FTC Case Closes Pyramids Within Pyramids

MLM Gang Says the Quiet Part Out Loud; Earns Lifetime Bans

Don’t Look Dumb, Dude; You Sound Dumb

Is this one of those pyramid things? Hell, yeah, it is. If it wasn’t, I wouldn’t be doing it. Do I look dumb enough to go get a job again?

Well …

According to a recent court order, those prophetic words were allegedly uttered to a roomful of Success by Health (SBH) sales affiliates by Scott A. Harris, former SBH president, whom the Federal Trade Commission (FTC) named as a co-defendant in a sprawling multilevel marketing (MLM) case brought against SBH and its officers in January 2020. Oops.

Worth Two 43s, 86

In the original complaint, the FTC alleged that Harris, along with SBH executives James Dwight Noland Jr., Lina Noland and Thomas G. Sacca, were operating an “instant coffee” pyramid scheme that used “false promises of wealth and income” to entice consumers to join. The complaint was later amended to include additional allegations against the group for running a second pyramid scheme, known as VOZ Travel, which sold travel “memberships” and promised millions of dollars in rewards to members for the recruitment of other members. In addition to the allegations of operating illegal schemes, the defendants were charged with (i) making false representations in the course of operating those ventures and (ii) engaging in product-shipping and refund practices in violation of the FTC’s Merchandise Rule (16 C.F.R. § 435) and Cooling-Off Rule (16 C.F.R. § 429).

But wait, there’s more. During the proceedings against SBH, the Commission discovered that Noland had previously been involved in yet another pyramid scheme, called Bigsmart. (Bigsmart, folks. We can’t dig up ironies like this without pointing them out.) In connection with a 2002 FTC investigation into Bigsmart, Noland entered into a settlement agreement, which forbade him from engaging in certain practices – including the operation of a pyramid scheme! Noland’s involvement with SBH and VOZ, therefore, violated the settlement agreement and provided the FTC cause to ask the court to impose $7 million in compensatory sanctions against Noland (and his fellow officers – all of whom were on notice of the injunction) in the pending case.

The Takeaway

The court awarded the FTC the $7 million in sanctions against the defendants and further slapped the group with permanent injunctions against certain actions, including participating in future MLMs and Ponzi or chain referral schemes and making material misrepresentations or unsubstantiated claims in connection with the sale of goods.

So, the moral here, folks – we recommend our readers don’t indulge in this sort of behavior. And pause before your speeches – your most quotable quotes may end up in a headline you never wanted.

NAD Asks Supplement Maker to Herd Its Cats

Employees and affiliates failed to clearly disclose advertising relationships

Lineup

In a recent National Advertising Division (NAD) decision concerning material disclosures (or lack thereof), mention is made of a Renue by Science employee/influencer whose YouTube videos failed to include FTC-required clear and conspicuous disclosures – but the employee/influencer herself is never identified, so we’re left to guess who it may be.

Is it “Claudia Glows,” the positively radiant woman sharing “aging well” videos? Or is it “Life & DIY,” the Audrey Hepburn-esque vlogger and commentator who identifies as a Renue by Science employee but whose “research on this topic, this video and all of the content on my site and on my YouTube channel” are her own?

We will never know, because NAD (those cagey masters of the subtextual) never named the subject explicitly in IO Law’s recent challenge to Renue, a company that hawks dietary supplements – including nicotinamide mononucleotide (NMN), quercetin and resveratrol – and markets related products on its website and affiliated editorial websites and via YouTube endorsers. [Side note: NMN, which is an organic molecule promoted as an anti-aging agent, has been banned as a supplement by the FDA.]

Side Hustle?

Following the NAD challenge, Renue stated that the unidentified employee had agreed to voluntarily and permanently discontinue the YouTube video in which she discusses the benefits of NMN and her experience with NMN.

With respect to another video on that same YouTube account, NAD recommended that Renue remind the employee of her obligation to clearly and conspicuously disclose in the video that she is an employee (such disclosure had appeared only in the video description, which NAD found insufficient).

In addition to the YouTube videos, links posted to a third-party affiliate website, Foodsecurity.org – curated by Shafique Siddique, a Pakistani “health and nutrition writer” based in Lahore – were also challenged as containing insufficient disclosures. Renue explained that its contractual relationship with its affiliates required sites to disclose their relationship. During the challenge, Renue contacted Siddique, who modified his site to include a disclosure. However, NAD recommended such disclosure be further modified to “identify the advertiser … with an affiliate relationship to the website and to more clearly identify who is receiving the commissions, rather than using the singular pronoun ‘I.’”

The Takeaway

The lesson here is a simple one – get your employees and affiliates in line.

Disclose, disclose, disclose – clearly and prominently – whenever an employee delivers testimonials (or anything that might be construed as such – like “research”) or there is any relationship between parties of which consumers should be aware.

Because why tempt fate or invite even a whiff of controversy or suspicion?

Hammer(s) Drop on Robocall Provider

Almost every AG signs on for mega suit against Avid

Twilight of the Dials?

Someone – was it Nietzsche or Eminem? – once said that to prove one’s mettle, one should seek out good enemies.

Avid Telecom CEO Michael Lansky has taken this maxim to heart. The list of state attorneys general who are suing him in the District of Arizona takes up the first three pages of their complaint.

Leaving aside the obvious bipartisan comity created by Lansky’s alleged misbehavior – he attracted the ire of 49 top state law enforcers – the sheer geographic range of his alleged offenses is impressive on its own.

TCPA-IP

What did Lansky do?

According to the complaint, between December 2018 and January 2023, Lansky and Avid Telecom were responsible for facilitating 24.5 billion robocalls and 8.4 million spoofed calls that appeared to be coming from government and law enforcement agencies – all in violation of the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telephone Consumer Protection Act (TCPA), and/or the Telemarketing Sales Rules.

Avid operated as a voice-over-Internet protocol, or VoIP, provider that provided its customers with direct inward dialing (DID), which displays a “Caller ID” number to an individual receiving a call. And as we mentioned in our last post about the war on robocalling, IP technology is what supercharges the endeavor.

Because IP is ubiquitous, decentralized, and flexible enough to transmit many forms of information simultaneously, it added enormous possibilities for services compared with the previous digital network protocols. But the problems presented by IP telecommunications piggyback on its virtues: IP makes robocalls easy to disguise, easy to automate and hard to track.

Avid used this technology to sell “data, phone numbers, dialing software, and expertise.” It sold DIDs in bulk and helped its customers “spoof” phone numbers to increase the odds of the recipient answering the phone. Additionally, these calls were used to transmit scams about the Social Security Administration, Medicare, auto warranties, credit card interest rate reduction and employment opportunities.

In addition to the federal law violations, the complaint alleges that Avid’s and Lansky’s actions violated numerous state telemarketing and consumer laws, and it seeks to enjoin Avid from engaging in these activities and to require Avid to pay civil penalties, restitution, and damages to the plaintiff states.

The Takeaway

What’s the takeaway for our fine readers? Make sure you do your due diligence with potential third-party partners offering telemarketing services that promote VoIP technologies, to make sure they have robust compliance practices in place that are nimble enough to update as needed with the many state law changes in telemarketing requirements.

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It’s Complicated, but We’re Still Wishing a Happy Pride Month to Everyone

Every year when the calendar metaphorically flips from May 31 to June 1, we get that extra pep in our step. Summer is just around the corner, pride flags are flying, iced coffee is flowing – and this year, Kylie Minogue is back and has already blessed us with the song of the summer. We would very much like to focus heavily on celebrating, but things just feel a bit too complicated this year – particularly when it comes to the hot topics of Pride Month, LGBTQ issues and corporate support of the LGBTQ community. And let’s be clear, we don’t like complicated – and things now feel decidedly complicated.

Let’s Get Informed About the INFORM Act

Congress sometimes passes legislation in a quite dramatic manner, with countless hearings, headlines, statements, and discourse. Other times, things happen just a bit more quietly, with language appearing in an omnibus appropriations bill, for example. The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Act or the Act) is a prime example of the latter. The Act is quite significant for platforms that host third-party online marketplaces, requiring the collection and disclosure of important seller information to ensure transparency. At its core, the Act is the result of broad concerns about the sale of stolen or counterfeit goods online.

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