U.S. MLM companies face new regulatory uncertainty in 2022. The FTC has adopted a new enforcement strategy utilizing its Penalty Enforcement Authority to target MLM companies. In October 2021, the FTC sent “notice of penalty offense” letters to hundreds of companies. These letters rely on old FTC determinations of what constitutes a deceptive business practice and are a statutory prerequisite to FTC seeking civil penalties of $46K per violation. The notice letters do not identify conduct by a recipient company that the FTC views as illegal. This strategy is problematic because the notice letters fail to give fair notice of alleged violations before subjecting a company to potentially significant civil penalties.
— Brent Kugler, partner, Scheef & Stone, LLP
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