Neora cleared of monetary penalties, fails to settle with FTC
The FTC has been denied monetary relief in their fraud case against Neora.
The decision is undoubtedly a blow to the regulator’s enforcement efforts.
The court’s decision follows failed settlement negotiations held on June 29th and July 15th.
Both parties are digging their heels in, leaving the court to push the case forward.
In an order handed down on August 2nd, the court ruled;
The FTC concedes that AMG Capital forecloses its ability to obtain equitable monetary relief, and thus does not object to dismissal of its requests for “recission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies.”
Accordingly, in light of the unambiguous pronouncement from the Supreme Court in AMG Capital regarding the unavailability of monetary relief under § 13(b), Defendants’ Motion as to FTC’s claim for monetary relief is granted.
This was expected, as disagree with the decision or not, the Supreme Court’s ruling on AMG is straight-forward. No more monetary relief under 13(b).
In addition to quashing monetary relief, Neora had also sought to get the entire case against them dismissed.
Defendants seek judgment on the pleadings on two grounds: first, that dismissal with prejudice of the entire action is appropriate because the FTC did not first engage in administrative enforcement proceedings, and second, that the FTC has not pleaded that Defendants are violating or are about to violate the law, a prerequisite to seeking a permanent injunction under § 13(b).
The court rejected both arguments.
With respect to needing to engage in administrative enforcement proceedings prior to seeking an injunction, the court found;
The Supreme Court in AMG Capital made no definitive statement regarding the availability of permanent injunctions vis-àvis administrative enforcement proceedings, nor any pronouncement as to what constitutes a “proper” case under § 13(b), in which a permanent injunction could be available.
Instead, AMG Capital’s holding is narrow, limited to the question of whether § 13(b) authorizes the FTC to seek and be awarded equitable monetary relief such as restitution or disgorgement.
The Court finds no clear directive from the Supreme Court that permanent injunctions are wholly unavailable absent a prior administrative proceeding or previously issued preliminary injunction or temporary restraining order.
The Court declines to take the drastic step urged by Defendants and interpret the Supreme Court’s irresolute commentary on § 13(b) as a clear directive that permanent injunctions are not available absent concurrent administrative proceedings, a prior injunctive relief, or a temporary restraining order.
Next the court addressed Neora’s argument that it was a pyramid scheme but only based on past conduct.
Defendants argue that numerous allegations in the Complaint are based on past conduct, including that the pyramid scheme allegations rely on a compensation plan that was discontinued years ago.
Because the Complaint contains allegations of past violations does not mean that the FTC has not sufficiently alleged that similar violations are likely to reoccur.
Instead, allegations of past violations must be assessed in context of the FTC’s other allegations.
The Court concludes that the FTC’s allegations in the Complaint are sufficient to infer a reasonable expectation of continued violations absent restraint at least as of the date of the Complaint’s filing on November 1, 2019.
The Complaint contains numerous allegations in the present tense—indicating the Defendants are currently engaging in the alleged conduct—as well as specific examples dated shortly before the Complaint was filed.
For instance, the Complaint contains examples of social media posts containing alleged misrepresentations dated in September and October of 2019.
The Complaint alleges income and product misrepresentations made on a vast scale to thousands of BPs, whether online via social media or during conferences.
The Complaint also alleges that the vast majority of Nerium BPs—i.e., 95%—paid more to Nerium each month than they earned in commissions or bonuses.
Regarding scienter, the Complaint contains allegations that Defendants were aware of the potential regulatory issues associated with their product claims, but chose to continue making them.
Finally, the Complaint contains no acknowledgement from Defendants regarding recognition of past wrongs or assurances that it will not happen again in the future.
The court went on to deny Neora’s request for the case to be dismissed.
As it stands, we have a case where the FTC can and will most likely prevail in its pyramid scheme claims against Neora.
But unless they come up with an alternative to 13(b) they can introduce (I’m not a lawyer, I don’t even know if that’s possible at this point) and quickly, the FTC won’t be able to claim monetary penalties.
Bit of a joke not being able to enforce monetary penalties against companies a court finds to be a pyramid scheme.
Another round of applause for the Supreme Court. And the 95% of Neora distributors on autoship who continue to lose money each month.