affiliates . . . .”). 5 Fifth, as discussed at length in earlier portions of this order, Defendants failed in 6 their attempt to show that retail sales provided a significant source of rewards. The 7 testimony from the affiliates who were called as defense witnesses at trial—which one 8 might expect to showcase the very best examples of the profitability of retail sales— 9 revealed that affiliates often lost money. Even the affiliates who were able to eke out a 10 small profit from retail sales generated miniscule earnings that were often less than could 11 be earned at a minimum-wage job and paled in comparison to the profits that could be 12 earned from commissions. This testimony was not surprising, as Dr. Bosley credibly 13 explained why the absence of meaningful retail sales activity was an inevitable 14 consequence of the structure and incentives that Defendants created. 15 Sixth, other features of SBH provide additional support for the conclusion that it 16 was operating, in practice, as a pyramid scheme. Defendants failed to track retail sales by 17 affiliates and made little effort to create the sort of safeguards against inventory-loading 18 that other MLMs often utilize. To the contrary, Defendants adopted an official no-refunds 19 policy, often required (and otherwise strongly encouraged) automatic monthly orders, and 20 threatened to bring civil and criminal charges against affiliates who requested refunds or 21 made chargeback requests even when product orders went unfulfilled by the company for 22 months on end. Although Noland testified at trial that the presence of a few senior field 23 advisors was sufficient to guard against excessive product purchases, this testimony was 24 unpersuasive for the reasons stated elsewhere in this order. 25 Accordingly, the FTC met its burden of establishing that “the rewards [SBH] 26 participants received in return were largely for recruitment, not for product sales.” 27 BurnLounge, 753 F.3d at 885. 28 …

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1 II. Lead Action, Count Two—SBH False Statements 2 In Count Two of the Lead Action, the FTC alleges that Defendants made misleading 3 representations about the likelihood of earning substantial income in both SBH and VOZ 4 Travel. Although the Court previously granted summary judgment in the FTC’s favor with 5 respect to VOZ Travel, it denied summary judgment with respect to SBH due to the 6 presence of material issues of disputed fact. (Lead Action, Doc. 406 at 42-47.) Having 7 now considered the disputed evidence in its capacity as finder of fact, the Court concludes 8 that the FTC should also prevail on its false-statements claim as to SBH. 9 A defendant may violate the FTC Act’s prohibition against “unfair or deceptive 10 acts” by making materially false misrepresentations. FTC v. Stefanchik, 559 F.3d 924, 928 11 (9th Cir. 2009); FTC v. Gill, 265 F.3d 944, 950 (9th Cir. 2001). “An act or practice is 12 deceptive if ‘first, there is a representation, omission, or practice that, second, is likely to 13 mislead consumers acting reasonably under the circumstances, and third, the 14 representation, omission, or practice is material.’” Gill, 265 F.3d at 950. “Deception may 15 be found based on the ‘net impression’ created by a representation.” Stefanchik, 559 F.3d 16 at 928. “Advertising capable of being interpreted in a misleading way should be construed 17 against the advertiser.” Resort Car Rental Sys., Inc. v. FTC, 518 F.2d 962, 964 (9th Cir. 18 1975). 19 Here, the net impression created by Defendants’ advertisements was that affiliates 20 could reasonably expect to earn substantial, if not life-changing, amounts of money if they 21 followed Defendants’ instructions. As noted, Defendants told consumers that by enrolling 22 in SBH and following their instructions, they could expect to obtain financial freedom in 23 18 months. That meant, at a minimum, receiving monthly “residual income” of at least 24 $20,000 without ever having to work. Affiliates not seeking financial freedom could still 25 expect to supplement or replace their current job income, earning hundreds if not thousands 26 of dollars per month by following Defendants’ instructions. Defendants bolstered their 27 promises of substantial income by holding out Noland as proof that their plan worked. 28 Nevertheless, as noted, not even Defendants earned anywhere close to the income they

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1 touted to affiliates. 2 As discussed in more detail in the findings of fact, these conclusions are unaffected 3 by Defendants’ use of purported “disclaimers,” such as saying that income was not 4 “guaranteed” or that the examples being presented were mere “theoretical examples.” As 5 an initial matter, saying that income is not “guaranteed” does not detract from the net 6 impression that affiliates could “reasonably expect” financial freedom by following 7 Defendants’ instructions. Additionally, “[a] solicitation may be likely to mislead by virtue 8 of the net impression it creates even though the solicitation also contains truthful 9 disclosures.” FTC v. Cyberspace.com LLC, 453 F.3d 1196, 1200 (9th Cir. 2006); 10 Donaldson v. Read Magazine, Inc., 333 U.S. 178, 188 (1948) (“Advertisements as a whole 11 may be completely misleading although every sentence separately considered is literally 12 true.”). Similarly, companies may not “mak[e] deceptive use of unusual earnings realized 13 only by a few.” Nat’l Dynamics Corp. v. FTC, 492 F.2d 1333, 1335 (2d Cir. 1974). As in 14 Equinox, the disclaimers here do “not accurately indicate the actual amount of earnings 15 that can be expected and do not immunize [the company’s] exaggerated claims of income.” 16 1999 WL 1425373 at *6. 17 The net impression created by Defendants’ statements was false and likely to 18 mislead consumers acting reasonably under the circumstances. A representation is likely 19 to mislead consumers if it is false. See, e.g., FTC v. Pantron I Corp., 33 F.3d 1088, 1096 20 (9th Cir. 1994). The FTC is not required to show that consumers were in fact misled— 21 only that the challenged representations were likely to mislead. Cyberspace.com, 453 F.3d 22 at 1201 (“Although proof of actual deception is unnecessary to establish a violation of 23 Section 5, such proof is highly probative to show that a practice is likely to mislead 24 consumers acting reasonably under the circumstances.”) (cleaned up); FTC v. Freecom 25 Commc’ns, Inc., 401 F.3d 1192, 1203 (10th Cir. 2005) (“Neither proof of consumer 26 reliance nor consumer injury is necessary to establish a § 5 violation.”); Goodman v. FTC, 27 244 F.2d 584, 604 (9th Cir. 1957) (“[C]apacity to deceive and not actual deception is the 28 criterion by which practices are tested under the Federal Trade Commission Act.”).

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1 Defendants’ income claims—whether directed to affiliates considering themselves 2 #1s, #2s, or #3s—were false in theory and in practice. Dr. Bosley credibly opined that 3 SBH’s structure meant that the vast majority of SBH affiliates were destined to fail, and 4 the real-world evidence bore this out, as discussed at length in early portions of this order. 5 And other examples of falsity abound. For example, although Defendants claimed that a 6 subset of SBH affiliates would be #3s, who could reasonably expect to attain financial 7 freedom—a minimum of $20,000 monthly residual payments—by following their 8 instructions, no one achieved or came close to that in practice. Defendants also claimed 9 that an additional subset of SBH affiliates would be #2s, who could reasonably expect to 10 replace their job income in about six months, but almost no one achieved that. Finally, 11 Defendants also claimed that the remaining SBH affiliates would be #1s, “supplementing” 12 their income by earning $300 to $1,000 per month, but only a fraction of SBH affiliates 13 achieved that result. 14 Defendants’ arguments to the contrary are unavailing. For example, Defendants 15 contend that “[t]he FTC’s version of net impression assumes that SBH’s affiliates were 16 mere sheep incapable of free choice.” (Lead Action, Doc. 532 at 14-15.) But concluding 17 that false income misrepresentations—particularly the sort of blatant misrepresentations at 18 issue here—are likely to mislead consumers acting reasonably under the circumstances 19 does not treat such consumers as sheep. Defendants also contend that the net impression 20 created by their various representations was that retail sales were the key to success, which 21 is never guaranteed. (Id.) But that premise is belied by the record and inconsistent with 22 the determinations the Court has made in its capacity as factfinder. For similar reasons, 23 there is no merit to Defendants’ contention that “[t]he reasonable Affiliate would not spend 24 more than necessary to sell to the retail customers they knew would be interested in buying. 25 Simply put, the notion that the average Affiliate who has minimal sales experience would 26 buy more than they needed is the sort of irrational thought process advanced only by the 27 FTC lawyers and their expert witnesses.” (Id. at 16. See also id. at 60 [same].) Again, the 28 evidence presented during the bench trial was to the contrary—evidence abounds of

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1 affiliates placing orders, despite minimal-to-nonexistent success with retail sales, in order 2 to maintain their rank or otherwise maximize their potential to earn commissions. 3 Defendants also argue that “[t]he net impression theory is not grounded in the 4 statute, but is yet another judicial construct that goes far beyond Congressional intent.” (Id. 5 at 15.) But whatever the merits of that argument, it is not properly directed to this Court. 6 The Ninth Circuit has recognized and applied the net-impression theory, and this Court 7 must follow Ninth Circuit law. Defendants also seek to avoid liability on Count Two by 8 denigrating Dr. Bosley’s analysis as “Garbage in: Garbage Out” and touting the competing 9 analysis of their expert witness, Michael Fahlman. (Id. at 18-19, 62-63.) But the Court 10 has now determined, in its capacity as factfinder, that Dr. Bosley was a credible witness 11 whose opinions are worthy of credence and Defendants ended up choosing not to call their 12 expert at trial. (Lead Action, Doc. 531 [“Defense counsel . . . advised the Court that 13 Defense experts William Raybourn and Michael Fahlman will not be called to testify 14 . . . .”].) 15 Defendants also dispute whether affiliates were, in fact, misled into making product 16 purchases and argue that affiliates should be held to the higher standard of a “reasonable 17 business owner” rather than the standard of a reasonable “consumer.” (Lead Action, Doc. 18 532 at 39-41.) But the former is a red herring (as noted, the rule in the Ninth Circuit is that 19 “capacity to deceive and not actual deception is the criterion by which practices are tested 20 under the Federal Trade Commission Act,” Goodman, 244 F.2d at 604) and the latter would 21 not assist Defendants even if it were the correct standard (the sophisticated web of 22 misrepresentations issue here would be likely to deceive both a reasonable consumer and 23 a reasonable business owner). 24 In addition to all of the false representations that directly addressed the income SBH 25 affiliates could reasonably expect to earn, there were also the misrepresentations 26 concerning Noland’s personal wealth. These, too, functionally operated as income 27 representations.49 Although Noland claimed to be fantastically wealthy by using the 28 49 The summary judgment order on liability includes the following passage: “Although the FTC has repeatedly invoked Noland’s wealth-related misrepresentations over the

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1 system he touted to SBH affiliates, the FTC demonstrated during the bench trial that his 2 representations on this topic were false in many respects. 3 A misrepresentation is material “if it involves information that is important to 4 consumers and, hence, likely to affect their choice of, or conduct regarding, a product.” 5 Cyberspace.com, 453 F.3d at 1201 (internal quotation marks omitted). 6 “Misrepresentations concerning anticipated income from a business opportunity generally 7 are material and likely to mislead consumers because such misrepresentations strike at the 8 heart of a consumer’s purchasing decision.” Freecom Commc’ns, 401 F.3d at 1203. See 9 also Vemma, 2015 WL 11118111 at *5 (“Courts consistently conclude that 10 misrepresentations regarding income potential are material.”); FTC v. Transnet Wireless 11 Corp., 506 F. Supp. 2d 1247, 1267-68 (S.D. Fla. 2007) (misrepresentations as to income 12 potential “were material and likely to mislead consumers acting reasonably under the 13 circumstances”); FTC v. Five-Star Auto Club, Inc., 97 F. Supp. 2d 502, 529 (S.D.N.Y. 14 2000) (“The case law is clear that representations regarding the profit potential of a 15 business opportunity are important to consumers, and therefore such are material 16 misrepresentations in violation of Section 5.”); FTC v. Kitco of Nev., Inc., 612 F. Supp. 17 1282, 1291-92 (D. Minn. 1985) (“In particular, it is deceptive to misrepresent the benefits 18 of a business opportunity. Misrepresentations concerning expected profits form a business 19 or investment opportunity made to a prospective purchaser violate Section 5(a).”). 20 course of this case, they are not mentioned in the complaint itself. Additionally, the specific 21 allegation in Count Two is that the Individual Defendants violated § 5(a) of the FTC Act by making false representations concerning whether ‘SBH Affiliates and VOZ Travel 22 members are likely to earn substantial income,’ and there is a colorable argument that Noland’s misrepresentations about his own wealth fall outside the scope of that allegation. 23 At any rate, it is unnecessary to decide whether Noland’s false representations about his own wealth could trigger liability under Count Two because . . . the FTC has separately 24 established that the Individual Defendants made materially false representations about the income potential associated with VOZ Travel (which is specifically identified as one of the 25 potential bases for liability under Count Two).” (Lead Action, Doc. 406 at 45.) In its proposed findings, the FTC responds by arguing that “[t]he misrepresentations [concerning 26 Noland’s wealth] are within the FTC’s allegation because they are one way Defendants made income misrepresentations—they used Noland as proof that the system creates 27 financial freedom.” (Lead Action, Doc. 528 at 89 n.10.) The Court finds this argument persuasive and also notes that Defendants offer no argument to the contrary. Thus, the 28 FTC’s arguments concerning Noland’s wealth are properly part of both the Lead Action and the Contempt Action.

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1 Here, Defendants made claims relating to a “central characteristic” of SBH— 2 affiliates’ projected incomes. Therefore, the claims are presumed material. Even without 3 a presumption of materiality, Defendants’ misrepresentations were material because their 4 promises of substantial income were important to affiliates. Although Defendants attempt 5 to characterize the challenged misrepresentations as mere “puffery” (Lead Action, Doc. 6 532 at 34-38), this is not consistent with common sense or the evidence that was presented 7 during the bench trial. 8 III. Lead Action, Count Three—Means And Instrumentalities 9 In Count Three in the Lead Action, the FTC alleges that Defendants furnished SBH 10 Affiliates and VOZ Travel participants with materials containing false or misleading 11 representations, thereby providing the means and instrumentalities for the commission of 12 deceptive acts or practices. In the summary judgment order, the Court ruled in the FTC’s 13 favor as to this claim, at least in relation to the VOZ Travel representations. (Lead Action, 14 Doc. 406 at 47-48.) 15 In the Final Pretrial Order, Defendants’ only argument as to Count Three is that they 16 should not be held liable because there were no underlying misrepresentations—and, thus, 17 they cannot be held liable for furnishing the means and instrumentalities. (Lead Action, 18 Doc. 532 at 20, 64.) Because the Court has now ruled in the FTC’s favor as to the SBH 19 misrepresentations, it follows that complete liability as to Count Three is established. 20 Alternatively, even if Defendant hadn’t forfeited the issue, the Court would rule in 21 the FTC’s favor. Courts have “stressed the fact that one who ‘places in the hands of another 22 a means of consummating a fraud . . . in violation of the Federal Trade Commission Act is 23 himself guilty of a violation of the Act.’” Goodman, 244 F.2d at 591 (citation omitted). 24 See also Waltham Watch Co. v. FTC, 318 F.2d 28, 32 (7th Cir. 1963) (“Those who put into 25 the hands of others the means by which they may mislead the public, are themselves guilty 26 of a violation of Section 5 of the [FTC] Act.”); Vemma, 2015 WL 11118111 at *7 (“Vemma 27 provides the ‘means and instrumentalities’ for Affiliates to deceive consumers by providing 28 them with promotional, recruiting and training materials containing false or misleading

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1 income representations, which is a further violation of the FTC Act.”). Here, Defendants 2 gave affiliates the SBH marketing and training materials that were used to spread 3 Defendants’ false income claims. 4 IV. Lead Action, Remaining Counts And Scope Of Liability 5 In the March 2021 summary judgment order, the Court found no genuine dispute of 6 material fact that Defendants had violated the Merchandise Rule and the Cooling-Off Rule, 7 that the Corporate Defendants had operated as a common enterprise, and that Defendants 8 could be held individually liable for the Corporate Defendants’ violations. (Lead Action, 9 Doc. 406 at 48-54.) 10 Although Defendants did not attempt, during the bench trial, to relitigate the issue 11 of liability for the Rules violations—all of their arguments concerning the Rules violations, 12 which are addressed infra, go to the scope of damages—Defendants did include, in the 13 Final Pretrial Order, a passage that seemingly attacks the earlier determination regarding 14 the scope of individual liability. Specifically, Defendants dispute “[w]hether Congress 15 authorized the district courts to create enterprise liability.” (Lead Action, Doc. 532 at 113- 16 14.) 17 This argument is unavailing. First, it is untimely and forfeited. The time to raise 18 any such challenge was in response to the FTC’s summary judgment motion on liability. 19 But as noted in the summary judgment order, Defendants did not respond to or dispute the 20 FTC’s arguments and evidence as to common-enterprise liability or individual liability. 21 (Lead Action, Doc. 406 at 52-54.) Defendants cannot belatedly seek to relitigate those 22 long-settled issues by including new arguments in the Final Pretrial Order. 23 Second, and alternatively, Defendants’ challenge fails on the merits for the reasons 24 stated in the summary judgment order and in FTC’s responsive portion of the Final Pretrial 25 Order, which notes that “binding Ninth Circuit case law” supports the Court’s earlier 26 determinations. (Lead Action, Doc. 532 at 113-14.) Indeed, just recently, the Ninth Circuit 27 affirmed similar determinations in an FTC enforcement action. FTC v. Elegant Sols., Inc., 28 2022 WL 2072735, *1-2 (9th Cir. 2022) (noting that “[t]he district court properly

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1 concluded that the five corporate defendants operated as a common enterprise” and that 2 “[t]he district court properly held the individual defendants liable for monetary and 3 injunctive relief” based on the corporate entities’ violations). 4 V. Contempt Action—Liability 5 “There can be no question that courts have inherent power to enforce compliance 6 with their lawful orders through civil contempt.” Shillitani v. United States, 384 U.S. 364, 7 370 (1966). “The standard for finding a party in civil contempt is well settled: The moving 8 party has the burden of showing by clear and convincing evidence that the contemnors 9 violated a specific and definite order of the court. The burden then shifts to the contemnors 10 to demonstrate why they were unable to comply.” FTC v. Affordable Media, LLC, 179 11 F.3d 1228, 1239 (9th Cir. 1999). “Willfulness is not an element of civil contempt.” United 12 States v. Asay, 614 F.2d 655, 661 (9th Cir. 1980). 13 As noted, the FTC’s theory of liability in the Contempt Action is that Noland, 14 Harris, and Sacca (sometimes referred to collectively as “the Contempt Defendants”) 15 violated the 2002 permanent injunction in various ways through their operation of SBH 16 and VOZ Travel and that these violations qualify as “contumacious conduct.” (Lead 17 Action, Doc. 532 at 64-65; Contempt Action, Doc. 106.) In a March 2022 order, the Court 18 recognized that “[t]he FTC has established that the Contempt Defendants violated some 19 provisions of the permanent injunction” but held that “the FTC has not established, at least 20 at this stage of the proceedings, that the Contempt Defendants committed certain other 21 alleged violations of the permanent injunction. The FTC’s contempt motion is based, in 22 part, on the assertion that SBH constituted a pyramid scheme and that the Contempt 23 Defendants made false income-related statements in the course of operating SBH (conduct 24 that would, in turn, violate Sections I, II, and III of the permanent injunction). However, 25 in the summary judgment order as to liability in the [Lead] Action, the Court concluded 26 that the existence of triable issues of fact precluded the entry of summary judgment in the 27 FTC’s favor on those particular issues. Because the FTC simply cross-references its 28 summary judgment evidence for purposes of establishing contempt liability, the Court

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1 concludes that the FTC has not clearly and convincingly established, at this stage of the 2 proceedings, that the Contempt Defendants violated Sections I, II, and III of the permanent 3 injunction through their operation of SBH. The FTC will need to seek to establish those 4 violations at an evidentiary hearing.” (Contempt Action, Doc. 130 at 7-9.) 5 The FTC has now made the showings it had not yet made at the time of the March 6 2022 order. More specifically, as discussed in the earlier sections of this order, the FTC 7 has now established that the Contempt Defendants operated SBH as a pyramid scheme and 8 made false representations in the course of operating SBH. Such conduct also violated the 9 2002 permanent injunction. Although a higher standard of proof applies in the Contempt 10 Action—the FTC must prove the underlying violations by clear and convincing evidence, 11 whereas the burden of proof in the Lead Action is preponderance of the evidence—the FTC 12 has satisfied that higher standard here with respect to all of the alleged violations of the 13 2002 permanent injunction. 14 It is also helpful to make a few housekeeping points. Although contempt liability 15 may only flow from the violation of a “specific and definite” court order, the Contempt 16 Defendants do not dispute in the Final Pretrial Order that the relevant portions of the 2002 17 permanent injunction provided the necessary level of specificity and definitiveness. (Lead 18 Action, Doc. 532 at 60-63.) At any rate, the relevant provisions are not vague and 19 ambiguous—they impose clear compliance requirements, clearly prohibit the operation of 20 a pyramid scheme or other prohibited marketing scheme, and clearly prohibit making false 21 and misleading statements (including false and misleading income representations) in 22 connection with an MLM.50 Additionally, although Sacca and Harris are not identified by 23 50 Cf. FTC v. EDebitPay, LLC, 695 F.3d 938, 944 (9th Cir. 2012) (“[B]ecause 24 [defendants] themselves stipulated to the entry of the Final Order, they cannot collaterally attack the Final Order in contempt proceedings.”); Irwin v. Mascott, 370 F.3d 924, 931-32 25 (9th Cir. 2004) (“[W]hen an injunction is addressed to a non-party and he is given notice of the injunction, Rule 71 permits a district court to use ‘the same processes for enforcing 26 obedience to the order as if[he were] a party,’ such as holding him in contempt for violating it. Here, the Injunction stated on its face that it applied to Commonwealth’s ‘principals, 27 officers, agents,[and] employees,’ which obviously includes Hyde, its vice president of operations. Because Hyde received a copy of the Injunction, which states on its face that 28 it applied to him, he was on notice of its terms. He did not move to intervene or otherwise attack the Injunction when it issued, and he may not now challenge its legality in a

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1 name in the 2002 permanent injunction, they do not dispute in the Final Pretrial Order that 2 they may be held liable for violations by virtue of having actual notice of the 2002 3 permanent injunction and working in active concert or participation with Noland. (Lead 4 Action, Doc. 532 at 109-11.) 5 Finally, it is important to note the expansive manner in which the 2002 permanent 6 injunction defined the term “prohibited marking scheme.” As discussed in earlier portions 7 of this order, Ninth Circuit law calls for a fact-specific inquiry when determining, in a case 8 alleging that a business operated as a pyramid scheme in violation of § 5(a) of the FTC 9 Act, how to characterize commissions earned on internal sales to other members of an 10 MLM. In BurnLounge, the FTC urged the Ninth Circuit to adopt the per se rule that 11 “internal sales to other [members] cannot be sales to ultimate users” while the defendant 12 urged the Ninth Circuit to adopt the competing per se rule that such internal sales always 13 qualify as sales to ultimate users. 753 F.3d at 887. The Ninth Circuit declined both 14 invitations and instead held that the pyramid-scheme analysis turns on how the company’s 15 “bonus structure operated in practice.” Id. Thus, for purposes of evaluating the FTC’s 16 pyramid-scheme claim in Count One of the Lead Action, the Court has performed the fact- 17 specific analysis required by BurnLounge concerning how SBH’s bonus structure operated 18 in practice. 19 Because the FTC has now clearly and convincingly prevailed on that claim, it 20 follows that the Contempt Defendants’ operation of SBH also violated the 2002 permanent 21 injunction, which specifically forbade the operation of a pyramid scheme. (Contempt 22 Action, Doc. 66 at 3-4 [enjoining the operation of “any prohibited marking scheme” and 23 including, within the definition of “prohibited marketing scheme,” “a pyramid sales 24 scheme”].) But even if the FTC hadn’t prevailed on that claim (or on its pyramid-scheme 25 claim as to VOZ Travel), the Contempt Defendants’ operation of those businesses still 26 would have violated the 2002 permanent injunction. This is because the 2002 permanent 27 injunction specified that “[r]ewards are ‘unrelated’ to the sale of products or services to 28 contempt proceeding arising out of its violation.”) (internal citations omitted).

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1 ultimate users if rewards are not based primarily on revenue from retail sales” and that 2 “‘[r]etail sales’ does not include sales made by participants in a multi-level marketing 3 program to other participants or recruits or to such a participant’s own account.” (Id. at 3.) 4 Put another way, the 2002 permanent injunction adopted the principle that the FTC 5 unsuccessfully urged the Ninth Circuit to adopt in BurnLounge—that is, that commissions 6 paid on internal sales never qualify as rewards based on sales to ultimate users. It follows 7 that SBH qualifies as a “prohibited marking scheme” under this definition. 8 In the Final Pretrial Order, Defendants do not dispute that SBH’s commission 9 structure is, on its face, impermissible under the 2002 permanent injunction. (Lead Action, 10 Doc. 532 at 57 [“The FTC drafted the 2002 Order, which adopted a per se definition stating 11 that internal sales do not count as ultimate-user sales and therefore cannot be the basis for 12 Commission payments.”].) Instead, Defendants simply note that the test is different under 13 BurnLounge. (Id. at 57-58.) But this is beside the point for purposes of liability in the 14 Contempt Action. 15 VI. Lead Action—Monetary Remedies 16 Although the FTC indicated at the outset of the case that it intended to seek damages 17 of up to $8 million based on its claims in the Lead Action (Lead Action, Doc. 163 at 19), 18 the FTC later clarified that, in light of AMG Capital, it is only seeking monetary remedies 19 in the Lead Action pursuant to its Rules-based claims and is not seeking monetary remedies 20 pursuant to its pyramid-scheme and false-statements claims. (Lead Action, Docs. 351, 21 365.) This greatly reduces the monetary remedies sought in the Lead Action. Additionally, 22 although the FTC acknowledges in its proposed findings that the monetary remedies sought 23 in the Lead Action may be duplicative of the remedies sought in the Contempt Action, the 24 FTC also clarifies that it “still seeks Section 19 monetary relief against Lina Noland, who 25 is not a Contempt Defendant, for her rule violations. Ms. Noland’s liability would be joint 26 and several with Contempt Defendants’ contempt liability.” (Lead Action, Doc. 528 at 193 27 ¶ 166.) Thus, the Court begins by addressing the monetary remedies available in the Lead 28 Action.

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1 The FTC seeks monetary remedies based on violations of the Merchandise Rule and 2 the Cooling-Off Rule. In both instances, the FTC seeks relief under section 19 of the FTC 3 Act, which authorizes courts “to grant such relief as the court finds necessary to redress 4 injury to consumers . . . resulting from the rule violation[s, which] may include, but shall 5 not be limited to, rescission or reformation of contracts [and] the refund of money or return 6 of property.” 15 U.S.C. § 57b(b). The Ninth Circuit recently confirmed that such monetary 7 relief remains available post-AMG Capital. Elegant Sols., 2022 WL 2072735 at *2 8 (“[A]lthough AMG held that monetary relief is not available under section 13(b) of the FTC 9 Act, section 19 of the Act separately and specifically authorizes the FTC to seek monetary 10 relief to address violations of certain rules . . . .”). The monetary relief available under 11 section 19 is “relief based on a calculation of consumer loss, as opposed to a calculation of 12 net unlawful profits.” Id. at *3. See also FTC v. Figgie Int’l, Inc., 994 F.2d 595, 605 (9th 13 Cir. 1993) (“It follows [from the language of § 19 of the FTC Act] that there may be no 14 redress without proof of injury caused by those practices. And the relief must be necessary 15 to redress the injury.”). 16 A. Merchandise Rule 17 As discussed in earlier orders (Lead Action, Doc. 438 at 3-9), the Merchandise Rule 18 is codified at 16 C.F.R. § 435.2. As relevant here, it provides that it is a violation of the 19 FTC Act: 20 (b)(1) Where a seller is unable to ship merchandise within [the time clearly and conspicuously stated in the solicitation or within 30 days if no 21 time is clearly and conspicuously stated], to fail to offer to the buyer, 22 clearly and conspicuously and without prior demand, an option either to consent to a delay in shipping or to cancel the buyer’s order and 23 receive a prompt refund. Said offer shall be made within a reasonable 24 time after the seller first becomes aware of its inability to ship within the applicable time set forth in paragraph (a)(1) of this section, but in 25 no event later than said applicable time. 26 *** 27 (c) To fail to deem an order cancelled and to make a prompt refund to the buyer whenever: 28 (1) The seller receives, prior to the time of shipment, notification

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1 from the buyer cancelling the order pursuant to any option, 2 renewed option or continuing option under this part; (2) The seller has, pursuant to paragraph (b)(1)(iii) of this section, 3 provided the buyer with a definite revised shipping date which 4 is more than thirty (30) days later than the applicable time set forth in paragraph (a)(1) of this section or has notified the 5 buyer that it is unable to make any representation regarding the 6 length of the delay and the seller: 7 (i) Has not shipped the merchandise within thirty (30) days of the applicable time set forth in paragraph (a)(1) of 8 this section, and 9 (ii) Has not received the buyer’s express consent to said shipping delay within said thirty (30) days; 10 (3) The seller is unable to ship within the applicable time set forth 11 in paragraph (b)(2) of this section, and has not received, within 12 the said applicable time, the buyer’s consent to any further delay; 13 (4) The seller has notified the buyer of its inability to make 14 shipment and has indicated its decision not to ship the 15 merchandise; (5) The seller fails to offer the option prescribed in paragraph 16 (b)(1) of this section and has not shipped the merchandise 17 within the applicable time set forth in paragraph (a)(1) of this section. 18 19 (Id.)

20 1. The Parties’ Arguments

21 The FTC seeks $561,798.80 in monetary remedies based on Defendants’ violations

22 of the Merchandise Rule. (Lead Action, Doc. 528 at 194-198; Lead Action, Doc. 532 at

23 28-29, 45, 74-75.) Those damages stem from the shipping delays associated with the six

24 categories of product orders (Founders Packs, Hot Cocoa, Rooibos Tea, Chai Tea, Time

25 Capsule, and G-HCBD AM/PM) summarized in earlier portions of this order. The FTC’s

26 theory is that because the products were not shipped within the 30-day window

27 contemplated by the Merchandise Rule, and Defendants failed to provide the notices and

28 refunds contemplated by the Merchandise Rule in the event of such a delay, a monetary

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1 award is appropriate. (Id.) The FTC also disputes the necessity of any offset for the “value 2 of products eventually received,” arguing that Defendants bear the burden of proving an 3 entitlement to such an offset and cannot meet their burden because (1) “they cannot prove 4 that they eventually delivered the products at issue” and (2) “they cannot establish that the 5 products had anything more than minimal value.” (Id.) Alternatively, and at a minimum, 6 the FTC seeks an award of $6,829, which represents the sum of the unsuccessful refund 7 requests that five affiliates made as a result of shipping delays. (Id.) 8 Defendants oppose any monetary award based on the Merchandise Rule violations. 9 (Lead Action, Doc. 529 at 72-74; Lead Action, Doc. 532 at 29-30, 45, 75-77.) As an initial 10 matter, Defendants argue that “[p]re-offers are the issue. As a relatively new company 11 periodically rolling out new products or running short on established products, Affiliates 12 understood and agreed that ‘pre-offers’ of new products or out of stock Products would not 13 be delivered within 30 days but depended on production and delivery of the Products to 14 SBH. Such pre-offers or announcements about the backlogs were routinely made on 15 SBH’s Facebook page and on orders forms themselves. . . . Moreover, associates knew 16 from SBH’s Terms and Conditions that orders might take up to 60 days or more for delivery 17 of the Products.” (Id., emphasis omitted.) Alternatively, Defendants argue that the FTC’s 18 damages methodology is flawed because the FTC “fails to take into account the inherent 19 value of the products. There is no evidence any ultimate user or ‘consumer’ complained 20 about SBH Products.” (Id.) Defendants contend that damages cannot be presumed in this 21 circumstance, because there were no misrepresentations, and that awarding full damages 22 without any offset would result in a windfall to consumers. (Id.) Finally, Defendants argue 23 that “[r]egardless of fault, the destruction of the warehouse laptop, or the failure to image 24 or produce the laptop prevents Defendants from responding with greater detail as to what 25 specific products were delivered and when. Defendants contend that it would be 26 inequitable to impose damages where, as here, they were unable to defend the details of 27 this claim through no fault of their own.” (Id.) 28 …

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1 2. Analysis 2 As an initial matter, the Court is unpersuaded by Defendants’ seeming attempt to 3 dispute liability—that is, their attempt to dispute whether the delayed shipments at issue 4 here violated the Merchandise Rule. That issue was already resolved in the FTC’s favor at 5 summary judgment and Defendants could not, at any rate, contract around the clear 6 requirements of the Merchandise Rule by inserting longer shipping deadlines in the Terms 7 and Conditions. 8 Nevertheless, the FTC’s request for $561,798.80 in monetary remedies based on the 9 Merchandise Rule violations is flawed for the same reasons discussed in the November 10 2021 summary judgment order. (Lead Action, Doc. 438 at 7-9.) As noted there, the FTC’s 11 “all-or-nothing methodology . . . fails to account for the inherent value of the product that 12 consumers ultimately received, even if the product was shipped late.” (Id.) “Under the 13 FTC’s proposed approach, if a consumer ordered and paid for $5,000 of products from 14 SBH, the shipping deadline expired without notification of the consumer’s right to a refund, 15 SBH shipped the products the very next day after the deadline expired, and the consumer 16 was satisfied with the products upon receipt and immediately consumed them, the 17 consumer would nevertheless be entitled to a $5,000 damage award . . . . It is difficult to 18 see how such an outcome could be viewed as ‘necessary to redress injury’ to the affected 19 consumer.” (Id.) “Although it is possible such a consumer might suffer other forms of 20 harm from a late shipment—such as lost resale opportunities or a decrease in the market 21 price of the product between the anticipated and actual shipping dates—the FTC has made 22 no effort to prove the existence of such forms of harm.” (Id.) 23 In its trial filings, the FTC raises an array of arguments intended to address these 24 concerns. For example, the FTC argues that it merely bears the burden of providing a 25 “reasonable estimate” of the appropriate monetary relief, at which point the burden shifts 26 to Defendants to identify why the FTC’s estimate is inaccurate. (Lead Action, Doc. 528 at 27 193-96; Lead Action, Doc. 532 at 74.) In a related vein, the FTC argues that because 28 Defendants created the problem, “elementary conceptions of justice and public policy”

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1 require Defendants to bear the consequences of any uncertainty their actions created, 2 particularly where the alternative would be requiring the FTC to meet the “almost 3 impossible” burden of proving a negative. (Id.) The FTC also contends that a refusal to 4 shift the burden of proving delivery to Defendants would “incentivize sellers to destroy, or 5 never create, shipping records because the absence of records would make it impossible 6 for the FTC (or other law enforcement agencies) to prove non-shipment. In fact, the 7 Merchandise Rule itself includes a recordkeeping requirement . . . . Allowing Defendants 8 to benefit from their own poor records ignores this evidentiary presumption.” (Id.) 9 The FTC’s arguments on these points are unavailing. The FTC may only be 10 required to provide a “reasonable estimate” of damages, but the FTC’s methodology suffers 11 from a fundamental flaw that renders it unreasonable on its face—it assumes that a late- 12 shipped product automatically ceases to have any value, such that there is no need to 13 provide an offset for the value of the product received. For the reasons discussed in the 14 November 2021 order, the Court respectfully cannot understand how such an approach can 15 be reconciled with the text of section 19 of the FTC Act, which only authorizes monetary 16 remedies based on Rules violations if “necessary to redress injury to consumers,” or with 17 Figgie, which emphasizes that “there may be no redress without proof of injury” and “the 18 relief must be necessary to redress the injury.” 994 F.2d at 605. See also CFPB v. 19 Nationwide Biweekly Admin., Inc., 2017 WL 3948396, *12 (N.D. Cal. 2017) (rejecting 20 regulatory agency’s damages methodology, where agency sought a refund of all setup fees 21 paid by consumers with no offset for the value of the service provided, and emphasizing 22 “that even in Figgie, the restitutionary award was structured in a way that those customers 23 who elected to retain the benefits of the products they had purchased (however minimal) 24 would not receive the windfall of both a benefit and a refund”). This is not a situation, as 25 in FTC v. Direct Marketing Concepts, Inc., 624 F.3d 1 (1st Cir. 2010), where the only 26 potential flaw in the FTC’s methodology is its reliance on “fuzzy figures due to a 27 defendant’s uncertain bookkeeping.” Id. at 15. The flaw here is more fundamental—it is 28 a categorical refusal to account for the inherent value of the product received where the

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1 underlying violation is a mere shipping delay and there is evidence that the product had at 2 least some value to some purchasers. 3 The Court acknowledges that Defendants have also been shown to have engaged in 4 other forms of misconduct with respect to their sale of SBH products, such as selling them 5 as part of a pyramid scheme and making false income misrepresentations. But it would be 6 analytically imprecise and improper to consider those violations when evaluating the injury 7 arising from the Merchandise Rule violations. Figgie, 994 F.2d at 605 (under section 19, 8 “there may be no redress without proof of injury caused by those practices”) (emphasis 9 added). Such an approach would create a backdoor to obtain the sort of monetary remedies 10 under § 13(b) that Congress has declined to authorize. AMG Capital, 141 S.Ct. at 1349 11 (“[T]he Commission’s broad reading would allow it to use § 13(b) as a substitute for § 5 12 and § 19. For the reasons we have just stated, that could not have been Congress’ intent.”); 13 Figgie, 994 F.2d at 603 (“Section 19 liability must not be a rubber stamp of Section 5 14 liability.”). 15 In a related vein, it bears emphasizing that the Merchandise Rule violations at issue 16 here were not deceptive, pre-purchase misrepresentations. In Figgie, the Ninth Circuit 17 discussed the hypothetical of a merchant who sells rhinestones while claiming they are 18 diamonds. Figgie, 994 F.2d at 606. The Court explained: “Customers who purchased 19 rhinestones sold as diamonds should have the opportunity to get all of their money back. 20 We would not limit their recovery to the difference between what they paid and a fair price 21 for rhinestones. The seller’s misrepresentations tainted the customers’ purchasing 22 decisions. If they had been told the truth, perhaps they would not have bought rhinestones 23 at all or only some. . . . The fraud in the selling, not the value of the thing sold, is what 24 entitles consumers in this case to full refunds or to refunds for each detector that is not 25 useful to them.” Id. But the FTC’s Merchandise Rule claim is not, in contrast to its 26 pyramid scheme and false statement claims, a “fraud in the selling” claim. 27 For these reasons, this case is also distinguishable from FTC v. QYK Brands LLC, 28 2022 WL 3138761 (C.D. Cal. 2022). There, the violations of the Merchandise Rule were

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1 not limited to shipping delays but also included pre-purchase misrepresentations about 2 whether the products were in stock and would be shipped quickly. Id. at *2 (“[B]etween 3 March and August 2020, Defendants’ hand sanitizer sales totaled over $3.3 million. The 4 FTC attributes this sales boom in part to Defendants’ fast shipping promises. For example, 5 one Google advertisement . . . prominently stated, ‘Hand Sanitizers in Stock’ and ‘Ships 6 Today.’ And another Google advertisement . . . boasted that hand sanitizer ‘Ships Fast 7 from CA Today’ . . . . Defendants did not always follow through on their shipping 8 promises.”). The court concluded that, “given Defendants’ widely disseminated materially 9 misleading claims that they had hand sanitizer in stock and ready to ship, . . . the FTC is 10 entitled to a presumption of actual reliance in this case.” Id. at *8. Put another way, 11 “customers [were] owed a refund because Defendants’ deception induced the sale in the 12 first place.” Id. at *9. But again, and as the QYK Brands court recognized, the FTC does 13 not contend in this action that all of the Merchandise Rule violations involved affirmatively 14 misleading promises about expected shipping times that helped induce the purchasing 15 decisions. Id. at *8 (concluding that “Noland’s concerns with consumer injury do not 16 readily translate here” because “the FTC’s theory of [Merchandise Rule] liability here turns 17 on Defendants’ pre-purchase, materially misleading shipping promises” whereas “the 18 FTC’s [Merchandise Rule] theory [in Noland] was based on violations that arose only after 19 the contract was consummated”). 20 The Court is also unpersuaded by the FTC’s contention that Defendants should bear 21 the burden of proving that they shipped all of the orders in question. It is true, as discussed 22 in more detail below in relation to the monetary remedies in the Contempt Action, that 23 “courts apply a burden-shifting scheme” to “determine the appropriate amount of 24 damages.” Direct Marketing Concepts, 624 F.3d at 15. But the burden only shifts if the 25 FTC first comes forward with a reasonable methodology. FTC v. Febre, 128 F.3d 530, 26 535 (7th Cir. 1997) (“The Commission must show that its calculations reasonably 27 approximated the amount of customers’ net losses, and then the burden shifts to the 28 defendants to show that those figures were inaccurate.”). The FTC never did so in relation

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1 to the Merchandise Rule, so the burden never shifted as to that claim. 2 Nor is there any merit to the FTC’s contention that, in light of the shoddiness of 3 Defendants’ shipping records, it would be impossible as a practical matter—and unfair 4 when taking into account “elementary conceptions of justice and public policy”—to require 5 the FTC to prove that the orders in question were never shipped. Of course, accurate and 6 comprehensive shipping records would be one way of getting to the bottom of this issue, 7 but the FTC also had other tools at its disposal to evaluate whether the delayed shipments 8 were eventually made. The FTC could have, for example, used a consumer survey. See, 9 e.g., Stefanchik, 559 F.3d at 928-29 (discussing evidentiary value of “[t]he FTC’s survey 10 results”); FTC v. John Beck Amazing Profits, LLC, 865 F. Supp. 2d 1052, 1062 (C.D. Cal. 11 2012) (“Dr. Conrey is a Survey Methodologist . . . retained by the FTC to conduct the 12 telephone survey at issue. The Conrey Survey ‘measured the earnings and profit 13 experienced by consumers who had purchased one of the three products. [It] also 14 investigated whether investment in coaching services or investment of time was related to 15 consumers’ earnings or profit.’”). 16 The FTC’s position on this issue—that the Court should assume that none of the 17 delayed shipments were ever made unless Defendants can prove otherwise—is particularly 18 hard to fathom because the FTC acknowledges elsewhere that some (if not most) of the 19 delayed shipments were made. For example, in relation to its fallback request for $6,829 20 in Merchandise Rule damages, the FTC acknowledges that three of the consumers who 21 made unsuccessful cancellation requests for the delayed portions of their Founders Packs 22 later received the products at issue. (Lead Action, Doc. 528 at 198 ¶ 190 [“[R]ather than 23 refund the price of the undelivered products ($6,195 in sum), Defendants shipped them.”].) 24 Similarly, with respect to the delayed Hot Cocoa orders, the FTC admits in its proposed 25 findings of fact that Defendants eventually began shipping Hot Cocoa, albeit not until 26 “seven months after the estimated shipping date.” (Id. at 115 ¶ 591.) And again, with 27 respect to the delayed Rooibos Tea orders, the FTC acknowledges in its proposed findings 28 that Defendants “start[ed] shipping Rooibos tea [on] March 8, 2019 at the earliest” and

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1 further acknowledges that, according to Defendants’ internal records, all of the shipments 2 were eventually made: “[Defendants] did not claim to have shipped all pre-orders until 3 May 24, 2019.” (Id. at 116 ¶ 596.) The FTC included similar acknowledgements of 4 eventual shipping, albeit delayed, with respect to the other products at issue. (Id. at 117 5 ¶ 601 [“Defendants did not start shipping Chai Tea until September 18, 2018, at the 6 earliest.”]; id. at 117 ¶ 605 [“Defendants did not start shipping Time Capsule until 7 November 17, 2019 at the earliest.”]; id. at 118 ¶ 608 [“Defendants did not start shipping 8 AM/PM until April 26, 2019 at the earliest.”].) These acknowledgements are consistent 9 with the Court’s assessment, in its capacity as factfinder, of the status of the shipping 10 problems at SBH. Although affiliates consistently raised frustrations with the shipping 11 delays, the Court was unconvinced that the problem went further and involved a consistent 12 failure to make the shipments at all. 13 For these reasons, even if the burden did somehow shift to Defendants to show that 14 the delayed shipments were eventually made, the Court would find that Defendants met 15 that burden. The issue here was delayed shipments, not missing shipments, and the FTC’s 16 invocation of burden-shifting frameworks cannot change that essential fact. 17 The FTC argues in the alternative that even if the products were eventually shipped, 18 no offset is required because the products had no inherent value (or, at least, it was 19 Defendants’ burden to prove their inherent value, which Defendants failed to do). These 20 arguments fail for the same reasons as the FTC’s arguments regarding missing shipments. 21 This is not a situation, as in QYK Brands or in the rhinestone/diamond analogy in Figgie, 22 where the Rule violations involved deceptive, pre-purchase misrepresentation that tainted 23 all of the purchasing decisions. Thus, by failing to account for the value of the late-shipped 24 products in its own methodology, the FTC failed to meet its initial burden of providing a 25 “reasonable estimate” of damages (and no resulting burden ever shifted to Defendants). 26 Nor would it have been impossible for the FTC to come up with its own methodology for 27 calculating the inherent value of the products. The Court can imagine, for example, an 28 expert describing how much satchels of coffee and tea usually cost on the open market

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1 when not offered as part of a pyramid scheme and using that figure (rather than the higher 2 price charged by SBH) as the inherent value. This methodology may have been subject to 3 criticism, but at least it would have been something.51 4 This leaves the FTC’s fallback claim for $6,829 in damages. To calculate that sum, 5 the FTC identified five specific instances in which a consumer requested a refund after 6 experiencing a shipping delay, only for SBH to reject the refund request. (Lead Action. 7 Doc. 528 at 198 ¶¶ 189-93.)52 In at least three of those instances, the product was 8 eventually shipped to the consumer. (Id. ¶ 190.) Notably, Defendants make no effort to 9 specifically address or dispute the FTC’s claim for damages based on these five episodes. 10 The Court agrees with the FTC that an award of $6,829 in damages is appropriate 11 based on these five transactions. The difference between these transactions and the other 12 delayed-shipping episodes is that there is a specific reason—the refund request—to believe 13 51 The Court notes that, in one of its trial filings, the FTC seems to have belatedly 14 advanced a new theory for calculating the inherent value of the late-shipped products. Specifically, in its proposed conclusions of law, the FTC argues that because sales went 15 down by 95% after the receiver was appointed and the commission structure was eliminated, the Court should conclude that the inherent value of the products was only 5% 16 of what SBH was charging and should use that figure as an offset for purposes of calculating the Merchandise Rule damages. (Lead Action, Doc. 528 at 197 ¶ 188 [“[I]f the 17 Court offsets for the ‘value’ of the SBH products, it should equal just 5% of product revenues, resulting in a redress amount for the Merchandise Rule violations of 18 $533,708.96.”].) This argument fails for two reasons. First, it is untimely and forfeited. Before trial, Defendants filed a motion to preclude the FTC from pursuing any damages 19 methodology on its § 19 claims apart from the methodology (which did not account for the inherent value of the late-shipped products) that the Court had criticized in the November 20 2021 summary judgment order. (Lead Action, Doc. 482.) In response, the FTC avowed that it would not be advancing any new theories at trial. (Lead Action, Doc. 495.) As a 21 result, the Court denied Defendants’ motion, clarifying that “[h]ad the FTC attempted to formulate a new damages methodology in the wake of the November 2021 summary 22 judgment ruling, Rule 37 might be implicated, but the FTC has not done so.” (Lead Action, Doc. 509 at 7.) It is therefore surprising that the FTC would attempt to offer such a new 23 theory for the first time in its proposed conclusions of law. The Court also notes that this new theory does not appear in the FTC’s portion of the Final Pretrial Order, which provides 24 an independent reason for concluding it is forfeited. Hunt v. Cty. of Orange, 672 F.3d 606, 617 (9th Cir. 2012) (“We have consistently held that issues not preserved in the pretrial 25 order have been eliminated from the action.”) (citation and internal quotation marks omitted). Second, even if the argument weren’t forfeited, the Court would reject the FTC’s 26 new theory on the merits. As noted elsewhere in this order, there were an array of reasons for the 95% reduction in sales following the appointment of the receiver, so attributing the 27 entire reduction to the elimination of the commission structure would go too far. 28 52 The Court clarifies that it accepts, in its capacity as factfinder, the FTC’s factual assertions regarding these five transactions.

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1 that all five consumers stopped ascribing any value to the products once the shipment 2 delays got too long. It would therefore not result in a windfall to conclude that, regardless 3 of whether SBH eventually ended up shipping the now-unwanted products to these five 4 consumers, they were harmed by the Merchandise Rule violation in the full amount of the 5 price they paid. Cf. QYK Brands, 2022 WL 3138761 at *10 (“[G]iven that some customers 6 may have been satisfied with their hand sanitizer orders even if delayed the Court prefers 7 to implement a redress plan requiring customers to make refund requests rather than 8 receiving the funds outright.”).53 9 B. Cooling-Off Rule 10 As discussed in earlier orders (Lead Action, Doc. 438 at 9-15), the Cooling-Off 11 Rule, which is codified at 16 C.F.R. § 429.1, gives consumers the right to cancel, within 12 three business days, any purchase of at least $130 in goods or services that occurs at a 13 location other than the merchant’s place of business. Id. §§ 429.0(a), 429.1(g). The Rule 14 also requires the seller to provide written or oral notice of this right and to provide a form 15 “Notice of Cancellation” that the buyer can use to cancel the sale. Id. § 429.1(a)-(b), (e). 16 1. The Parties’ Arguments 17 The FTC seeks $581,024.75 in monetary remedies based on Defendants’ violations 18 of the Cooling-Off Rule. (Lead Action, Doc. 528 at 198-202; Lead Action, Doc. 532 at 19 30-31, 45, 77-79.) Those damages stem from the sale of tickets to future training events 20 during other live training events. (Id.) The FTC argues that Defendants were required, 21 pursuant to the Cooling-Off Rule, to advise ticket purchasers of the right to rescind the 22 purchase within three days but did the opposite by describing the tickets as non-refundable. 23 (Id.) The FTC further contends that “[b]ecause Defendants coupled their Cooling-Off Rule 24 53 25 In the November 2021 summary judgment order, the Court noted the possibility that the FTC would, at trial, be able to recover damages under the Merchandise Rule by 26 identifying customers who requested refunds. (Lead Action, Doc. 438 at 8-9 [“[E]ven assuming (without deciding) that the FTC might be able to secure a full-purchase-price 27 damage award under § 57b(b) on behalf of a particular consumer who was so dismayed by a shipping delay that he would have opted for a full refund had he been given proper notice 28 of his refund rights under the Merchandise Rule, the FTC has made no effort to identify any such consumers in its motion.”].)

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1 violations with misrepresentations about the wealth affiliates will achieve by attending, the 2 only way to remedy the harm from the violations is to provide full refunds, unless 3 Defendants can prove that fully-informed consumers (consumers who had not been lied to 4 by Defendants) would not have exercised their cooling-off rights. No offset for the ‘value’ 5 of the tickets is required because the tickets had no value (when decoupled from the 6 pyramid scheme) and because some events never occurred.” (Id.) At a minimum, the FTC 7 seeks $223,793.50 in damages based on the Cooling-Off Rule violations, which are 8 Defendants’ revenues from the ticket sales for three particular events (Kickoff 2020, RED 9 2020, and Millionaire Workshop) that never occurred. (Id.) 10 Defendants oppose any monetary award based on the Cooling-Off Rule violations. 11 (Lead Action, Doc. 529 at 74; Lead Action, Doc. 532 at 31, 45-46, 79.) As an initial matter, 12 although Defendants do not dispute that they violated the Cooling-Off Rule when selling 13 tickets to future training events at live events, they seem to dispute whether all of the ticket 14 sales challenged by the FTC are implicated, because “the vast number of sales were made 15 online, by mail or telephone.” (Id.) More broadly, Defendants argue that the FTC has 16 failed to show that purchasers suffered any harm from the violations because “[t]here were 17 no requests for refunds or cancellations of courses or other materials within three days of 18 any sale for training courses[,] conferences or other materials” and, in the few instances 19 where ticket purchasers did request a refund, “other Affiliates and Up-Team Leaders 20 bought tickets from an Affiliate that did not want to or could not attend a conference or 21 other function for which tickets were sold.” (Id.) 22 2. Discussion 23 The Court declines to award any damages based on the Cooling-Off Rule violations. 24 The analysis here mirrors, in many respects, the analysis concerning the Merchandise Rule. 25 Although the Court does not foreclose the possibility that the FTC could, in an appropriate 26 case with sufficient evidence, obtain an award of monetary relief based on violations of the 27 Cooling-Off Rule, the problem here is that the FTC’s methodology goes beyond § 19’s 28 authorization to grant only “such relief as the court finds necessary to redress injury to

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1 consumers” and violates Figgie’s corresponding mandate that “the relief must be necessary 2 to redress the injury.” 3 Identifying the revenues associated with transactions that violated the Cooling-Off 4 Rule, as the FTC has attempted to do, is simply the first step in the analysis. This is 5 because, as with the Merchandise Rule violation described above (and unlike in QYK 6 Brands or in the rhinestone/diamond hypothetical in Figgie), the Cooling-Off Rule 7 violation was simply a failure to provide certain information about refund rights.54 Thus, 8 determining whether consumers were injured by the violation requires a further evaluation 9 of whether consumers would have requested a refund within three days if aware of their 10 right to do so and whether the service that consumers ultimately received (here, attendance 11 at a training session) had any inherent value that might require an offset. The FTC has 12 done neither, which means that it failed to meet its initial burden of providing a “reasonable 13 estimate” of damages (and, thus, no resulting burden ever shifted to Defendants). Nor 14 would it have been impossible for the FTC to come up with a methodology for identifying 15 whether consumers would have made cancellation requests if aware of the right to do so. 16 Again, consumers surveys, although perhaps imperfect, could have been utilized.55 17 This is an unsatisfying outcome in some ways. Defendants committed blatant 18 violations of the Cooling-Off Rule, and the resulting training events provided a vehicle for 19 54 The Court acknowledges that this violation falls closer to the line than the Merchandise Rule violation, given that Defendants affirmatively represented that the 20 tickets were non-refundable. 55 21 The Court also concludes, as a factual matter, that few if any consumers would have actually exercised their refund rights under the Cooling-Off Rule if properly advised of 22 those rights. The training events were portrayed as a necessary step in obtaining the financial freedom that affiliates hoped to achieve. Even though, as discussed elsewhere in 23 this order, the dream that Defendants were selling was a false one, the evidence at trial showed that affiliates who were ensnared by Defendants’ tactics spent significant time and 24 money chasing the dream (and even kept believing in Defendants’ promises, and supporting Defendants, after this lawsuit was filed and a receiver was appointed). The 25 Court is therefore skeptical that ticket purchasers, if properly advised of their right to request a refund within 72 hours of purchase, would have exercised that right during the 26 72-hour window. These were not impulse purchases, despite the sometimes frenzied and emotional atmosphere at the events where the tickets were sold. For these reasons, the 27 FTC’s reliance (Tr. 2128) on Int’l Society for Krishna Consciousness, Inc. v. Lee, 505 U.S. 672 (1992), is misplaced. This case does not involve purchasers who were “on tight 28 schedules” that interfered with their ability to raise complaints about unscrupulous sales tactics. Id. at 683-84.

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1 Defendants to advance their pyramid scheme and repeat their false income representations. 2 Nevertheless, and as AMG Capital recently emphasized, courts are not free to rewrite the 3 language of statutes in an effort to achieve what they may view as optimal outcomes. 4 Section 19 of the FTC Act only authorizes monetary remedies “as the court finds necessary 5 to redress injury to consumers.” 15 U.S.C. § 57b(b). “[T]here may be no redress [under 6 section 19] without proof of injury caused by those practices.” Figgie, 994 F.2d at 605 7 (emphasis added). A refined showing of injury and loss tied to the Cooling-Off Rule 8 violations is what is missing here.56 9 Finally, the FTC’s fallback request for $223,793.50 in Cooling-Off Rule damages 10 is misplaced. All three events in question were scheduled (or, at least in the case of the 11 Millionaire Workshop, somewhat tentatively scheduled) to take place in 2020, only to be 12 cancelled after the TRO was granted and the receiver took control of SBH. There may be 13 some theory as to why consumers should be entitled to a refund for the tickets to these 14 cancelled events, but the Cooling-Off Rule is not that theory. The Rule violation was not 15 the cause of these consumers’ loss, as the 72-hour refund window had expired long before 16 these events were cancelled. 17 VI. Contempt Action—Monetary Remedies 18 A. Relevant Background 19 In March 2022, the Court issued an order denying, without prejudice, the FTC’s 20 request for a monetary award of $7,012,913.25 in the Contempt Action. (Contempt Action, 21 Doc. 130.) The requested figure “constitute[d] a full refund for all amounts that consumers 22 paid to SBH and VOZ Travel (after an offset for commission payments to consumers).” 23 (Id. at 6.) “The FTC acknowledge[d] this figure does not include any offset for the inherent 24 value of the products that customers received and consumed.” (Id.) 25 The Court’s overarching reason for denying the request was that it was “based, in 26 56 27 Also, as discussed in later portions of this order, Defendants are not getting a free pass for their Cooling-Off Rule and Merchandise Rule violations. The Court has taken 28 Defendants’ persistent disdain for regulatory compliance into consideration when deciding the appropriate scope of injunctive relief.

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1 part, on the assertion that SBH constituted a pyramid scheme and that the Contempt 2 Defendants made false income-related statements in the course of operating SBH (conduct 3 that would, in turn, violate Sections I, II, and III of the permanent injunction),” but the FTC 4 had not yet proved all of its SBH-related liability theories at that time. (Id. at 9.) Thus, 5 “the FTC’s requested sum is necessarily overstated.” (Id.) 6 The March 2022 order also identified two “potential problems” with the FTC’s 7 damages methodology, which the Court merely flagged for future consideration but did not 8 decide. (Id. at 9.) The first potential problem was the FTC’s failure to provide an offset 9 “for the inherent value of the products that consumers actually received and consumed.” 10 (Id.) The Court stated that “there is a colorable argument that any civil contempt award 11 imposed in this case must include an offset for the value of products actually received.” 12 (Id. at 10.) The second potential problem was that, “in light of AMG Capital, there are 13 unresolved questions about the FTC’s authority to pursue a compensatory civil sanction 14 based on new § 13(b) violations that also violate an injunction issued in a previous § 13(b) 15 enforcement action (such as the permanent injunction issued in the [Contempt] Action).” 16 (Id.) The Court “expresse[d] no prejudgment as to this issue and simply note[d] that it will 17 benefit from further briefing.” (Id. at 10-11.) 18 B. The Parties’ Arguments 19 The FTC now requests a monetary award of $7,306,873.14 in the Contempt Action. 20 (Lead Action, Doc. 528 at 180-193; Lead Action, Doc. 532 at 21, 64-67.) The requested 21 figure consists of the $1,194,897.01 in net revenues arising from VOZ Travel sales and the 22 $6,111,976.13 in net revenues arising from sales of SBH products and event tickets. (Id.) 23 The FTC also addresses the two concerns that were raised in the March 2022 order. As for 24 the first concern, the FTC contends that no offset is required with respect to VOZ Travel 25 purchases for the simple reason that there was no product at all. (Id.) As for the SBH 26 product and ticket purchases, the FTC argues that, under FTC v. EDebitPay, LLC, 695 F.3d 27 938 (9th Cir. 2012), the “baseline” civil contempt sanction for the violation of an FTC 28 consent order is a “net-revenue sanction” and the burden of proving any entitlement to an

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1 offset for the value of the products and services received falls to Defendants (which 2 Defendants have failed to meet here). (Id.) The FTC also contends that “[e]very circuit to 3 have addressed the issue in an FTC contempt action has . . . refus[ed] to give defendants 4 the benefit of an offset for the ‘value’ of fraudulently sold goods.” (Id.) As for the second 5 concern, the FTC argues that AMG Capital does not affect the availability of broad 6 compensatory remedies for violation of the 2002 permanent injunction, even if such 7 remedies would have been unavailable in the underlying action that gave rise to the 8 injunction, because “monetary relief may be available for order violations even where such 9 relief is unavailable for violations of the statute underlying the order.” (Id.) The FTC also 10 contends that other courts have unanimously reached the same conclusion in post-AMG 11 Capital decisions. (Id.) 12 The Contempt Defendants oppose any monetary award in the Contempt Action. 13 (Lead Action, Doc. 529 at 75-77; Lead Action, Doc. 532 at 67-73.) In somewhat shotgun 14 fashion, the Contempt Defendants first argue that any presumption of reliance and damages 15 was rebutted by the hundreds of affiliate declarations and pleadings they sought to 16 introduce into evidence at trial. (Id.) Second, the Contempt Defendants argue that the 17 FTC’s methodology is flawed because it fails to account for the inherent value of the 18 products and services received. (Id.) Third, the Contempt Defendants argue that “no 19 damages should be award[ed] in this case because the FTC’s refusal to meet with 20 Defendants and fully understand[] how this business worked . . . before filing [this] lawsuit 21 . . . ruin[ed] SBH’s business and that of thousands of Affiliates. The business could have 22 [operated] lawfully with some input from the FTC and overhauling some of its policies.” 23 (Id.) Fourth, the Contempt Defendants argue that consumer loss is the incorrect standard 24 for damages in a contempt action, as recognized in recent Supreme Court decisions. (Id.) 25 Fifth, the Contempt Defendants argue that “[e]ven assum[ing] that the Court adopted the 26 [FTC’s] position that its inherent authority allows it to impose a monetary remedy for 27 Section 5 damages in the Underlying Case, the public policy enunciated by the Supreme 28 Court in FTC cases should be heavily factored into what if any remedy was imposed.” (Id.)

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1 Sixth, the Contempt Defendants argue that damages are unwarranted because none of the 2 ultimate consumers—which, for purposes of this argument, the Contempt Defendants 3 identify as retail consumers—complained about the challenged conduct in this case. (Id.) 4 Seventh, the Contempt Defendants argue that the gross revenues from VOZ Travel were 5 only $971,625 and that the FTC caused any resulting damage by preventing them from 6 following through on providing travel services to the purchasers. (Id.) Eighth, and at a 7 minimum, the Contempt Defendants argue that if Court chooses to make any monetary 8 award in the Contempt Action, it should consider that SBH earned a net income of only 9 $1,358,277.89, or $406,360.85 if basic overhead expenses are deducted; that some of the 10 associated entities sustained a net loss; that Defendants earned relatively little in W-2 and 11 1099 wages from SBH; that there was $600,000 in SBH’s bank account at the time of the 12 TRO; that the receiver made several mistakes when operating SBH, including rejecting an 13 offer from one affiliate to buy all of the existing inventory; and that the Court should 14 assume that associates earned an aggregate profit of $3,103,250 from retail sales. (Id.) 15 Finally, during closing argument, Defendants also urged the Court to deny any financial 16 award due to the FTC’s failure to comply with class action procedures. (Tr. 2146-49.) 17 C. Analysis 18 The FTC has successfully addressed the concerns that were raised in the March 2022 19 order. As a result, and because the Contempt Defendants’ various damages-related 20 counterarguments are unavailing, the Court grants the FTC’s request for the imposition of 21 a $7,306,873.14 compensatory civil sanction in the Contempt Action, which is owed jointly 22 and severally by the Contempt Defendants.57 23 The Court begins with the subset of the parties’ arguments that do not present a 24 57 At the conclusion of his direct testimony at trial, Sacca asked the Court to “consider 25 suspending” any monetary judgment against him in light of his limited financial resources. (Tr. 1273.) Although the Court is sympathetic to Sacca’s circumstances and notes that his 26 conduct was not as egregious as that of others, this request is denied. Joint and several liability is appropriate, factually and legally, under the circumstances of this case, where 27 Sacca participated for several years in contumacious conduct that has caused widespread harm. Cf. FTC v. Leshin, 618 F.3d 1221, 1236-37 (11th Cir. 2010) (“Where . . . parties 28 join together to evade a judgment, they become jointly and severally liable for the amount of damages resulting from the contumacious conduct.”) (citation omitted).

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1 particularly close call. There is no merit to the Contempt Defendants’ suggestion that the 2 absence of injury can be presumed from the affiliate declarations the Contempt Defendants 3 sought to introduce during trial. Those declarations were deemed unpersuasive and 4 inadmissible for a host of reasons. (Tr. 1978-84.) Also meritless is the Contempt 5 Defendants’ suggestion that the FTC’s conduct in bringing this action, and the FTC’s and 6 the receiver’s conduct during the course of this action, should somehow serve to eliminate 7 or reduce the available monetary remedies. All of that conduct was in response to the 8 illegal and contumacious conduct of the Contempt Defendants, which necessitated the 9 FTC’s intervention and the receiver’s appointment. The Court also rejects the Contempt 10 Defendants’ contention that monetary remedies are unavailable because the only 11 “consumers” who might potentially be entitled to relief are the ultimate retail purchasers 12 of SBH products, who were not harmed by the challenged practices. This argument is 13 inconsistent with the position that Defendants have taken as to other issues, such as how to 14 characterize internal sales to SBH affiliates for purposes of the FTC’s pyramid-scheme 15 claim, and appears to be a variant of the failed jurisdictional argument that is addressed in 16 earlier portions of this order. At any rate, the Court’s inherent authority to award 17 compensatory contempt sanctions does not turn on whether the injured parties meet some 18 technical definition of “consumers.” The Court also rejects, in its capacity as factfinder, 19 the various alternative profit and revenue calculations offered by the Contempt Defendants 20 and concludes that the competing figures offered by the FTC are accurate. Finally, the 21 Court disagrees with Defendants’ contention that the FTC was required to comply with 22 Rule 23 or some other formal class action procedure before seeking the type of relief being 23 sought here. As discussed below, the Ninth Circuit and other courts have upheld the exact 24 sort of compensatory civil sanction award being sought here. 25 As for one of the potential problems with the FTC’s methodology that the Court 26 flagged in the March 2022 order—whether AMG Capital should be understood as 27 curtailing the scope of compensatory relief that the FTC may obtain in a civil contempt 28 action—the Court is persuaded by the FTC’s arguments on this topic and unpersuaded by

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1 the Contempt Defendants’ arguments. Put simply, AMG Capital does not affect the scope 2 of relief available in the Contempt Action. 3 The Supreme Court has recognized that “[j]udicial sanctions in civil contempt 4 proceedings may, in a proper case, be employed . . . to compensate the complainant for 5 losses sustained.” United States v. United Mine Workers of Am., 330 U.S. 258, 303-04 6 (1947). This is an “ancient” rule that dates back to “the Founding.” FTC v. Pukke, 53 7 F.4th 80, 103 (4th Cir. 2022) (“Since the Founding, it has been understood that courts 8 possess contempt powers to guard against violations of their own orders. . . . Without the 9 ability to enforce its own orders, the judicial system becomes all bark and no bite. It is a 10 principle as ancient as the laws themselves that laws without a competent authority to 11 secure their administration from disobedience and contempt would be vain and nugatory.”) 12 (citations and internal quotation marks omitted). Equally well-settled is the principle that 13 courts should exercise this power expansively, to achieve “full remedial relief.” McComb 14 v. Jacksonville Paper Co., 336 U.S. 187, 193 (1949) (“The measure of the court’s power 15 in civil contempt proceedings is determined by the requirements of full remedial relief.”). 16 In 2012, the Ninth Circuit confirmed that these principles are applicable when the 17 FTC seeks compensatory sanctions in a civil contempt proceeding. EDebitPay, 695 F.3d 18 at 945 (“District courts have broad equitable power to order appropriate relief in civil 19 contempt proceedings. . . . [W]e have not had occasion to determine whether district courts 20 have comparable broad authority to calculate sanctions in contempt proceedings brought 21 by the FTC. . . . We join our sister circuits today and hold that district courts have broad 22 discretion to use consumer loss to calculate sanctions for civil contempt of an FTC consent 23 order.”) (citations and internal quotation marks omitted). Thus, unless AMG Capital—or 24 some other Supreme Court or Ninth Circuit decision issued after EDebitPay was decided— 25 is “clearly irreconcilable” with the principles announced in EDebitPay, the Court must 26 follow those principles here. Miller v. Gammie, 335 F.3d 889, 899-900 (9th Cir. 2003) (en 27 banc) (addressing “when, if ever, a district court or a three-judge panel is free to reexamine 28 the holding of a prior panel in light of an inconsistent decision by a court of last resort” and

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1 concluding that such reexamination is permissible only when “the relevant court of last 2 resort [has] undercut the theory or reasoning underlying the prior circuit precedent in such 3 a way that the cases are clearly irreconcilable”). 4 AMG Capital is not clearly irreconcilable with EDebitPay. AMG Capital was a case 5 about statutory interpretation—whether a provision of the FTC Act authorizing the 6 Commission to obtain a “permanent injunction” based on certain conduct should be 7 understood as also authorizing the Commission to obtain equitable monetary relief 8 pursuant to that provision. 141 S.Ct. at 1344. The Supreme Court made clear that its “task 9 [was] not to decide” whether Congress’s choice of remedies was “desirable. Rather, it 10 [was] to answer a more purely legal question” about how to construe a statute. Id. at 1347. 11 The Court’s ultimate holding was “that § 13(b) as currently written does not grant the 12 Commission authority to obtain equitable monetary relief.” Id. at 1352. This narrow 13 holding is not clearly irreconcilable with EDebitPay because the power to award 14 compensatory sanctions in a civil contempt proceeding—and to do so in an expansive 15 manner that achieves full remedial relief—is not a creature of statute. Rather, it is an 16 inherent equitable power. EDebitPay, 695 F.3d at 945 (“District courts have broad 17 equitable power to order appropriate relief in civil contempt proceedings.”); Pukke, 53 18 F.4th at 103. Thus, even though the 2002 permanent injunction arose from a case in which 19 the FTC was asserting § 13(b) claims (which, per AMG Capital, could not have given rise 20 to an award of equitable monetary remedies), and even though much of the conduct giving 21 rise to the FTC’s request for civil compensatory sanctions in the Contempt Action also 22 underlies the FTC’s § 13(b) claims in the Lead Action (which, per AMG Capital, may not 23 result in an award of equitable monetary remedies), the FTC remains free to seek monetary 24 remedies in the Contempt Action based on that conduct. Pukke, 53 F.4th at 105-06 (“The 25 Supreme Court’s holding in AMG does indeed render invalid the $120.2 million equitable 26 monetary judgment, at least to the extent that judgment rests on Section 13(b). Vacating 27 that judgment does not help Pukke, however, because he already has a $120.2 million 28 judgment against him for contempt of the telemarketing injunction . . . . [T]he $120.2

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1 million order can be upheld under the contempt judgment, so AMG does not in fact change 2 the bottom line.”). See generally McComb, 336 U.S. at 193 (“We can lay to one side the 3 question whether the Administrator, when suing to restrain violations of the Act, is entitled 4 to a decree of restitution for unpaid wages. We are dealing here with the power of a court 5 to grant the relief that is necessary to effect compliance with its decree. The measure of 6 the court’s power in civil contempt proceedings is determined by the requirements of full 7 remedial relief.”); FTC v. Hewitt, 2023 WL 3364496, *2, *4, *6-7 (9th Cir. 2023) 8 (characterizing AMG Capital as a case addressing “the statutory validity of . . . equitable 9 monetary relief,” noting that the scope of available “injunctive relief [is] unaffected by 10 AMG,” and acknowledging the FTC’s argument that, even after AMG Capital, there 11 remains “the potential for materially similar relief under alternative remedial pathways”).58 12 This leaves the other potential problem with the FTC’s methodology that the Court 13 flagged in the March 2022 order—whether an offset is required for the value of the 14 products and services that purchasers received. Having considered the parties’ extensive 15 briefing on this topic, the Court once again finds itself persuaded by the FTC’s arguments 16 and concludes that the concerns raised in the March 2022 order were unfounded. Unlike 17 the conduct that violated the Merchandise Rule and the Cooling-Off Rule, the conduct that 18 violated the 2002 permanent injunction (i.e., operating a prohibited marking 19 scheme/pyramid scheme and making false income representations) and now gives rise to 20 the request for compensatory contempt sanctions was pervasive and went to the heart of 21 consumers’ purchasing decisions. This means that, for purposes of evaluating the resulting 22 injury and harm, such consumers may be treated like the victims who bought the rhinestone 23 in the Figgie hypothetical. That is, such consumers “should have the opportunity to get all 24 of their money back. We would not limit their recovery to the difference between what 25 they paid and a fair price for rhinestones.” Figgie, 994 F.2d at 606. 26 58 27 Similarly, Liu v. SEC, 140 S. Ct. 1936 (2020), and Kokesh v. SEC, 581 U.S. 455 (2017), are not clearly irreconcilable with EDebitPay because they are statutory 28 interpretation cases, not cases about the federal courts’ inherent authority to impose compensatory sanctions in civil contempt proceedings.

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1 Courts have repeatedly concluded that when the FTC makes the type of showing in 2 a civil contempt action that it has made here—that is, a clear and convincing showing of a 3 pattern or practice of contumacious conduct—the defendants’ revenues should serve as the 4 baseline for the resulting compensatory sanction. See, e.g., FTC v. BlueHippo Funding, 5 LLC, 762 F.3d 238, 245 (2nd Cir. 2014) (“[I]n the context of a contempt action arising out 6 of violations of a promise to refrain from misrepresentations concerning material terms or 7 omissions of material terms, we hold that the calculation of the appropriate measure of loss 8 begins with the defendants’ gross receipts derived from such contumacious conduct.”) 9 (citations and internal quotation marks omitted); FTC v. Kuykendall, 371 F.3d 745, 764-65 10 (10th Cir. 2004) (“When the FTC brings a civil contempt action to compensate injured 11 consumers . . . [and] has shown through clear and convincing evidence that defendants 12 were engaged in a pattern or practice of contemptuous conduct, the district court may use 13 the defendants’ gross receipts as a starting point for assessing sanctions. . . . To the extent 14 the large number of consumers affected by the defendants’ deceptive trade practices creates 15 a risk of uncertainty, the defendants must bear that risk.”) (citations omitted); McGregor v. 16 Chierico, 206 F.3d 1378, 1388-89 (11th Cir. 2000) (same). See also FTC v. Trudeau, 579 17 F.3d 754, 771-72 (7th Cir. 2009) (“Consumer loss is a common measure for civil sanctions 18 in contempt proceedings and direct FTC actions. Indeed, some courts, including ours, have 19 held that in certain cases consumer loss is a more appropriate measure than ill-gotten gains. 20 . . . [I]n the abstract, more than one measure could be reasonable; the circumstances of the 21 case will dictate which is most appropriate.”) (citations omitted). 22 The Ninth Circuit has cited these decisions with approval. EDebitPay, 695 F.3d at 23 945. The Court perceives no legal, factual, or equitable reason not to follow them here.59 24 25 59 To the extent the Contempt Defendants’ briefing can be understood as suggesting that the Contempt Defendants’ compensation should be used as an alternative baseline for 26 damages, the Court rejects that approach because it would fail to provide adequate compensation to those harmed by their conduct. As noted, Agarwal calculated Defendants’ 27 overall compensation to be about $1.7 million, consisting of about $582,000 to Noland, about $404,000 to Lina Noland, about $450,000 to Harris, and about $251,000 to Sacca. 28 (Tr. 798-99.) A compensatory civil sanction of only $1.7 million would be insufficient to remedy the widespread harm here.

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1 Thus, the starting point for the monetary award in the Contempt Action is $7,306,873.14, 2 which represents the revenues from SBH, VOZ Travel, and ticket sales. The Contempt 3 Defendants, in turn, bear the burden of proving any offsets from that baseline. See, e.g., 4 BlueHippo, 762 F.3d at 245 (“After the court uses the defendants’ gross receipts as a 5 baseline for calculating damages, the court must permit the defendants to put forth evidence 6 showing that certain amounts should offset the sanctions assessed against them.”) (cleaned 7 up); Kuykendall, 371 F.3d at 766-67 (“[W]hen the FTC has proven a pattern or practice of 8 contemptuous conduct at the liability stage by clear and convincing evidence, a 9 presumption arises that allows the district court to use all revenue attributable to the 10 contemptuous conduct—the gross receipts from consumers—as a baseline for assessing 11 sanctions. The defendants may then put forth evidence showing offset is required because 12 certain consumers received refunds or were satisfied with their purchases.”).60 13 The Contempt Defendants have not met that burden here. The analysis as to VOZ 14 Travel is simple. No offset is required because VOZ Travel purchasers never received 15 anything. The Court acknowledges some VOZ Travel purchasers, who were obviously 16 sympathetic to the defense, testified at trial they would rather receive a replacement product 17 than a refund if given the option. (See, e.g., Tr. 1823, 1954.) The Court found this 18 testimony hard to believe and unpersuasive. 19 Although the analysis concerning SBH products is a bit closer, the Contempt 20 Defendants still failed to meet their burden. The analysis is closer because at least some 21 individuals (like some of the affiliate witnesses at trial) genuinely enjoyed consuming SBH 22 products and believed they were deriving value from doing so. The Court has thus 23 struggled to determine how, if at all, to account for that value in the offset analysis. 24 60 In FTC v. Commerce Planet, Inc., 815 F.3d 593 (9th Cir. 2016), the Ninth Circuit 25 endorsed the same approach for purposes of calculating an equitable monetary award based on a violation of section 13(b) of the FTC Act. Id. at 604 (“If the FTC makes the required 26 threshold showing, the burden then shifts to the defendant to show that the FTC’s figures overstate the amount of the defendant’s unjust gains. Any risk of uncertainty at this second 27 step ‘fall[s] on the wrongdoer whose illegal conduct created the uncertainty.’”) (citation omitted). Although such awards are, of course, no longer available following AMG 28 Capital, nothing in AMG Capital casts doubt on the viability of the burden-shifting methodology that the Ninth Circuit approved in Commerce Planet.

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1 Ultimately, the outcome turns on the burden of proof—it was the Contempt Defendants’ 2 burden to develop some reasoned or quantifiable way to account for that value in the offset 3 calculus and they failed to do so. Just as the FTC took a risk, with respect to its § 19 claim 4 for damages based on the Rules violations, by seeking to rely on an all-or-nothing 5 methodology to meet its initial burden of proof, the Contempt Defendants took a risk by 6 seeking to meet their burden of proof by advancing the all-or-nothing theory that because 7 some purchasers derived some value from consumption, there can be no monetary award 8 to anyone. This theory is overbroad and unpersuasive for the reasons stated by the FTC: 9 “In effect, when Defendants sold products or training, they actually sold (1) the product or 10 service itself and (2) the promise that substantial income would follow. But consumers 11 received the product or service alone, without any realistic chance at financial success. . . . 12 As in Figgie, consumers thought they were buying diamonds, but received rhinestones.” 13 (Lead Action, Doc. 528 at 186 ¶ 142.) Courts have refused to provide an offset in 14 analogous circumstances. See, e.g., Kuykendall, 371 F.3d at 766 (refusing to “offset gross 15 receipts by the value of the magazines the consumers received”); McGregor, 206 F.3d at 16 1388-89 (refusing to offset revenues from fraudulent sale of printer toner by value of the 17 printer toner); Trudeau, 579 F.3d at 773 n.16 (“[T]he award amount need not be reduced 18 by the ‘value’ of the books.”). 19 The offset analysis concerning training events is essentially the same. The affiliates 20 who were called as defense witnesses at trial testified that they enjoyed attending the 21 training events and believed they were deriving some value from attending. The Court also 22 notes that a market existed for Noland’s training and motivational services before he even 23 started SBH. (See, e.g., Tr. 1503, 2119 [discussing Zija training].) Thus, the Court accepts 24 that the training events had some inherent value.61 However, the Contempt Defendants 25 made no effort to disaggregate that value from the overall price that purchasers paid, which 26 27 61 There is no tension between this conclusion and Miles’s testimony that affiliates who bought training lost more money in relation to SBH than those who didn’t. (Tr. 309- 28 10.) That calculation makes no effort to account for the value of the training being received.

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1 was inflated due to their contumacious conduct. Thus, they failed to meet their burden. 2 Finally, although the Contempt Defendants did not suggest that such a procedure 3 should be utilized here, the Court notes that some courts have attempted to account for the 4 windfall problem in FTC actions by requiring the FTC to administer a post-judgment 5 process in which affected consumers who wish to obtain a full refund must physically 6 return the offending product. Figgie, 994 F.2d at 606 (“The district court’s order creates 7 no windfall for Figgie’s customers. Refunds are available to those buyers ‘who can make 8 a valid claim for such redress’ . . . . Those consumers who decide, after advertising which 9 corrects the deceptions by which Figgie sold them the heat detectors, that nevertheless the 10 heat detectors serve their needs, may then make the informed choice to keep their heat 11 detectors instead of returning them for refunds.”); QYK Brands, 2022 WL 3138761 at *10 12 (“[G]iven that some customers may have been satisfied with their hand sanitizer orders 13 even if delayed the Court prefers to implement a redress plan requiring customers to make 14 refund requests rather than receiving the funds outright. The FTC is to hold this sum in an 15 escrow account, and Defendants’ customers may seek refunds directly from the FTC. 16 Funds must be returned to Defendants, less the FTC’s costs to administer the refund 17 process, if they remain unclaimed 120 days after consumers are notified.”). Although the 18 Court alluded to the possibility of such a process in the November 2021 order (Lead Action, 19 Doc. 438), the FTC has now persuasively explained why such a process is unnecessary 20 here: “SBH products—perishable goods that are at least three years-old and live ‘training’ 21 courses—are effectively unreturnable.” (Lead Action, Doc. 528 at 188 ¶ 147.) 22 VII. Injunctive Relief 23 A. Legal Standard 24 Section 13(b) of the FTC Act authorizes federal courts to grant permanent injunctive 25 relief in response to FTC Act violations. AMG Capital, 141 S. Ct. at 1348-49. 26 “[I]njunctive relief is appropriate when there is a cognizable danger of recurrent 27 violation, something more than the mere possibility.” John Beck Amazing Profits LLC, 28 888 F. Supp. 2d at 1012. See generally United States v. W.T. Grant Co., 345 U.S. 629, 633

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1 (1953) (“[T]he moving party must satisfy the court that relief is needed. The necessary 2 determination is that there exists some cognizable danger of recurrent violation . . . .”). 3 Relevant factors in evaluating the risk of recurrent violations include “the degree of scienter 4 involved; the isolated or recurrent nature of the infraction; the defendants’ recognition of 5 the wrongful nature of his conduct; the extent to which the defendants’ professional and 6 personal characteristics might enable or tempt him to commit future violations; and the 7 sincerity of any assurances against future violations.” United States v. Laerdal Mfg. Corp., 8 73 F.3d 852, 854-55 (9th Cir. 1995) (citation omitted). 9 If injunctive relief is shown to be appropriate, the scope of the injunction should “be 10 framed broadly enough to prevent respondents from engaging in similarly illegal practices 11 in [the] future.” FTC v. Grant Connect, LLC, 763 F.3d 1094, 1105 (9th Cir. 2014) (cleaned 12 up). Courts are “not limited to prohibiting the illegal practice in the precise form in which 13 it is found to have existed in the past. And those caught violating the FTC Act must expect 14 some fencing in.” Id. (cleaned up). The relevant factors bearing on the scope of the 15 injunction include “(1) the seriousness and deliberateness of the violation; (2) the ease with 16 which the violative claim may be transferred to other products; and (3) whether the 17 respondent has a history of prior violations.” Id. (cleaned up). “The weight given a 18 particular factor or element will vary. The more egregious the facts with respect to a 19 particular element, the less important it is that another negative factor be present. In the 20 final analysis, we look to the circumstances as a whole and not to the presence or absence 21 of any single factor.” Sears, Roebuck and Co. v. FTC, 676 F.2d 385, 392 (9th Cir. 1982). 22 B. Cognizable Danger Of Future Violations 23 1. The Parties’ Arguments 24 The FTC argues that injunctive relief is necessary here because all of the relevant 25 factors show that there is a cognizable danger of future violations. (Lead Action, Doc. 528 26 at 202-05; Lead Action, Doc. 532 at 31-33.) First, as for scienter, the FTC argues that 27 Defendants “knowingly and intentionally lied about consumers’ income potential in SBH” 28 despite having “access to information showing affiliates’ actual results,” also “knowingly

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1 and intentionally lied about their financial status,” and then engaged in “particularly 2 egregious” misconduct in relation to VOZ Travel by “promis[ing] travel benefits that they 3 knew did not exist, and continu[ing] to do so even after they lost the ability to provide any 4 travel service at all.” (Id.) Second, as for whether the violations were isolated or recurrent, 5 the FTC argues they were recurrent because they “permeated” Defendants’ operations over 6 a multi-year period. (Id.) Third, as for the lack of recognition of wrongdoing, the FTC 7 argues that Defendants “have denied doing anything wrong, instead casting blame at nearly 8 anyone around them using conspiracy theories.” (Id.) Fourth, as for Defendants’ 9 professional characteristics, the FTC argues that those characteristics favor injunctive relief 10 because “since the TRO, [Defendants] have attempted to continue their SBH and VOZ 11 schemes. Noland and Harris both participated in Equinox in the 1990s, a company sued 12 by the FTC and found likely to be a pyramid scheme at a preliminary injunction hearing. 13 Noland, of course, later settled the FTC’s claims against him for participating in a second 14 pyramid scheme, Bigsmart. Sacca and Lina Noland also have lengthy histories in 15 multilevel marketing, enabling them to return to the same misconduct at issue here. In 16 2017, Harris was found to have violated a prior California cease and desist order not to 17 make misleading claims or sell securities.” (Id.) The FTC also points to the spoliation- 18 related conduct as illustrative of the need for injunctive relief. 19 Defendants argue that injunctive relief is unnecessary because there is no cognizable 20 danger of future violations. (Lead Action, Doc. 529 at 80-81; Lead Action, Doc. 532 at 21 82-83.) Defendants contend that the FTC could have avoided this entire controversy by 22 accepting their attorney’s offer, at the outset of the investigation, to inspect their books and 23 records and that the FTC instead allowed itself to be manipulated by the complaining 24 witnesses. (Id.) 25 2. Analysis 26 The Court has no doubt that injunctive relief is necessary and appropriate here. 27 Even if the analysis were confined to the four corners of SBH and VOZ Travel, all 28 of the relevant factors would support a finding that Defendants pose a significant risk of

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1 future violations. The sheer volume of deceptive tactics and statements associated with 2 those businesses provides unmistakable evidence of scienter and shows that the violations 3 were not isolated, but recurrent. Some of the details associated with VOZ Travel are 4 particularly outrageous. Also outrageous were some of the wealth-related representations, 5 including the video about the house in Panama that is discussed in more detail elsewhere 6 in this order. Nor have Defendants displayed any meaningful recognition of wrongdoing. 7 To the contrary, they have denied any fault—Noland flatly denied making any “statement 8 while [he was] running SBH and VOZ Travel that was deceptive or misleading” (Tr. 9 1623)—while seeking to assign all of the blame for their current predicament to the FTC, 10 or the Court, or the receiver, or the complaining witnesses. For a time, Defendants even 11 falsely sought to portray the FTC’s expert as a Ku Klux Klan sympathizer in an effort to 12 undermine her conclusions. (Lead Action, Doc. 224 at 19.) 13 Even the little details of SBH and VOZ Travel suggest that Defendants pose a 14 significant risk of future violations. Although the Rules violations in this case may not 15 provide an independent pathway to meaningful monetary awards, they are concerning. 16 Defendants ignored—and in some cases, directly violated—important regulatory 17 requirements meant to protect consumers. Also concerning was the testimony that SBH’s 18 then-head of sales believed it was appropriate to make health claims about SBH’s products 19 so long as they were passed off as “coincidences.” Similarly concerning was the testimony 20 that two top SBH affiliates used their own health clinic to run a self-interested study 21 intended to establish the health benefits of SBH’s products, were eventually indicted on 22 federal fraud charges, and were allowed to remain in their positions post-indictment. Then 23 there was the testimony about SBH’s lack of insurance and use of FDA-banned ingredients, 24 which the receiver discovered after she was appointed. It is difficult to hear all of those 25 details and conclude that Defendants could be trusted to run a future MLM business in 26 compliance with the law. 27 More important, the analysis here is not confined to the four corners of SBH and 28 VOZ Travel. The Contempt Defendants engaged in all of the misconduct described above

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1 while laboring under the shadow of the 2002 permanent injunction. One might have 2 expected the looming threat of contempt sanctions to nudge the Contempt Defendants to 3 err on the side of caution. They did not. Instead, they (among other things) adopted 4 compensation structures for SBH and VOZ Travel that were facially illegal in light of how 5 the 2002 permanent injunction defined the term “prohibited marketing scheme.” Given 6 Defendants’ utter disregard for the obligations created by the 2002 permanent injunction, 7 it is difficult to assign any sincerity to their assurances that, if allowed to resume control 8 over SBH and VOZ Travel (and/or operate another MLM in the future), they will 9 implement new processes and oversight structures and rely on new technologies (such as 10 DocuSign or retail tracking apps) to ensure compliance with the law. Although the Court 11 appreciates the time and effort that went into crafting the proposed new versions of the 12 affiliate agreement and commission plan that Defendants presented at trial (Exs. 1006, 13 1007), those documents are just words on a page in the absence of any belief that 14 Defendants can be trusted to faithfully abide by and implement them. 15 Noland’s conduct in relation to the 2002 permanent injunction is particularly 16 concerning. He did not disclose the 2002 permanent injunction to Mehler (SBH’s one- 17 time head of sales), may have mischaracterized the scope of the 2002 permanent injunction 18 to Sacca (one of SBH’s senior field advisors), and installed Harris as his other main senior 19 field advisor after learning that Harris was subject to various cease-and-desist orders issued 20 by state regulatory agencies regarding compliance failures in earlier businesses. This is 21 hardly a serious approach toward compliance and amplifies the Court’s doubts about 22 whether Defendants could be trusted to follow the law in relation to a future MLM. 23 Defendants’ post-TRO conduct also raises concerns about their willingness and 24 capacity to comply with the law. After being served with the TRO on January 13, 2020, 25 Defendants did not comply with the requirement that they immediately provide a copy to 26 each affiliate. Instead, Noland broadcasted a six-minute statement to SBH affiliates that 27 didn’t mention the TRO but touted Defendants’ honest and integrity. There is also 28 evidence that Noland fabricated the ECF royalty agreement. Once again, such conduct

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1 goes to the heart of whether Defendants pose a cognizable danger of future violations. 2 Finally, the analysis regarding the risk of future violations would not be complete 3 without cross-referencing the acts of dishonesty related to spoliation that are summarized 4 earlier in this order. Those acts include destroying evidence, violating court orders, giving 5 false under-oath testimony, and taking no accountability for the misconduct after being 6 caught. 7 C. Scope Of Injunctive Relief 8 1. The Parties’ Arguments 9 The scope of the injunctive relief sought by the FTC is expansive. (Lead Action, 10 Doc. 528 at 205-11; Lead Action, Doc. 532 at 79-82.) “[T]he FTC seeks to enjoin the 11 Defendants from: (1) participating in multi-level marketing programs, (2) participating in 12 Ponzi or chain referral schemes, (3) making any material misrepresentations or 13 unsubstantiated claims in connection with the sale of good or services, (4) failing to 14 monitor compliance with the injunction and failing to investigate consumer complaints, (5) 15 participating in the sale of ‘business coaching’ services, (6) violating terms based on the 16 FTC’s Merchandise Rule, and (7) violating terms based on the FTC’s Cooling-Off Rule.” 17 (Id.) The FTC also seeks “compliance reporting and monitoring provisions based on the 18 FTC standard template that courts regularly issue.” (Id.) 19 Defendants take issue with the scope of the injunctive relief sought by the FTC. 20 (Lead Action, Doc. 529 at 81-84; Lead Action, Doc. 532 at 82-86.) As an initial matter, 21 Defendants argue that expansive injunctive relief is unwarranted because “[l]ike any new, 22 expanding organization, SBH made mistakes but substantially complied with the spirit, if 23 not the letter of various rules and regulations.” (Id.) Defendants also note that their 24 proposed new versions of the affiliate agreement and commission plan address many of the 25 practices that were challenged at trial, by (for example) allowing refunds, addressing 26 shipping delays, bolstering income disclaimers, and requiring affiliates to DocuSign all of 27 the terms and conditions. (Id.) More broadly, Defendants argue that “[p]ermanent bans 28 on business activities likely violate the First and Fifth Amendments to the United States

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1 Constitution by denying defendants . . . their right to associate, enter into contracts and 2 engage in protected commercial speech.” (Id.) Defendants add: “Noland contends that he 3 was misled into signing the 2002 Order. Regardless, the mere fact that a person reluctantly 4 entered into a settlement agreement without any admission of wrong-doing made a mistake 5 twenty (20) years ago does not warrant a permanent ban that deprives them of their right 6 to commercial speech and make a living as a motivational speaker and sales coach.” (Id.) 7 2. Analysis 8 The Court agrees, in nearly all respects, with the FTC’s arguments regarding the 9 scope of injunctive relief. 10 As an initial matter, all of the relevant factors support the imposition of expansive 11 relief. First, the violations at issue here were serious and deliberate. Second, it would be 12 quite easy for Defendants to transfer the violative conduct to other products. Shortly before 13 launching SBH, Noland claimed he could “plug any company or product into [his] process, 14 and you can be free financially if you want to be.” (Ex. 51 at 19:4-6.) When SBH began 15 to falter, Defendants started another pyramid scheme, VOZ Travel, that featured the same 16 deceptive income claims and commission structure. And since this case began, Defendants 17 have attempted to launch what are in many respects new versions of SBH (Vibra360) and 18 VOZ Travel (TravelNU).62 Third, although no court has previously ruled that Defendants 19 violated the FTC Act, Defendants have shown a propensity to violate court and 20 administrative orders. Additionally, the Contempt Defendants violated multiple provisions 21 of the 2002 permanent injunction, all Defendants violated certain provisions of the TRO, 22 and the various forms of spoliation-related misconduct discussed in this order violated an 23 array of court orders. 24 As for the seven specific categories of injunctive relief sought by the FTC, four 25 26 62 Defendants’ post-lawsuit efforts to promote “Confidence Tones,” which are auditory sounds that purport to relieve aches and pains, lower blood pressure, and induce 27 weight loss, are also concerning. After being appointed to run SBH, the receiver expressed concern over Defendants’ inability to substantiate some of the health claims associated 28 with SBH’s products. It is unclear whether Defendants are able to substantiate the health claims associated with “Confidence Tones.”

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1 seem uncontroversial and obvious. Those are the requests to enjoin Defendants from 2 “participating in Ponzi or chain referral schemes,” “making any material 3 misrepresentations or unsubstantiated claims in connection with the sale of good or 4 services,” “violating terms based on the FTC’s Merchandise Rule,” and “violating terms 5 based on the FTC’s Cooling-Off Rule.” These are simply requests to preclude Defendants 6 from engaging in conduct that is already improper and Defendant did not specifically 7 challenge these requests in their trial filings or during trial. 8 Also uncontroversial are the FTC’s fifth requested category of injunctive relief, 9 which is to enjoin Defendants from “failing to monitor compliance with the injunction and 10 failing to investigate consumer complaints,” and the FTC’s request to impose “compliance 11 reporting and monitoring provisions based on the FTC standard template that courts 12 regularly issue.” These requests would not bar Defendants from engaging in any particular 13 line of work and would simply create procedural tools for monitoring compliance (which 14 are warranted here in light of Defendants’ track record of non-compliance with the law). 15 Defendants did not challenge these requests in their trial filings or during trial. 63 See 16 generally FTC v. Think Achievement Corp., 144 F. Supp. 2d 1013, 1018 (N.D. Ind. 2000) 17 (“Courts may order record-keeping and monitoring to ensure compliance with a permanent 18 injunction.”). 19 This leaves the FTC’s two remaining categories of requested injunctive relief—to 20 bar Defendants from “participating in multi-level marketing programs” and from 21 “participating in the sale of ‘business coaching’ services.” The Court agrees with the FTC 22 that the former is legally and factually warranted. Although “[n]ot all MLM businesses 23 are illegal pyramid schemes,” BurnLounge, 753 F.3d at 883, Defendants have shown 24 themselves to be utterly incapable of operating an MLM business in a lawful manner. 25 “[C]ourts have routinely imposed some form of fencing in, barring violators from 26 participating in certain lines of business or forms of marketing.” John Beck Amazing 27 63 To the contrary, during closing argument, defense counsel stated that any 28 “injunctive relief” should involve “liberal checkups by the FTC” to ensure compliance with the proposed new affiliate agreement and commission plan. (Tr. 2192-93.)

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1 Profits, 888 F. Supp. 2d at 1011. In particular, courts have found it appropriate to bar 2 defendants from engaging in the MLM industry based on conduct that is similar to the 3 conduct at issue here. Five-Star Auto Club, Inc., 97 F. Supp. 2d at 536 (“[B]road injunctive 4 relief against Michael Sullivan, including a prohibition on all multi-level marketing is 5 appropriate. After participating in numerous multi-level marketing schemes, Mr. Sullivan 6 developed, owned and operated his own multi-level marketing scheme that was deceptive 7 to its core. . . . Moreover, throughout the pendency of this litigation, Mr. Sullivan has 8 ignored this Court’s orders.”). More broadly, courts have found industry-wide bans 9 appropriate where defendants made “systematic . . . misrepresentations” and “continuously 10 ignored and violated both [a statute] and the preliminary injunction,” such that “giving 11 Defendants another chance might prove to be unwise.” Gill, 265 F.3d at 957. See also 12 FTC v. Shkreli, 581 F. Supp. 3d 579, 639-49 (S.D.N.Y. 2022) (acknowledging that 13 “[b]anning an individual from an entire industry and limiting his future capacity to make a 14 living in that field is a serious remedy and must be done with care and only if equity 15 demands” but concluding that such relief was warranted in light of the defendant’s 16 “egregious, deliberate, repetitive, long-running, and ultimately dangerous illegal conduct” 17 and rhetorically asking “[i]f not now, when?”).64 18 In contrast, the Court is unwilling to bar Defendants from participating in the sale 19 of business coaching services. Although the Court reaches this conclusion with some 20 reluctance—the training events played an important role in the propagation of the illegal 21 schemes in this case, and some of the details regarding Defendants’ post-TRO businesses 22 are concerning and unsavory—it is no small thing to impose a lifetime ban on an 23 individual’s ability to earn a livelihood in a particular industry. The Court is hopeful that 24 the prohibition against participating in the MLM industry—which, to be clear, extends to 25 64 26 In reaching this conclusion, the Court notes that it gave separate consideration to whether each individual Defendant should be enjoined from participating in an MLM 27 business and concluded that each should be enjoined. Although Sacca, Harris, and Lina Noland did not engage in the same volume of misconduct as Noland, the bottom line is that 28 each Defendant proved himself or herself incapable of being trusted to operate an MLM business in a lawful manner.

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1 providing business coaching services on behalf of MLMs, regardless of whether those 2 MLMs are owned or operated by Defendants—strikes the correct balance between 3 protecting consumers and allowing Defendants to earn a living. 4 Finally, there is no merit to Defendants’ contention that the injunctive relief being 5 imposed here would run afoul of the First and Fifth Amendments. To support their position 6 that “the Court cannot completely ban a company or an individual from engaging in lawful 7 speech about a commercial business venture” without violating the First Amendment (Doc. 8 532 at 85), Defendants cite Bigelow v. Virginia, 421 U.S. 809 (1975), and Virginia State 9 Board of Pharmacy v. Virginia Citizens Consumer Counsel, 425 U.S. 748 (1976). But 10 those cases do not address the scope of prospective injunctive relief that may be imposed 11 against a transgressor who has been shown to have engaged in illegal conduct. Bigelow, 12 421 U.S. at 829 (holding that the First Amendment precluded the imposition of criminal 13 liability against a newspaper editor for publishing an advertisement for abortion, which 14 was legal in Virginia at the time); Virginia State Board of Pharmacy, 425 U.S. at 762 15 (holding that the First Amendment protected a pharmacist’s right to advertise prescription 16 drugs). Numerous courts, including the Supreme Court, have recognized that it is 17 permissible, in appropriate circumstances, to impose prospective injunctive relief that bars 18 a party from engaging in conduct that would otherwise be protected by the First 19 Amendment. See, e.g., Nat. Soc. Of Pro. Eng’rs v. United States, 435 U.S. 679, 697-98 20 (1978) (“Having found the Society guilty of a violation of the Sherman Act, the District 21 Court was empowered to fashion appropriate restraints on the Society’s future activities 22 both to avoid a recurrence of the violation and to eliminate its consequences. . . . The First 23 Amendment does not ‘make it . . . impossible ever to enforce laws against agreements in 24 restraint of trade . . . .’ In fashioning a remedy, the District Court may, of course, consider 25 the fact that its injunction may impinge upon rights that would otherwise be constitutionally 26 protected, but those protections do not prevent it from remedying the antitrust violations.”) 27 (citations omitted); FTC v. Shkreli, 2022 WL 336973, *3 (S.D.N.Y. 2022) (“While First 28 Amendment rights deserve of great protection, Shkreli’s violations of the antitrust laws

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1 have lost for him the right to speak publicly about the pharmaceutical industry when such 2 speech is uttered to influence the management or business of a Pharmaceutical 3 Company.”). 4 As for the Fifth Amendment, Defendants concede that “[a] permanent ban may be 5 possible under the Fifth Amendment” but argue that such a ban would be impermissible 6 “in this case” because “the mere fact that a person reluctantly entered into a settlement 7 agreement without any admission of wrong-doing made a mistake twenty (20) years ago 8 does not warrant a permanent ban that deprives them of their right to commercial speech 9 and make a living as a motivational speaker and sales coach.” (Doc. 532 at 85-86.)65 But 10 Noland’s reluctance to enter into the 2002 permanent injunction is no defense to the 11 voluminous array of subsequent misconduct that now gives rise to the need for enhanced 12 injunctive relief.66 13 Accordingly, 14 IT IS ORDERED that within 14 days of the issuance of this order, the FTC shall 15 file an updated version of the proposed “Final Order of Permanent Injunction and Monetary 16 Judgment” (Lead Action, Doc. 530-1) that it filed before the bench trial. The changes shall 17 be limited to conforming the proposed order to the rulings set forth in this order. The FTC 18 shall also file a redlined version of the new document that reflects the changes from the 19 previous version. 20 … 21 … 22 … 23 65 Defendants also cite FTC v. Cardiff, 2021 WL 3616071 (C.D. Cal. 2021), to argue 24 against a permanent ban. But in Cardiff, although the Court held that “the Cardiffs’ participation in the manufacture and distribution of thinstrip products is not categorically 25 banned,” it did impose “a ban on the Cardiffs’ participation in any direct-to-consumer sales of thinstrip products.” Id. at *7. The Court has followed a similar approach here, by 26 barring MLM participation while allowing Defendants to participate in business coaching. 66 27 The Court wishes to emphasize that the conclusions reached in this order should not be viewed, in any way, as a criticism of defense counsel’s performance during the bench 28 trial. In the Court’s estimation, defense counsel (who first appeared during the late stages of the case) did an admirable job in a difficult case.

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1 IT IS FURTHER ORDERED that within 14 days of the issuance of this order, the 2 FTC shall file a notice concerning how it intends to proceed on its stayed claims in the 3 Lead Action against the Corporate Defendants. (Lead Action, Doc. 473 at 13 [“The 4 Corporate Defendants will continue to be represented by the receiver’s counsel of choice, 5 but the FTC’s claims against the Corporate Defendants will be stayed (both in this action 6 and the contempt action, CV 00-2260) pending the resolution of the FTC’s claims against 7 the Individual Defendants in both actions.”].) 8 Dated this 11th day of May, 2023. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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