Below is an excerpt from my article about the Ninth Circuit opinion on BurnLounge. The article can be read in full over at Seeking Alpha. It’s an important subject. Click here to read it.
- The Court successfully threaded the needle on the issue of “ultimate users,” essentially creating two classes of participants.
- The Court provided several factors throughout the opinion to help outsiders deduce the motivation driving consumption. This is especially helpful in assessing $HLF.
- The Opinion will require the FTC’s pyramid scheme expert to create another analytical framework to distinguish pyramid schemes from legitimate direct selling companies (assuming they need one).
- The Court adopted the logic provided by the FTC in its 2004 Staff Advisory Opinion.
- The Court eliminated all confusion regarding Omnitrition as it completely ignored the widely referenced dicta that consumption from participants cannot count as sales to “ultimate users.”
On June 2nd, 2014, the Ninth Circuit published its long awaited BurnLounge Opinion. Within hours, both sides of the Herbalife battlefield issued statements claiming victory about the decision. I’ve taken the week to process the opinion. During this time, I’ve tried to keep up to speed with the online chatter regarding various interpretations. One thing is clear: the gray space in MLM law separating legitimate direct selling companies from pyramid schemes has been minimized considerably.
On the one side, Bill Ackman’s Pershing Square spun it as validation of its argument that commissions in the Herbalife plan were derived primarily by opportunity driven demand (recruitment rewards) instead of legitimate product consumption. On the other side, the MLM industry (myself included), breathed a sigh of relief, submitting that the decision validates a lot of our main points in responding to common criticisms of the model. This article is intended to cull out the key nuggets in the BurnLounge decision and interpret what it means going forward.
End of Excerpt
Click here to read the rest of the article on Seeking Alpha. Seeking Alpha is a news site dedicated to publishing content about publicly traded companies. The article took me quite a bit of time to prepare. I hope you find it informative.