Both Neora and I2G Infinity Two Global faced identical charges related to operating as pyramid schemes. The allegations against both companies were nearly the same, focusing on their binary compensation plans and similar multi-level marketing (MLM) practices. The prosecutors in the I2G case went further by attempting to classify binary compensation plans as illegal, implicating those involved as well. Their expert, Dr. Keep, referred to these plans as “binary pyramid scheme structures.” Although Infinity Two Global reported significantly higher earnings for its distributors compared to Neora, this data was not presented to the jury because the government filtered it from their total gain-loss representations.
The characteristics cited by the government as evidence of a pyramid scheme in the case against I2G were similar to those presented against Neora, which was ultimately cleared of all pyramid scheme charges. For example, both companies employed a binary compensation plan that included fast start bonuses, binary bonuses, matching bonuses, and leadership bonuses. They both offered opportunities for rank advancement and held meetings where top distributors were recognized, featuring check presentations.
In both cases, the government’s experts claimed that the respective companies had a 90% focus on recruiting, with a 97% loss rate for participants. The similarities in practice are striking, especially considering that Neora was cleared entirely of being a pyramid scheme despite having the same qualities that the government argued indicated I2G was a pyramid scheme. If I2G had been permitted to use their pyramid scheme expert, as Neora did, the outcome would likely have been the same as with Neora.
In reality, thousands of MLM companies share similar compensation structures. The practice of recognizing top performers with checks has been a common feature in the industry. This practice continues to occur today and is not illegal.
Neora introduced an expert witness, Dr. Vansdale, who provided industry statistics that helped the judge establish the necessary basis for comparison within the legal framework. In contrast to I2G, Neora effectively countered the same claims made by William Keep using their expert, Dr. Vansdale. Ultimately, the judge found Neora’s expert more credible and ruled that, similar to Keep’s perspective, Bosley’s opinions were “rigid” and not grounded in reality. I2G was denied the opportunity to present its expert witness on the topic of pyramid schemes.
Given the high stakes of a criminal trial, this trial error represented an abuse of discretion that severely limited the defendants’ ability to challenge Dr. Keep’s rigid and unfounded opinions. The Neora judge could see through these opinions due to the reliance on Dr. Vansdale. As I2G did not, Neora would not have had a fair trial or a favorable outcome without the ability to present their expert to counter Bosley.
The Neora judge acknowledged the long-standing legal standard of “internal consumption,” which drives MLM sales. Unlike the assertions made by Keep and the government, this measure of sales within a network has always been considered legitimate. Ultimately, the court found that Neora operated with nearly a 90% internal consumption rate. Therefore, the sales that Keep claimed made i2G representative of a pyramid scheme were deemed by the Neora Court to be baseless and rigid opinions lacking any grounding in reality.
I am providing some notes I previously compiled for the attorneys, including valuable data from Jeff Olsen’s lawsuit against the FTC. Olsen directed the judge to a long history of the FTC’s actions, guidance, and legal standards. The judge noted that the FTC’s evolving guidance contradicted the charges against Neora. Additionally, the judge recognized “internal consumption” as a long-standing legal standard that heavily influenced her decision.
According to industry statistics presented by Vansdale, nearly 70% of individuals who join MLM companies never actively engage in the business or earn commission, yet many continue to purchase products. The judge concluded that excluding people who participate solely for product consumption or who earn nothing does not accurately represent a pyramid scheme. Judge Barba Lynn made an analogy of that consumers come out of a grocery store poorer than they entered, but that did not make them unwitting victims.
Judge Lynn refused to presume the motivations of an entire distributor base. Neora distributors, much like I2G distributors, expressed various reasons for their involvement in the business. For instance, I2G charged a one-time fee for a “master license,” which granted access to all current and future products, as explained by Glen Logan. He primarily joined to maintain ongoing access to these products. The government’s witness, Mark Logue, cited the same motivation for his participation.
Other witnesses for the government indicated that their interest in the products motivated their decisions to join. For instance, Shawn Vougeot stated that she joined because of Songstagram and her connection to the music industry. Catrina Duggar testified that her passion for I2G products influenced her decision, and she described her participation in the I2G Touch, online games, and fantasy sports. Anzalone confirmed the widespread use of I2G products, noting that his wife conducted all the training on them and that he introduced Maike to the Touch product. He mentioned that he and others enjoyed playing fantasy sports and found the G1E Touch and Songstagram to be excellent products. Additionally, training videos were submitted as evidence, showing that thousands of I2G distributors were registered for the I2G/G1E Touch.
The prosecution erred by making assumptions about the motivations of individual distributors. The Neora Court analogized that everyone who emerges from a grocery store is poorer than when they entered, emphasizing that this does not inherently make every individual who did not earn commissions a victim of a scheme by the grocery store. In the I2G case, all emperors received commission payments, although not all recruited other participants. Each emperor earned small rewards from the casino, ranging from $10 to $20 monthly. While the government argues whether there were casino profits to justify $10 a month, the fact is that all emperor purchasers did receive these small payments. In this regard, I2G statistics were better than average, where 70% of participants do not earn anything.
Vansdale pointed out that among 35,000 Neora distributors, only 7 reached the top rank. In contrast, I2G had around 20,000 distributors, of whom 7 individuals, either individually or with partners, earned over $1 million. Furthermore, the withheld data on top earners revealed that 256 distributors made over $10,000 in 2014 alone. Additionally, 1099 forms indicated that 1,100 U.S.-based distributors earned over $600 in 2014. Clearly, I2G had significantly better earning statistics than the average MLM, disputing the government’s claim of a 97% loss rate.
Notes to lawyers
A robust insufficiency argument requires a thorough understanding of the legal standard of “internal consumption” and the reference materials that support it. This can be inferred from cases such as Neora, Gold, Torres, Omnitrition, and BurnLounge. Additionally, having a strong grasp of the FTC guidance, relevant Congressional bills, and Amicus briefs that outline the legal standard is essential for making the argument definitive.
The Neora lawsuit provides $8 million worth of historical, legal, and reference material, along with FTC guidance on pyramid schemes. A strong understanding of the law as it pertains to “internal consumption” is essential, especially when the government and Dr. Keep misrepresented it, which affected the jury’s ability to assess whether a pyramid scheme was present. “Internal consumption” is the long-established legal standard for multi-level marketing (MLM).
The intent of Congress and the Senate, twenty years after Gold, was to regulate pyramid schemes as a civil violation of the FTC Act, which includes “internal consumption.”
From Neora Lawsuit: “Congress has not expressly preempted state pyramid scheme laws. It should be noted that in 2017-2018, Congress considered whether or not it should adopt an amendment to the FTC Act that would expressly make pyramid schemes illegal under the FTC Act. The House Bill, H.R. 3409, was introduced by Representative Marsha Blackburn.101 It was titled the “Anti-Pyramid Promotional Scheme Act of 2017”.102 A related Senate Bill, S.3, was introduced by Senator Orrin Hatch. It was titled the “Anti-Pyramid Promotional Scheme Act of 2018”.103 The House Bill stated that it was intended: U.S. Government Amicus Brief filed in Altria Group Inc. et al. v. Good et al., No. 07-562 https://www.ftc.gov/sites/default/files/documents/amicus_briefs/altria-group-inc.et-al.v.good-etal./080620_07-562bsacus.pdf 101 Dealt with the extent of regulatory power under the FTC Act to preempt State Law-
Neora lawyers argued that the FTC can’t preempt state law- to make up their laws regarding pyramid schemes based on evolving guidance and with a lack of formal “rule-making.”
Congress Bill 104 to regulate pyramid schemes (civilly) under the FTC ACT as deceptive business practices ***To amend the Federal Trade Commission Act to prohibit pyramid promotional schemes and to ensure that compensation is not based upon recruitment of participants into a plan or operation, but on sales to individuals who use and consume the products or services sold, and for other purposes.104 The Congressional Research Service summarized the House Bill as follows: This bill amends the Federal Trade Commission Act to make it unlawful for anyone to establish, operate, or promote a pyramid promotional scheme. “Pyramid promotional scheme” means any plan or operation in which individuals pay consideration for the right to receive compensation based upon recruiting other individuals into the plan or operation rather than primarily related to selling products or services to ultimate users. Furthermore, any person who establishes, operates, or promotes any plan or operation that sells or solicits the sale of consumer products or services in the home or otherwise outside of a permanent retail establishment and that sells products or services to independent salespeople shall have a bona fide inventory repurchase agreement. A violation of the bill shall be treated under the Act as an unfair or deceptive act or practice in, or affecting, commerce.
105 The Senate Bill states that it was intended: To amend the Federal Trade Commission Act to prohibit pyramid promotional schemes to ensure that compensation is not based upon recruitment of participants into a plan or operation, but instead based primarily on sales to individuals who use, resell, or consume the products or services sold, protect participants, prohibit inventory loading, and for other purposes.106 A violation of the bill shall be treated under the Act as an unfair or deceptive act or practice in, or affecting, commerce.107 85.
Neither bill made it out of the committee. However, these unsuccessful bills highlight that no federal law, including the FTC Act, provides a definition of a pyramid scheme. Furthermore, there is no express Congressional preemption of state laws that define whether an MLM is a pyramid scheme. Additionally, it is evident that Congress intended to regulate pyramid schemes civilly under the regulatory authority of the FTC and under Section 5a of the FTC Act, which pertains to civil violations related to unfair business practices, rather than imposing a criminal charge punishable by 20 years in prison.
Keep, and the Government misrepresented the law because they directly told the jury that internal sales don’t count—only retail sales were legitimate, even in closing arguments. The Court refused an instruction on internal consumption, severely limiting the jury’s consideration of “product sales” against the established legal standard
Dr. Keep and the I2G Court’s standard is contradicted by Neora, Torres, Amway, BurnLounge, Omnitrition, FTC guidance from 2004 and 2018, the DSA amicus brief, and the intent of Congress through the failed anti-pyramid Acts of 2017 and 2018, along with Kentucky law.
Relevant to the pyramid scheme inquiry is the FTC’s 2004 and 2018 published guidance regarding multi-level marketing companies cited in Neora’s opinion pg 38 and 29. Neora’s lawsuit had a wealth of references outlining the vague, evolving, and impossible legal standard for any company, much less a distributor, to follow. https://truthinadvertising.org/wp-content/uploads/2023/09/DSA-Amicus-Brief-doc-260.pdf
In January of 2004, the FTC issued an Advisory Opinion discussing, in part, the FTC’s “analysis of compensation based on personal consumption by members of a multi-level company’s sales force.” Ex. 114 (“2004 FTC Advisory Op.”) at 1. The FTC provided the following guidance: Much has been made of the personal or internal consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme. The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture. A multi-level compensation system funded primarily by such non-incidental revenues does not depend on the continual recruitment of new participants and, therefore, does not guarantee financial failure for the majority of participants. In contrast, a multi-level compensation system funded primarily by payments made for the right to participate in the venture is an illegal pyramid scheme. Id. (emphasis added).
The 2004 Advisory Opinion further distinguished an illegal pyramid scheme from a legitimate buyers club, which “confers the right to purchase goods and services at a discount” and is distinguishable from a pyramid scheme, in part, because “the purchase of goods and services is not merely incidentally to the right to participate in a money-making venture, but rather the very reason participants join the program.” Id. at 2.
In January 2018, the FTC released a staff business guidance document, “Business Guidance Concerning Multi-Level Marketing.”Ex. 115 (“2018 FTC Guidance”). Although not legally binding, the guidance purported to “assist multi-level marketers” in applying core consumer protection principles to their businesses. Id. at 1. In the guidance, the FTC noted that Case 3:20-cv-01979-M Document 347 Filed 09/28/23 Page 28 of 56 PageID 21353 29 “[p]roduct that is purchased and consumed by participants to satisfy their own genuine product demand—as distinct from all product purchased by participants that is not resold—is not in itself indicative of a problematic MLM compensation structure,” and instead the analysis “involves a comprehensive analysis of a variety of factors.” Id. at 2. In doing so, the FTC affirmed its prior 2004 Advisory Opinion, noting that “when evaluating the issue of participants’ internal consumption, the FTC staff is likely to consider, among other factors, both (i) whether features of the MLM’s compensation structure incentivize or encourage participants to purchase product for reasons other than satisfying genuine demand; and (ii) information bearing on whether purchases were in fact made to satisfy personal demand to consume the product.” Id. at 2–3.
All of these were influential with the Neora Court opinion
Internal consumption- referred to From Neora Opinion pg 28-29 Also cites Koskot, Burnlounge, Torres in support
Neora’s lawsuit was dismissed before trial as the Court ruled that Neora could defend itself against being accused of being a pyramid scheme at trial- it has a great historical overview of FTC actions and lacks a clear definition of the pyramid scheme or how to determine actions that violate the FTC Act.
