Neora And Jeff Olson Sue The FTC
Now that the FTC is taking action against Neora and Jeff Olson. Jeff Olson has decided to sue the FTC. This should be interesting.
Here are the details of the lawsuit:
A business cannot operate without being able to know the law. Improper attempts to retroactively change federal law and to effectively preempt state law are unconstitutional. This is especially pernicious when a powerful federal government agency such as the FTC attempts to improperly, unilaterally, and retroactively change the law. The FTC has not done this with passage of a new law by Congress or through the agency’s own formal Rulemaking. On the contrary, it has done this through issuance of “Guidance,” similar documents, press conferences, and through the threat of filing “fencing in” enforcement actions. This behavior of the FTC is precisely the behavior that the President prohibited in his October 9, 2019 Executive Orders. The Executive Orders are premised on the stated principle that “Regulated parties must know in advance the rules by which the Federal Government will judge their actions.”
The FTC’s ad hoc enforcement actions against MLMs violate the explicit directive: “No person should be subjected to a civil administrative enforcement action or adjudication absent prior public notice of both the enforcing agency’s jurisdiction over particular conduct and the legal standards applicable to that conduct.” Instead, the FTC has engaged in what Acting Director of the Office of Management & Budget (“OMB”) Russ Voight described as “stealth regulation” that results in “people being bullied by their federal government.” Similarly, on November 16, 2017 the U.S. Attorney General issued a memorandum prohibiting Department components from issuing guidance documents that effectively bind the public without undergoing the notice–and-comment rulemaking process.
This complaint tells the story of how the FTC is trying to put an end to a long standing, legitimate, and popular method of making direct sales to consumers: multi-level marketing (“MLM”). The FTC has repeatedly recognized the various attributes of MLMs and that they are legal. For example, MLMs distribute products or services through a network of salespeople who are not employees of the company and do not receive a salary or wage. Instead, members of the company’s salesforce usually are treated as independent contractors, who may earn income depending on their own sales efforts, revenues and expenses. An MLM’s reliance upon its existing salespeople to recruit additional salespeople necessarily creates multiple levels of “distributors” or “participants” organized in “downlines who collectively share in the commissions earned from the sales that are generated.” The FTC has also repeatedly recognized that MLMs are dependent upon the recruitment of new business opportunity participants as their sales force, that paying compensation for product purchases made by the business participant sales force for their own end use is legal, and that most people who join legitimate MLMs make little money, no money, or lose money. Nevertheless, the FTC has now enunciated that these very same features of legitimate MLMs somehow make them illegal pyramid schemes. The FTC also now asserts that “push[ing] distributors to recruit new distributors” (although an indicia of a legal MLM) is an indicia of whether or not an MLM is a pyramid scheme. In short, the FTC now is attempting to enforce an amorphous, vague, undefined, and wholly subjective “Over-emphasis on recruiting” pyramid scheme test. As set forth below, to describe this new test, the FTC has now unilaterally announced, adopted and outlawed the new concepts of “Threshold” compensation, “Convex” compensation, and “Duplication” compensation. All without proper rulemaking.
In the MLM context, the States, the federal government, and the courts have correctly addressed pyramid scheme claims against entities that do not sell legitimate products, but rather concentrate on the sale of their “business opportunity.” Because of the lack of sales of products, pyramid schemes must necessarily fail.
When Plaintiff Jeff Olson launched Plantiff Nerium in 2011 with a compensation plan and business structure designed to comply with state laws (which have been preempted by federal law), federal law, and court decisions, he could not have known that in 2018-2019 Defendant FTC would decide to improperly reinterpret the law on pyramid schemes without proper legislation or rulemaking and, instead, utilize the enormous pressure of its so-called “fencing in” strategy in an attempt to unilaterally and retroactively change the definition of a “pyramid scheme” under the FTC Act. The FTC has been utilizing this “fencing strategy” in an effort to effectively outlaw MLM’s, which are a ubiquitous business in the United States. MLMs are legal in the United States. Literally millions of Americans are participants in MLMs. Hundreds of thousands are or have been participants in Nerium selling over a billion dollars of desired products. Yet, the FTC’s newly announced standards that it seeks to apply to Nerium and Mr. Olson would put virtually all MLMs out of business based on the FTC’s baseless assumption that no incentives can be paid for recruitment of participants even when the MLM makes robust sales to satisfied consumers.
Plaintiffs thus files this suit to reign in the FTC’s actions. Plaintiffs request that the Court declare and issue supporting preliminary and permanent injunctive relief set forth below in the Prayer of this Complaint.
– Source Nerium Complaint
After reading this, you just might want to shed a tear for the poor MLM industry. I don’t. It is an industry that has created countless tears for its victims. I support the FTC taking action.
Maybe we will end up with many of our current MLM scams that are running outlawed because of this lawsuit. We can only hope.