DSA supports pyramid schemes in FTC v. Neora amicus brief
The Direct Selling Association is terrified Neora is going to lose its upcoming FTC trial.
In an amicus brief filed on September 16th, the DSA pleads with the court to consider the ramifications of a pyramid scheme losing to the FTC at trial.
In its amicus brief, the DSA opens by stating it
support(s) the prosecution of illegal pyramid schemes which masquerade as legitimate companies.
Before we move on I just want to address that statement, because the FTC’s case against Neora isn’t all that complicated.
Less than 1% of Neora’s company-wide revenue is derived from retail sales.
We know this because Neora disclosed it to the FTC during their investigation.
Having less than 1% of your sales revenue attributed to retail sales is about as far from pyramid scheme ambiguity as an MLM company can get.
There is no ambiguity and, while nothing is certain, Neora is likely to lose their upcoming trial.
Remarkably the DSA brushes Neora being a pyramid scheme away, advising the court that it “takes no position on the merits of this case.”
Instead, it will focus solely on the ramifications of what could happen if this Court issues a ruling regarding the legality of a pyramid scheme inconsistent with longstanding law and other jurisprudence.
Notwithstanding our vigorous endorsement of the prosecution of illegal pyramids, DSA is concerned that an incorrect or overly broad definition of an illegal pyramid scheme would have significant adverse consequences for DSA’s over 100 companies and a chilling effect on the direct selling business channel.
This boils down to the DSA supporting regulatory action against pyramid schemes without products, but not against pyramid schemes with products.
Over the last thirty years, DSA has worked with state legislatures to support bills that legally define unlawful pyramid schemes in a way that mirrors past FTC and federal judicial guidance.
These laws consistently define an illegal pyramid scheme as an operation that provides compensation derived primarily from recruitment rather than sale of products.
This statement shows just how out of touch the DSA is with the current regulatory environment. Attaching a product to a pyramid scheme hasn’t fooled regulators for well over a decade.
Vemma and Herbalife are the two big examples that come to mind in recent years. Neither case went to court, with both MLM companies settling.
As part of those settlements, both Vemma and Herbalife agreed to make changes to their respective business models.
To further illustrate the harm product-based pyramid schemes do to consumers, over 95% of people who sign up as Neora distributors lose money.
Again, we know this because Neora openly disclosed this to the FTC. There is no ambiguity.
Ultimately, it is that status quo of consumers losing billions of dollars a year to product based pyramid schemes that the DSA seeks to preserve.
Any ruling deeming practices that were previously determined to be legitimate to be suddenly illegitimate would jeopardize consumer confidence and goodwill that legitimate companies have strived so hard to build.
Product-based pyramid schemes aren’t legitimate MLM companies. They’re scams that operate illegally through fraudulent business models.
The DSA warns the court that, if a ruling were to further cement the illegality of product-based pyramid schemes in the US, a “significant percentage” of DSA members are at risk.
Neora is a DSA member.
Due to payday loan scammers prevailing against the FTC in an unrelated Supreme Court case last year, the “AMG decision“, it has already been established that Neora will not pay monetary penalties if they lose their upcoming trial.
As disheartening as that is, the FTC nonetheless seeks to protect consumers from Neora’s pyramid scheme business model.
As stated by the FTC in their late 2019 Complaint against Neora (formerly Nerium);
Since its inception, Nerium has operated as an illegal pyramid scheme.
Unlike a legitimate multi-level marketing business, Nerium’s compensation scheme emphasizes recruiting new BPs over the sale of products to consumers outside of the organization.
Nerium’s business model makes it unlikely that BPs can earn money by selling product to outside consumers in response to genuine demand.
As at June 2022, US consumer losses to scams since the AMG decision are pegged at over $1.5 billion.
The FTC v. Neora trial is scheduled to kick-off on October 17th.
The MLM model inherently defaults to endless-chain recruiting over retailing product.
“Legitimate MLM” is an oxymoron, and the DSA is as corrupt as the companies on their website.
The DSA is the equivalent of having an organization like a ”Bank Robbers Association” or a “Dangerous Gang Members of America” club.
Bah. DSA had always been an industry advocacy group (i.e. owned by MLMs) that argues for its continued existence rather than the “pro-consumer” face it puts on.
I wrote back in 2014 that DSA had accepted that the industry is full of self-consumption-fueled product-based pyramid schemes, and its official purpose is to perpetuate that as much as possible through lobbying and PR campaigns, legitimizing self-consumption by lobbying state legislators to pass state-level laws, basically ignoring its own origin: the Amway safety rules.
What DSA was arguing is “you had let us slide for this long, you should keep doing that instead of enforcing the established law.”
That is non-sensical.