Her thoughts on fighting back against FTC overreach by suing the agency
Executive: Co-CEOs Deborah Heisz and Jeff Olson
Location: Farmer’s Branch, TX
This month, SSN interviewed co-CEO of Neora, Deborah Heisz. On Friday, Nov. 1, Neora took the unprecedented action of filing against the Federal Trade Commission (FTC), essentially alleging the agency is overreaching its authority and attempting to create law without going through Congress. Only hours later, the FTC filed suit against Neora, alleging the company to be a pyramid scheme. SSN spoke at length with Heisz about both suits and the ultimate impact they may have on the entire direct selling channel.
SSN: Is this latest action an intentional progression on the part of the FTC to pressure all direct selling companies to conform to a new standard of operation?
The FTC’s recent own statements made it clear that this is what they are doing. Although the FTC has previously recognized the various attributes of MLMs and that they are legal, the FTC now claims that those very attributes make them illegal. They’re highly focused on the idea that somewhere in our compensation plan there is an incentive to recruit. However, the FTC appears to suddenly not understand that this is the general nature of our industry. We only pay commissions on the products that are sold either by a brand partner, or the people that partner brings into the business. We are well within the law and guidelines that have been set forth.
Well over 50 percent of sales go to consumers who don’t participate in our compensation plan. We don’t have any incentive to inventory load in any of our business operations. Yet they keep alleging that somehow our compensation plan over-incentivizes people to recruit. It’s a very bizarre assertion to us.
SSN: What sorts of action do you take when distributors make claims?
We have an entire compliance department and we use an outside monitoring firm to help us identify claims on all social media. Let’s say that a Brand Partner makes a social media post in violation of our corporate policies. The monitoring software identifies the violating post and we tell them to take the post down. We validate that they took it down. If they do it again, they are likely to get suspended. If they do it again, they might get terminated. We’ve taken between 3,000 to 4,000 actions against people in the field making improper product or income claims. By and large, most of them comply immediately.
If they won’t comply or if they’re repeat offenders, it is too big a risk for the people who are in compliance to allow them to remain a distributor, and we will terminate their account. We have terminated more than 100 distributors over claims since 2015. We have ongoing cases constantly and we do our best to get as close to zero as we possibly can.
Even FTC official Andrew Smith acknowledged that a company probably couldn’t get to 100% compliance when he spoke to the DSA audience just last month. Ultimately, we know we’re responsible for enforcing our policies, and we work hard to get them to take it down.
SSN: Do you believe the FTC is redefining what constitutes a pyramid scheme as any company that pays incentives of any type for recruitment of new participants?
Yes, I think the FTC is redefining what is legal within the model with the ultimate intention, whether they realize it or not, of eliminating the model. I don’t know how you could have a plan that was multi-level that they wouldn’t find to be a pyramid scheme because there is naturally an incentive to recruit in any plan, based on the fact that you get paid on downline sales to customers of product. That really is the only incentive to recruit other than rank advancement. But even then, you’re talking about ultimately paying on sale of product. That’s the pillar of the model, and if they can cut that down, they can eliminate direct selling.
Honestly, we just can’t find what they’re trying to target. It is too vague. They have not adopted formal rules or even issued guidance for what they’re proposing.
SSN: Can you more specifically define the “legitimate” elements you are defending that the FTC is attacking?
Ultimately, they consider everyone who joins a direct selling company as a distributor but does not make what they believe to be enough money to be a failed business owner. It’s like they consider every person who enrolls as a distributor to only be interested in building a business. We know from studies that DSA has done that people have various reasons for joining a direct sales business. The FTC has created a premise in which everyone who doesn’t make money despite the nature of the investment, in our case it’s $50 for a starter kit, is considered to be a failed business.
Something else that was disturbing in our conversations with them was that they more than implied that people buying products is a business expense, even when that product is clearly for personal end usage and in personal end usage amounts. They implied that if our brand partners are purchasing products, they are not purchasing it to use, they are only purchasing it to qualify. That is a disturbing claim that was already rejected by the courts.
What it means is that the FTC views every dollar an enrolled partner has spent with the company, even for end-use purchase of product, as a lost dollar and a failed business. That is absolutely what they’ve been implying to us, which is very bizarre and clearly not an understanding of why people join direct selling companies.
They’ve implied to us in our case that that the product itself has no value. People are only buying the product to earn commissions and to qualify for commissions. Despite the fact we’ve got customers who’ve never made any commissions and they’re still buying our product a year later; the FTC would still insist they own a “failed business.”
SSN: FTC officials have repeatedly indicated that the Herbalife and Vemma settlements, along with the FTC’s own MLM Guidance, are to be looked to as standards, yet, don’t these allegations go beyond those standards?
Absolutely. Remember we live in a country where laws are required to made by Congress. Federal agencies like the FTC can publish their interpretation of those laws through a formal rulemaking process. The FTC has not done so. Instead, it has chosen to publish “guidance.” We’re well within all of the published guidance. The FTC then brings enforcement actions and erroneously represents that the settlements are “standards” in order to effectively create a change in the law. They are not legal standards. We believe that if the FTC comes knocking on the door of an MLM company for any reason, they’re going to find them to be a pyramid scheme right now.
Because if we’re a pyramid scheme, unfortunately, I don’t see how most direct selling companies couldn’t be found to be a pyramid scheme. If you look at our business and their claims against us, there’s clearly a new interpretation they’re using or they’re reading something else into the guidance that the industry isn’t seeing. When you look at it from the perspective of a operating a business, how can we operate if we don’t know what the rules are?
SSN: You opened all of your books and records to the FTC, which would seem to indicate a level of confidence on your part for compliance. Why do they claim you only have 1 percent customer sales?
I believe they’re using that 1 percent “retail” sales number because it’s inflammatory. In the traditional sense of the word “retail,” all our sales are retail sales. However, within the company, we call the full “retail” price sales from our general or Brand Partner websites “retail sales” and this type of sale accounts for only 1 percent of our total sales. The FTC knows that that 60 percent of our sales go to non-business participant preferred customers through our brand partners. So technically speaking, they are correct in saying that 1 percent of our sales are full retail price sales made through our online system. It’s incredibly misleading, however, that they are using this number as if it represents our total customer sales.
Our customers pay no fee, nor do we collect their social security numbers. They become customers by making an initial purchase from a brand partner’s website. That’s it. Enrolling as a preferred customer gives them the best discount, it does not make them any less a “real customer.” It’s just like me enrolling as a preferred customer at any retail site. No fee, no social security number. These customers do not participate in the compensation plan whatsoever.
We opened up all of our data knowing that we were well within compliance, and we were shocked when they came back with the pyramid scheme allegations. And to date we have not received from them any specifics or economic analysis that we can look at that allows us to determine how they made that assessment. Our numbers are clearly not a problem. We don’t see how they can win a pyramid claim against us.
SSN: How might this lawsuit help identify an objective standard for bringing claims against direct selling companies?
We are asking the court to hold that Congress makes the laws, and when a government agency wants to change its interpretation of the law, they have to go through formal rulemaking process. The President’s recent Executive Orders make this clear. No agency should be able to change its interpretation of the law by making informal statements that retroactively change the law. We believe that as an enforcement agency, the FTC is out of control. They’re interpreting the law differently in this case to support their argument and to create new guidance. That’s backwards.
If Congress wanted to change the laws around multi-level marketing, they could. We would gladly comply and change our model like every other multi-level marketing company would have to do. But the FTC should not be able to use enforcement practices to implement a standard that is not in the law.
They shouldn’t be able to come to our company, accuse us of whatever it is they’re accusing us of, and take us to court to create new law that they can then apply to everybody else. I don’t know that we’ll end up with clear rules, but I think we will end up with the inability of a government agency to make stuff up as they go along, which is exactly what it feels like.
SSN: How do you feel about leading this charge for the industry against the FTC?
I believe we are the right company to do it. The numbers don’t lie. We’re doing it because it’s the right thing to do to protect our business and the businesses of every person in the field. Our field is not out there doing the wrong thing. They are out there building their businesses through sharing our products and opportunity with their friends and family, and the results speak for themselves. They shouldn’t have to pay for that by forfeiting their businesses. That’s just not fair.
And, ultimately, I think that if we agreed to the FTCs settlement requirements, that would just further embolden them to continue to take this action against other companies. Our lawsuit is going to hopefully require that the FTC operate within the guidance and the law that’s published and given.
SSN: What advice would you now give to your younger self?
Go to law school. In all seriousness though, that’s a hard question for me. I’ve always been frustrated by people who get bogged down in “how we got here.” Through my work at Live Happy, I came to understand that it’s not that I don’t want to learn from the past, because I do. But I am much more focused on “okay, we need to go in this direction.” I can focus on the next step I need to take, and this allows me to be more fully present in my own life, and in my family’s life. I don’t look back or forward. I am where I am. I’ve discovered this is a tool I use to manage my life, and it’s a key to my own personal happiness.
Link to share this article: https://socialsellingnews.com/link/getting-real-with-monat-president-stuart-macmillan-3568/