In tribute to the baseball season that’s just ended, we’ll start this blog post about an alleged pyramid scheme and supposed miraculous dietary supplements with the words of the great Yogi Berra: “It's like déjà vu all over again.”
The FTC has announced a lawsuit against Neora, LLC, formerly known as Nerium International, LLC. The FTC alleges that Neora, an international multi-level marketing (MLM) company that sells dietary supplements, skin creams, and other products, is an illegal pyramid scheme. The FTC also alleges that it deceptively promotes its Nerium EHT dietary supplement by making unproven claims that it’s a breakthrough antidote for serious brain diseases.
Why déjà vu? The case is the second that the FTC has filed in as many months to halt an alleged pyramid scheme and return money to consumers. In October, the FTC announced a case against AdvoCare International, an MLM seller of health-and-wellness products. Under a settlement, AdvoCare agreed to be banned from multi-level marketing and pay a landmark $150 million to consumers.
Because people still generally refer to Neora as Nerium, we’ll call it Nerium here too. The FTC’s complaint says Nerium markets its products through a sales network of “brand partners,” or “BPs” who it recruits with promises that they can earn “lifestyle-changing income” and gain financial freedom.
In fact, the FTC says, most Nerium BPs end up making little or no money, and a substantial percentage lose money. According to the complaint, Nerium is a classic pyramid scheme that encourages new BPs to make big upfront investments in buying Nerium products, then compensates them based mainly on how many new BPs they recruit, not on their product sales. The new recruits, like the BPs who recruit them, are allegedly encouraged to make large upfront investments in products. But, according to the FTC, it is difficult for most BPs to sell Nerium products because, among other things, consumers often can buy the products directly from Nerium or other sources for the same or less than the best price a BP can offer.
The complaint notes that Nerium also charges BPs numerous fees, including for sales aids, business cards, letterhead, registration at Nerium conferences, and access to its software app. In the end, according to Nerium’s own reports, more than 90% of BPs in the United States earn less than they pay Nerium in product purchases and fees, the FTC says.
The complaint also targets Nerium’s claims about EHT, a coffee extract that it promotes as scientifically proven to prevent, reduce the risk of, or treat Alzheimer’s disease, Parkinson’s disease, concussions, and chronic traumatic encephalopathy (CTE), a degenerative brain disease associated with repetitive brain trauma. According to the FTC, Nerium’s marketing seeks to exploit widespread concerns about the devastating impact that Alzheimer’s and Parkinson’s diseases can have on patients and families. The FTC says Nerium also recruited former professional football players such as Sidney Rice, Steve Weatherford, and Cory Redding Jr. to capitalize on growing awareness of concussion-related brain injuries among athletes, military veterans, and others. As of April 2018, Nerium’s total sales of EHT exceeded $120 million, the FTC says.
But, according to the complaint, it’s illegal to advertise that a product can prevent, treat, or cure a disease unless you have competent and reliable scientific evidence that supports your claim. For claims about Alzheimer’s, Parkinson’s, CTE, and other serious conditions, that means well-controlled human clinical studies. According to the complaint, there are no human clinical trials supporting Nerium’s claims about EHT. As a result, the complaint charges, the claims are false or unsubstantiated, violating the FTC Act.
In addition to Neora, the complaint names its principal, Jeffrey Olson, and two related companies, Signum Biosciences, Inc., and Signum Nutralogix. The FTC has reached a settlement with the Signum companies, but its action against Neora and Olson continues.
The case, filed in federal court in New Jersey, bears watching. In the meantime, it offers insights for MLM businesses and people considering buying into an MLM. Among them:
- Established truth-in-advertising standards apply to all companies within the FTC’s jurisdiction, including MLMs. Every MLM case the FTC has brought to date has alleged – among other things – misleading money-making representations. The facts bear out that very few MLM participants earn more than a small amount of supplemental income. That’s why it’s unwise for MLMs to make earnings claims – expressly or by implication – that don’t reflect what typical participants achieve. False or unsubstantiated earnings and lifestyle claims violate the FTC Act.
- For entrepreneurs, it’s wise to view business opportunity pitches with a skeptical eye. This applies especially if the person making the promises stands to make money from your participation. Before investing, run it by someone with proven business savvy who isn’t trying to sell you something. The FTC has specific advice on multilevel marketing, including tips for spotting an illegal pyramid scheme. One possible tip-off: If the promoter’s focus is less on selling the product and more on recruiting new members, think about heading to the nearest exit.