The Way To Connect With Direct Selling Industry

The Way To Connect With Direct Selling Industry

The FTC Retains Injunctive Powers and Demonstrates That Previous Behavior Is Now Punishable

Following the Supreme Court’s unanimous ruling that the FTC had been wrongfully exercising its authority under Section 13(b) of the FTC Act, it appeared that the FTC’s ability to impose monetary damages without first going through the administrative processes outlined in Section 5 of the FTC Act would be limited.

The court found that the FTC did not need to obtain a prior preliminary injunction or temporary restraining order via the administrative process before seeking a permanent injunction under Section 13(b) in a recent decision regarding a 2019 complaint filed by the FTC against Neora and affiliated parties, citing that the company was operating as an illegal pyramid scheme.

The FTC fought back, claiming that previous behavior might predict future acts, and the court agreed. Neora contended that the FTC was basing its complaints on a long-retired compensation scheme from years ago, but the FTC fought back, claiming that past behavior can be predictive of future actions. The court determined that the FTC’s complaint that Neora was violating or “about to violate” the FTC ADR was justified based on allegations that 95 percent of Neora distributors paid more than they earned each month and that Neora’s compensation plan had characteristics similar to those of an illegal pyramid scheme, as well as the fact that Neora never acknowledged its past misconduct or promised to never repeat it.

The FTC and the court agreed with Neora that the previous AMG Capital court judgment barred the commission from seeking equitable monetary remedy under Section 13(b), and the court denied the FTC’s motion for consumer redress, restitution, refunds, and ill-gotten gains disgorgement.

For direct selling companies that discover non-compliance issues within their compensation model or distributor actions—both past and present—the recent court ruling demonstrates that the FTC can seek injunctive relief, causing significant damage to a company’s business operations or even shutting it down.

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