Features

New owner files lawsuit against former company executives; SEC charges former CEO

By:  Stephanie Ramirez

Washington DC, USA - June 25, 2018: US Securities and Exchange Commission building exterior. The U.S. Securities and Exchange Commission or SEC enforces the federal securities laws

NewAge, a Utah-based health and wellness direct seller, has endured a turbulent year as bankruptcy filings, lawsuits and regulatory scrutiny have plagued the company over the past several months. 

The company was recently sold to a “stalking horse” bidder for $28 million. The U.S. bankruptcy court approved the sale in late September 2022. However, just days after taking ownership, the new owner of NewAge hit former executives of the company with a lawsuit outlining a myriad of grievances.

The new owner, DIP Financing LLC, whose only known representative is John Wadsworth, provided the sole bid to purchase NewAge at a price grossly insufficient to allow for any sort of recovery for equity holders or creditor claims. 

ANPR seeks public comment on potential new rule

By:  David Bland

“Case-by-case enforcement without civil penalty authority may not be enough to stem the growth of deceptive reviews and endorsements.” —Federal Trade Commission

Customer Experience and Online Review Concept. Female holding SmartPhone to Reading Customer Review before Buying Products

On Oct. 20, the Federal Trade Commission (FTC) released an Advanced Notice of Proposed Rulemaking (ANPR) to seek public comment on the benefits of a new rule to combat the harms from deceptive or unfair product reviews and endorsements. The ANPR represents the Commission’s first official step in evaluating the need for and the shaping of a new rule.

Continuing its push to create additional enforcement mechanisms after the Supreme Court took away the FTC’s ability to obtain equitable monetary relief under Section 13(b) of the FTC Act, Chairwoman Lina Khan sees the rulemaking process as an essential tool for combatting industry-wide violations across many types of businesses, including the direct selling channel.

Unresolved income and health claims lead to FTC referrals

By:  SSN Staff

The Direct Selling Self-Regulatory Council (DSSRC), in its fourth year of operation, is concluding another productive and busy year monitoring the U.S. direct selling channel. 

Founded by the Direct Selling Association (DSA) and administered by BBB National Programs, the DSSRC serves as an independent non-profit organization tasked with providing mechanisms for the oversight and self-regulation of direct selling companies across the country.

Two new reports provide guidance for companies using digital marketing and independent contractors

By:  David Bland

“Overall, when designing user interfaces, businesses should look not just at the effect their design choices have on sales, click-through rates, or other profit based metrics, but also on how those choices affect consumers’ understanding of the material terms of the transaction.” — FTC Staff Report

The Federal Trade Commission (FTC) has recently renewed its focus on two areas of business practice that Commissioners believe are in need of heightened regulatory attention: the use of digital “dark patterns” in the online marketplace and companies taking unfair advantage of gig workers. On Sept. 15, the FTC released two reports: the first, a staff report summarizing an April 2021 workshop on digital “dark patterns,” and the second, a policy statement on gig work enforcement.

Coming on the heels of the release of the FTC’s Strategic Plan for Fiscal Years 2022-2026 that included the strategic priorities of protecting the public from unfair or deceptive acts as well as anticompetitive practices in the marketplace, the September pronouncements provide a clear view into the Commission’s push for increased scrutiny of online sales and marketing practices as well as those companies that utilize independent contractors—putting direct sellers, among other marketers, in the crosshairs once again.

Companies respond to shifting consumer priorities and challenging macroeconomic trends

By:  Stephanie Ramirez 

The global direct selling market is predicted to expand at a compound annual growth rate (CAGR) of 2.3% through 2026, according to recently released data from insights firm Research And Markets. 

However, new business models have emerged as a result of regulatory pressures and shifting customer demands, leading many direct sellers to explore other direct-to-consumer channels to survive in the market. 

Inflationary trends, ongoing pandemic effects, the war in Ukraine, and a slew of warning letters and actions doled out by the Federal Trade Commission (FTC) aimed at direct selling companies over the last few years—all are commonly noted by company executives as leading factors in their decisions to downsize or restructure. 

SELDIA is keeping busy as ongoing regulation cycles continue in Europe

By:  David Bland

“The Commission is focusing on digital fairness and clarifying further environmental
claims and green product claims. There are proposals on due diligence and the circular
economy that just came out or are about to come out. This is going to impact all companies
operating in Europe, direct selling companies included.” — Laure Alexandre, Executive Director,
SELDIA.

The direct selling companies of the European Union (EU) are preparing for adjustments and adapting to new rules as the implementation of a major consumer protection directive coincides with the significant disruptions resulting from the economic downturn, the war in Ukraine, and continued fallout from the COVID-19 pandemic. 

As the EU’s member states continue the process of transposing, adopting and applying the new directives from 2020’s landmark Enforcement and Modernization Directive, known as the Omnibus Directive, the European Direct Selling Association (SELDIA) is busy working with member organizations and government representatives to ensure a smooth transition and to provide guidance for direct sellers.

Inflation, COVID-19 and Ukraine conflict continue to pose challenges

By:  Dave Rauf

Herbalife

Herbalife outperformed lowered expectations during the second quarter, and the company’s CEO says economic headwinds that hurt sales through the first six months of 2022 are stabilizing.

The Los Angeles-based direct selling giant reaffirmed projections to return to growth in the fourth quarter, following two consecutive quarters of sales declines after a record-breaking 2021. 

Throughout 2021, Herbalife reported its biggest ever sales year, reporting $5.8 billion in revenue. The company’s three largest regions—Asia-Pacific, North America and EMEA—each set annual net sales records last year.