The Direct Selling Association filed an amicus brief on September 16th in the FTC v. Neora case, urging the court to consider the broad implications if Neora loses its upcoming trial. The DSA states it supports prosecuting illegal pyramid schemes masquerading as legitimate companies. However, the brief then advises the court that the DSA "takes no position on the merits of this case."
Neora's own disclosures to the FTC reveal that less than one percent of its company-wide revenue comes from retail sales. This figure places the company's structure far from any ambiguity regarding pyramid scheme definitions. Despite this low retail sales percentage, the DSA's brief focuses instead on the potential for an "incorrect or overly broad definition" of an illegal pyramid scheme. Such a ruling, the DSA argues, would have "significant adverse consequences" for its more than 100 member companies and create a "chilling effect on the direct selling business channel."
The DSA's long-standing position defines an illegal pyramid scheme as an operation compensating participants primarily for recruitment, rather than for product sales. This definition, the association states, mirrors past FTC and federal judicial guidance. But this perspective often overlooks modern regulatory approaches. Regulators have increasingly scrutinized direct selling companies where products exist, but the primary incentive remains recruitment and internal consumption, rather than genuine retail sales to end-users outside the distributor network.
Cases like Vemma and Herbalife underscore this shift. Neither company went to trial against the FTC. Both settled, agreeing to significant changes in their business models to ensure distributors were compensated for legitimate retail sales. Herbalife, for instance, paid $200 million and restructured its compensation plan under an independent monitor. Vemma faced a $238 million judgment and a ban on pyramid scheme operations. These outcomes show that merely attaching a product to a compensation structure does not automatically legitimize a scheme in the eyes of regulators.
Neora's own data further highlights the consumer harm. More than 95% of individuals who sign up as Neora distributors lose money. This fact, also disclosed by Neora to the FTC, leaves no room for debate about the financial reality for most participants. The DSA's brief, in essence, seeks to preserve a status quo where product-based pyramid schemes can continue to operate, costing consumers billions of dollars each year.
The Direct Selling Association's legal argument ultimately aims to prevent any ruling that might deem previously accepted practices as unlawful. Consumers who believe they have been defrauded by an MLM can file a complaint with the Federal Trade Commission at ftc.gov/complaint.