Following the Supreme Court’s unanimous ruling that the FTC had been incorrectly wielding its power concerning Section 13(b) of the FTC Act, it appeared that the FTC’s power to inflict monetary damages without first subjecting themselves to the administrative processes found in Section 5 of the FTC Act would be limited.
But in a recent decision regarding a 2019 complaint made by the FTC against Neora and affiliated parties citing that the company was operating as an illegal pyramid scheme, the court found that “the FTC did not need to obtain a prior preliminary injunction or temporary restraining order via the administrative process prior to seeking a permanent injunction under Section 13(b).”
Neora argued that the FTC was basing its complaints on a long-retired compensation plan from years prior, but the FTC fought back, citing that past behavior can be indicative of future actions and the court agreed. Based on the allegations that 95% of Neora distributors paid more than they earned each month and that Neora’s compensation plan had characteristics similar to that of an illegal pyramid scheme, and the fact that Neora never acknowledged its past misconduct or promised to never repeat it, the court determined that the FTC’s complaint that Neora was violating or “about to violate” the FTC Act was sufficient.
The FTC and the court both agreed with Neora, however, that the recent AMG Capital court decision prohibited the commission’s ability to seek equitable monetary relief using Section 13(b) and the court dismissed the FTC’s request for consumer redress, restitution, refunds and disgorgement of ill-gotten gains.
The recent court ruling proves that the FTC can go after injunctive relief, inflicting significant damage to a company’s business operations or ultimately even shut it down, for direct selling companies who find noncompliance issues within their compensation model or distributor actions—both past and present.
Read more: Neora Ruling Confirms the FTC Still Has Power, NEORA: The Accidental Activist and The Battle Over 13(b).
