The Nerium lawsuit is one of the first products in the multi-level marketing industry that was brought to light by the FTC. The company marketed a product called Neurontin. Neurontin is a dietary supplement that can increase the strength and endurance of the muscles that support the jaw. However, the Neurontin website promoted the product as a pain killer and claimed that it could “suppress the pain signals sent by the brain”. This caused the company to be brought into the FTC’s investigation.
The company has settled the FTC’s complaint and they have admitted to violating the statute. However, they have challenged the legality of their advertising. The company now enters into a formal agreement with the Federal Trade Commission to abide by the rules that are set forth by the Direct Selling Rule and to not make any false claims about the health benefits of Neurontin. The company is in effect pleading the Fifth Amendment in a form of a lawsuit challenging the legality of their direct selling of Neurontin. A lawyer representing Nerium LLC has made this motion to the court on behalf of the company.
As the person responsible for fighting the Nerium lawsuit, I feel that this was an excellent move by the FTC.
In order to prevent another massive scandal like the one that took place with AstraZeneca, the federal government stepped in and placed an injunction on the company that allowed it to continue lying to its customers about the true nature of the product. If the company had continued to mislead people, there is a good chance that it would have received a huge fine from the United States government. Had this happened years ago, AstraZeneca may have never been able to operate under the regulations that are in place today.
By going into a formal agreement with the FTC, the company has acknowledged that they broke the law, and they have acknowledged that they will be held accountable for their actions.
This may help to deter other companies from attempting to engage in what is known as a multi-level marketing (MLM) program. In many cases, it is the federal government who brings these civil, administrative law suits, because they recognize that there is simply no business that can operate successfully without first registering and complying with the various federal and state statues that apply to such organizations. In the case of Nerium Pharmaceuticals, the FTC brought this suit because the company did not register the trademark that is legally required for any MLM program.
In short, the lawsuit is not only about damages but it is also about the violations of the Federal Trade Commission statues that allow direct sales companies to function.
Many of these companies do not even provide their clients with the training or merchandise necessary for them to become successful in this type of industry. In fact, many of these companies operate under direct sales and do not provide their clients with the opportunity to build a downline. However, if someone is successful in this type of direct sales business, he or she can build an enormous wealth that can easily exceed the amount of money that was invested by the client in the direct sales company. The Nerium Pharmaceuticals defendant simply chose to operate their business in this manner, rather than adhere to the myriad of federal and state laws that require such companies to follow the rules of the game.
The United States attorney who is handling the Nerium lawsuit, as well as the district attorney who brought the suit against the company, are both very familiar with the Nerium Products and decided to bring this action based on the violations of the anti-trust laws that were present when the direct sales company was created. These laws prevent multi-level marketing companies from having any level of control over their distributors. Therefore, they cannot charge their distributors up front for any type of advertising or recruiting services.
If a direct sales company is found guilty of not having proper controls, they can be forced to forfeit all of their assets, including their profits, and pay the fine, without having to allow any of their distributors to be paid in advance. The United States attorney’s office in the District of Columbia has filed a motion in this case, asking the judge to force Nerium Pharmaceuticals to retroactively change all of their agreements with their distributors and make retroactive payments to their consumers, without allowing those distributors to have received a new agreement. This motion is currently pending.