FTC Sues Another MLM Company, Alleging it Operates as an Illegal Pyramid Scheme

The Federal Trade Commission sued the multi-level marketer Neora, LLC, formerly known as Nerium International, LLC, and its Chief Executive Officer, Jeffrey Olson, alleging that the company operates as an illegal pyramid scheme and falsely promises recruits they will achieve financial independence if they join the scheme. The lawsuit also alleges that defendants deceptively promote “EHT” supplements as an antidote to concussions and chronic traumatic encephalopathy caused by repetitive brain trauma, as well as Alzheimer’s disease and Parkinson’s disease. The FTC is seeking to permanently stop the defendants’ deceptive practices and return money to consumers.

The FTC reached a settlement with two related companies, Signum Biosciences and Signum Nutralogix, that supply EHT supplements to Nerium and have helped to deceptively promote Nerium’s products. Under the proposed settlement, the Signum companies are barred from making baseless claims about EHT or other supplements.

Nerium is a multi-level marketing company that sells supplements, skin creams, and other products through a network of “brand partners.” According to the FTC, Nerium actually operates an illegal pyramid scheme that pushes distributors or brand partners to focus on recruiting new distributors, rather than retail sales to customers. Nerium allegedly incentivizes recruits to make a substantial upfront investment in Nerium products and then commit to additional product purchases each month. Brand partners also receive greater compensation from recruiting new brand partners than they earn from retail sales, the FTC alleges. According to the FTC’s complaint, one of Nerium’s top earners advised in a 2015 promotional video that there are three things brand partners should do to “explode” their business: “Number one: Recruit. Number two: Recruit. Number three: Recruit.”

“Participants in legitimate multi-level marketing companies earn money based on actual sales to real customers, rather than recruitment,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “But pyramid schemes depend on recruitment of new participants to pay out to existing participants, meaning that the vast majority of participants will ultimately lose money.”

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According to the FTC, Nerium and its CEO also have misrepresented that brand partners can earn substantial income and achieve financial independence. The complaint alleges that Nerium promises “lifestyle-changing income” to its recruits, and that social media posts by Nerium and its brand partners feature brand partners who were supposedly able to retire from their jobs or earn a six-figure income. In reality, the FTC alleges, Nerium’s compensation plan is structured so that, at any particular time, the majority of brand partners will not make substantial income and will instead lose money.

The FTC also alleges that Nerium, Olson, and the Signum defendants deceived consumers in their marketing campaign promoting the supplement Nerium EHT. They allegedly claimed without substantiation that EHT can enhance brain health and prevent, reduce the risk of, or treat concussions or chronic traumatic encephalopathy (CTE), as well as Alzheimer’s disease and Parkinson’s disease. The complaint also alleges that in an effort to capitalize on growing awareness of concussion-related CTE among football players, Nerium recruited former professional football players such as Sidney Rice, Steve Weatherford, and Cory Redding Jr. to pitch the products to parents and coaches concerned about children’s health.

Under the proposed settlement with Signum Biosciences and Signum Nutralogix, those companies would be prohibited from making unsubstantiated health claims about EHT supplements or other products. Specifically, Signum cannot make any claim that EHT supplements can prevent, reduce the risk of, or treat CTE, brain injuries, including concussions, Alzheimer’s disease, or Parkinson’s disease, unless it has competent and reliable scientific evidence consisting of human clinical tests to substantiate the claim. – Source

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