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Sunday, November 17, 2019

Nerium lawsuit: Block FTC from 'rewriting' law to shut down legal companies as 'pyramid schemes'

Federal Court

By Jonathan Bilyk | Nov 1, 2019

Nerium jeff olson
Neora founder Jeff Olson | Youtube screenshot

Saying the federal agency has “unilaterally” rewritten federal law to relabel legal multi-level marketing companies as illegal “pyramid schemes,” the company formerly known as Nerium International, which has been targeted in recent years  by the Federal Trade Commission, has fired back in court, seeking an order to block the FTC from continuing to “bully” Nerium and other companies like it.

On Nov. 1, Neora LLC, formerly known as Nerium, and its founder, Jeffrey Olson, filed suit in Chicago federal court, asking the judge to declare their business is not a “pyramid scheme” and bar the FTC from pursuing a “civil administrative enforcement proceeding” against companies like Neora/Nerium that it says are considered legal under state laws.

“MLMs are legal in the United States,” Neora/Nerium wrote in its complaint. “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…”

In recent years, the FTC has stepped up oversight of so-called MLMs, with the agency taking actions against some it has defined as illegal pyramid schemes. Under such schemes, businesses reap large sums of money through recruiting networks of so-called independent sales consultants.

Under both MLMs and pyramid schemes, the recruitment usually targets ordinary people who respond to claims concerning the ability to earn income by selling products to family and friends, and by recruiting other sales consultants to work beneath them in a top-down chain.

However, under pyramid schemes, the FTC said those sales consultants primarily earn money from recruiting other sales consultants, and not from selling products.

In January, for instance, the FTC settled with Texas-based AdvoCare, a company it had accused of running a pyramid scheme, for $150 million and an agreement the company would not engage in multi level marketing again.

It was the FTC’s largest MLM oversight action since the agency settled Herbalife for $200 million.

Nerium has also drawn interest from the agency in recent years, particularly after consumer information site TruthInAdvertising.org filed a complaint against Nerium in 2016.

Earlier this year, in keeping with a settlement to a legal action brought by the company that originally made Nerium-branded products, Nerium Biotechnology, Nerium International changed its name to Neora.

In its new complaint, Neora has accused the FTC of continuing its oversight actions against it and other MLM companies, despite an executive order issued by President Donald Trump which blocks federal regulatory agencies from subjecting American individuals and companies to “a civil administrative enforcement action or adjudication” without first going through the federal process for making new federal regulatory enforcement rules and providing public notice so businesses can “know in advance the rules by which the Federal Government will judge their actions.”

The Neora complaint accuses the FTC of intentionally muddying the distinction between what it says are legal MLMs and illegal “pyramid schemes,” by branding every MLM company that pays “incentives … for recruitment of participants” as pyramid schemes.

Neora specifically references the FTC’s creation of a new pyramid scheme test, the complaint calls a “wholly subjective ‘Over-emphasis on recruiting’” test.

Neora said the FTC has rejected federal court decisions against it, and has moved to “fence in” MLM compensation programs to “only allow commission payments to the business opportunity participant who actually makes the product sale and perhaps only one person above the seller (thus eliminating the ‘multi’ from multi-level marketing).”

Neora said the FTC has used the allegedly new, unilateral standards to “threaten to ban MLMs such as Nerium from the MLM industry if they did not agree to ‘fencing in’ changes in their business operations that are not required by law.”

Neora said the FTC’s actions amounted to a decision 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 federal law.

Neora/Nerium is represented in the action by attorneys Frank E. Pasquesi, Jena Levin, Ed Burbach, Robert F. Johnson, Jay Varon and Christopher M. Kise, of the firm of Foley & Lardner, with offices in Chicago; Austin, Texas; Washington, D.C.; and Tallahassee, Fla.

 

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Organizations in this Story

U.S. Federal Trade Commission U.S. District Court for the Northern District of IllinoisNERIUM INTERNATIONALFOLEY & LARDNER LLP

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