In a statement released on November 1, Neora fired a shot across the bow of the FTC. Not only did Neora rejected an offer from the FTC to settle a threatened lawsuit, filed suit challenging the FTC’s ability to retroactively change the law without proper authority from Congress or through formal FTC rulemaking.
I recently caught up with Deborah Heisz, Co-CEO of Neora, to get some added insight into their decision to sue the FTC as well as what happens now as well what they feel their chances of success will be.
What was the deciding factor to sue the FTC? Was there one main reason you just said like hey we’ve got to do this.
HEISZ: The deciding factor was when we realized the FTC’s main goal was to take away the multi-level compensation plan of our company, despite the fact that we’re not a pyramid scheme under any current laws or FTC guidance. When the company was founded, it was structured specifically to have a strong customer base and remove any reason for a Brand Partner to purchase product they don’t use. Ultimately, we made the decision to sue because we weren’t going to take away the businesses of our Brand Partners who have spent eight years building with us. The FTC can’t come in, change the rules of the game and damage the income of hard-working American families.
You’ve spelled out the reasons why Neora needed to take this action, what would the fallout to our channel if you didn’t fight back?
Not settling with the FTC allows us to bring to light the FTCs overreach when dealing with our industry. They cannot make up the law or create new interpretations of the law and apply them to the direct selling industry without being called out for doing so.
If we had settled with the FTC, rather than challenge what we believe is a new interpretation of the law through unpublished guidance the FTC is employing when looking at direct selling companies, then we would have had to accept a deal to abandon multi-level marketing. Although the FTC has continually indicated that a settlement does not apply to other companies, we all look to settlements as a guideline for what the FTC is considering acceptable or unacceptable business practices.
“The FTC can’t come in, change the rules of the game and damage the income of hard-working American families.”
With AdvoCare abandoning multi-level through the FTCs “fencing in”, I believe that a second company agreeing to the same, especially one with numbers like ours, would have emboldened the FTC to further attack our industry using their new interpretation of the law through unpublished guidelines. Also, the FTC is aware companies in our industry are exceptionally vulnerable to significant business damage if they are even accused of being a pyramid scheme (regardless of the facts or law) because of the nature of our independent sales forces.
You had a meeting with your field leadership the day the news broke of Neora suing the FTC. What was your advice to them?
After we let them know we were suing the FTC to protect their business and really the businesses of the more than 20 million Americans involved in direct selling, we let them know it was going to be business as usual. This is now a court case and will likely take years to move through the system. Our home office staff is going to focus on building the business with our Brand Partners. We also launched a new product line that day, so we advised them to focus on it. Looking at our numbers this week, it looks like they did.
Why do you feel your case is strong and will win out in the end?
Ultimately, we are going to win because our case is based on the data and the existing law and guidance. The data shows that we are not a pyramid scheme according to the law. Pyramid schemes do not offer legitimate products. There is a high demand for our product. 80% of our compensation paid in 2017 was related to product sales to end-users. More than 60% of our sales in 2017 were to customers that do not participate in the compensation plan, and that percentage is higher now. Our Brand Partner monthly orders are largely for personal consumption. Our enrollment pack sales are less than 5% of our current business. These are not the numbers of a pyramid scheme.
Any advice you could give to other companies in the channel of what you have learned so far in this process that would be of help or guidance to them?
Make sure you double down on educating your field and taking action around product and income claims. And if we are a pyramid scheme in their minds, I don’t see how any direct selling company wouldn’t be considered a pyramid scheme by the FTC. So once they are in the door you can expect exactly what happened to us.
A much stronger investment has to be made in every compliance department. The guidance goalposts have moved significantly to what they will consider in their consent orders, as was made known with the AdvoCare consent order and now with us. You need to have tough love conversations with field leaders on the new consequences of income and product claims. The FTC will now inappropriately try to use any piece of video, social media posts, hashtags, as evidence of a pyramid scheme.
How can people help your cause?
We have already heard from a lot of people in our industry that we will have their support. In the interim, letters or statements of support for our lawsuit against the FTC would be very helpful. We are a mid-size company, and it’s very expensive to fight the FTC—so we’re going to set up a defense fund. We’re hoping all of our colleagues in the channel will contribute, because we’ve taken a risk and filed an important case to protect the entire industry.