Agency maintains its hard-line stance on coronavirus-related claims
By: David Rauf
“It almost seems like what the FTC is saying is you can’t represent that you have a business opportunity.”
—Michael Collins, President and CEO, M&L Collins Group
“The FTC is going to be very diligent. We’re not going to tolerate these claims.”
—Lois Greisman, Assoc. Director of Marketing Practices, Federal Trade Commission
The Federal Trade Commission (FTC) has issued warning letters to six more direct selling companies over alleged misleading product and earnings claims related to the coronavirus. This represents the latest escalation between regulators and the direct selling channel over how to market products and business opportunities during the ongoing pandemic.
A total of 16 direct sellers have now received letters from the FTC demanding they curb distributors making health and income claims that specifically mention COVID-19 or any aspect of the current economic fallout caused by the coronavirus. Direct sellers are not the only ones receiving letters, however. According to the FTC’s website, the agency has sent a total of over 120 letters to companies and individuals warning them against using language “preventing or treating” COVID-19.
In April, the FTC sent letters to 10 direct sellers with a clear message to keep language related to the virus out of sales and recruiting materials. The move served as a shot across the bow for the channel and one that regulators later called the quickest and most effective way to compel companies to address misleading claims during a global public health crisis.
The FTC announced its second wave of warning letters in early June for the following companies: Isagenix International, The Juice Plus+ Company, Melaleuca, Youngevity International, Vivri USA and Plexus Worldwide.
“The letters tell them to immediately stop their distributors from telling people their products can treat or prevent COVID-19, that they’re likely to make significant money if they join the MLM, or both,” Seena Gressin, an attorney in the FTC’s Division of Consumer and Business Education, wrote in a blog post. “The FTC says these claims violate truth-in-advertising laws.”
For the most part, the direct selling channel has received the FTC’s warning letter approach with open arms. The regulator usually pursues companies through civil investigative demands, or by shutting them down and hauling them to court.
John Sanders, a partner at Winston & Strawn who specializes in direct selling litigation, represents several direct sellers that received FTC letters in April.
He says the dialogue afforded by the process benefits both sides and allows direct sellers the chance to “show how seriously we take the issue.” So far, he says, “the response from some companies has been to terminate the distributors making these claims.”
“I hope the FTC has taken notice that it’s a showing from the industry and the players in the industry that we don’t want these claims out there either,” Sanders says.
He adds: “The bottom line is the FTC wields a great deal of power. What they’re doing must be viewed in terms of what the other possibilities they could be pursuing are. Given all the tools at their disposal power, from a CID all the way through seizure and shutdown and injunctive relief, this is a very even-handed way of handling the situation.”
Now, Sanders says, the direct selling channel is watching to see if the FTC makes the letter approach part of its standard for dealing with direct sellers. “The FTC was able to accomplish something demonstrable and efficient,” he says. “It’s a tool that should be employed in the future.”
The FTC has made clear that it plans to continue monitoring direct selling companies for COVID-19-related claims throughout the course of the pandemic. During a recent webinar hosted by Direct Selling Association President Joe Mariano, Lois Greisman, the associate director of marketing practices and one of the FTC’s top officials overseeing enforcement of the direct selling channel, said monitoring would be in the “short-, medium- and, perhaps, even long-term.”
“The FTC is going to be very diligent,” Greisman said. “We’re not going to tolerate these claims.”
Compliance Departments Scrambling
The letters and subsequent comments from Greisman’s office have caused a stir in direct selling legal and compliance circles, with many companies rushing to implement best practices and technologies to assist their efforts to root out claims.
Jonathan Gilliam, CEO at compliance technology firm Momentum Factor, says his clients are pushing hard to identify and act quickly on COVID-19-related claims. “Compliance teams and their lawyers are scrambling,” he says. “Naturally everyone in the channel is worried, whether they received a letter or not.”
He adds that while it’s impossible to find everything online that could be risky to a brand, companies “should be doing their darndest to get to 100 percent and demonstrate they are doing everything they can to address any and all claims related to the crisis.”
Future FTC Actions Are Uncertain
So far, the FTC has not said if it will use warning letters as its go-to approach for addressing claims beyond those related to the coronavirus. During the DSA webinar’s question-and-answer segment, Gresiman was asked if the agency would continue this approach. Her response was non committal: “I don’t know the answer to that,” Greisman said, noting that she’d have to talk with FTC staff to see if “this is the right tool.”
According to the FTC, the distributors for the six direct selling firms that received letters in June posted unsupported health and earnings claims on social media sites, with two of the companies posting their ads in Spanish. The FTC says at least one company posted unsupported claims on its own website.
According to the FTC, the distributors for the six MLMs that received letters in June posted unsupported health and earnings claims on social media sites, with two of the companies posting their ads in Spanish. And, the FTC says, at least one company posted unsupported claims on its own website.
Some of the the questionable claims from the direct sellers include:
A Spanish-language social media post promoting Vivri USA that said, “Take care of your health, your body, avoid many diseases many viruses, since this virus and many others are here to stay, coronavirus, influenza, flu, we should nourish our cells, our immune systems, reinforce it with the best nutrition system in the world ”
A social media post that said, “#VIRUS_CORONA Worried? I’ve been boosting my immune system for several years with high-quality Plexus supplements. You can too! #Plexus provides excellent all-natural supplements that truly work. Be sensible –not fearful. Scientifically formulated & doctor-approved! Ask me!”
A video promoting The Juice Plus Company that said, “There are a lot of people out there who have lost income. You may want to build a side income, you know, make $500 a month, $1,000 a month or more. There’s no ceiling on this. It’s whatever you want it to be. What would you like this to do for you? Maybe it could cover one of your bills, like a car payment. Or enjoy more time and financial freedom. I can tell you those are both possible at the same time because I’ve been living that for the past eight years, and it’s wonderful to be able to offer that to other people.”
In response to the second wave of warning letters, the DSA says it has asked direct sellers, including non-association members, to recommit to following the association’s code of ethics and to quickly correct misleading claims. Companies that do not make the commitment “will not be allowed to become members or remain in the Association,” the DSA says in a statement.
“We urge all companies to follow the requirements of the law and go above and beyond those requirements to ensure that customers and prospective salespeople have and share the most accurate information possible. This is more important than ever in the midst of the health and economic challenges we face.”
During her Q&A with the DSA, Greisman also made clear that the FTC expects direct sellers to monitor all communications made by distributors, and “take action, swift action, before we do.”
“There’s no principle that says you must monitor X number of distributors every day. There’s no guidepost like that,” she told the DSA’s Mariano. “So how much you want to put in it now and how tight you want to make the screws, that’s up to each company. But I would not hesitate to make it a priority today, especially.”
Michael Collins, a former president of LifeWave Inc. who now consults for direct selling companies, says it’s not realistic to expect a company to be able to police every piece of communication made by a distributor.
“There’s no such thing as a perfect world,” he says, noting that the warning letter approach is highly preferred but even then the FTC can still “overreach.”
Collins, also a former DSA board member, says one example is the FTC restricting distributors from even broadly mentioning anything related to economic hardships brought on by the pandemic when making income claims to recruits.
“I don’t see anything wrong with acknowledging that because of the pandemic we’ve got all these millions of people out of work. It’s a fact. Everybody knows it,” he says. “In this industry, we all have products or services. The other category is the opportunity. It almost seems like what the FTC is saying is you can’t represent that you have a business opportunity.”
He adds: “The FTC is really digging to make those relatively innocuous statements appear to be in violation of the spirit of the FTC’s rules.”
Overall, Collins says, direct sellers are responsible for making sincere efforts to police claims made by their distributors and to act immediately. That even includes firing distributors responsible for bringing in big money.
“You have to make it part of the culture of your company so everybody knows it can happen to them if it can happen to that guy,” he says.
Winston & Strawn’s Sanders says he thinks the issue of whether or not direct sellers are responsible for every claim made by distributors online and elsewhere could be litigated in the future.
“The companies that I interact with, they want their distributors to do the right thing,” he says. “That’s why they are educating them, that’s why they have policies in place. But despite all that, you can still have someone in the field go rogue and make a claim, and you’re still held accountable for the actions of that lone individual.”
Sanders adds, “It’s not a fair burden.”
Still, Momentum Factor’s Gilliam suggests that, at the moment, fairness isn’t up for debate. “The FTC is clearly taking a zero-tolerance policy on anything related to the virus or the economic crisis. We’re no longer in a ‘normal’ compliance environment, so what companies do now really matters.”
“The days of waiting for things to get better on their own, or for regulators to move on to other industries, are over,” says Gilliam. “It’s a whole new world.”
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