The Federal Trade Commission obtained a temporary restraining order prohibiting SeaSilver, a fast growing network marketing company, from selling its product. The TRO was obtained because of allegations the company was making unsubstantiated product claims. This marks the second time in 6 months that the FTC has closed a company down, at the same time it initiated legal action against the company.This effectively makes the legal action irrelevant and redundant. After all the company is now out of business, no muss, no fuss, no due process. It is a fascinating, and scary development in the ongoing battle between the government and the industry.

Now hold on to your e-mails, I am not arguing the merits of this specific case. Nor am I going to spend time speculating whether or not SeaSilver will be able to survive this TRO. No one knows if SeaSilver will be able to get running at full strength again. However, historically it is very difficult for a company to remain viable after being held in receivership for even a short time, and the FTC has to know this. I believe this is one of the reasons they are now employing this strategy. I have several friends who are SeaSilver distributors. The frustration and uncertainty of having a company you believe in shut down is hard to imagine if you have never been through it. My heart goes out to all SeaSilver distributors.

While I am not an attorney, it seems to me this marks a significant raising of the stakes on the FTC’s part. In the past, the legal strategy of the FTC was to investigate companies who they received complaints against, and initiate legal action against those companies who they believed were violating the law. In most cases, if the FTC prevailed, the company paid a fine, and promised to comply in the future. Apparently the FTC did not think a strong enough message was being sent. They are now sending a much stronger message,--if you cross the line of product claims, or anti-pyramid regulations, we will try to put you out of business.

If this is the beginning of the FTC’s new legal strategy what does it mean to Network marketing companies?

1. Companies are going to have to follow the rules from the first day of their business. On the one hand, I get very frustrated with the FTC because they are now catching good companies in their net as well as bad companies. But on the other hand, I have had many people say to me, “I am going to make these claims until I get caught, and then we will be more careful“. Playing outside the rules is causing difficulty for every company.
2. Distributors must check out companies more thoroughly. In the SeaSilver case, top distributors assets were frozen. A reminder that the FTC takes the position that distributors are liable for repeating what is printed in company literature.
3. The industry must stick together, we are an independent lot and sometimes that’s fine. But if we let one company after another be picked off by this strategy without due process, somedayit will be your company that is targeted.

If you are involved in network marketing today, it is important to understand the rules have changed. Product and income claims that would get a company a slap on the wrist a few years ago, can get a company shut down today. I know lots of people can name a lot of companies that still make product and income claims that haven’t been shut down. But lets call it the Martha Stewart syndrome, was Martha Stewart the worse case of insider trading the SEC ever investigated? Not even close, but of hundreds or thousands of cases she got caught in the SEC’s searchlight. Likewise if a company you are working with becomes successful enough and is involved in these practices they will get caught in the FTC’s searchlight. (If they don’t become successful, what is the point of you being involved with them. )

For the long-term viability of the industry, we must start effectively policing ourselves so it is easy to tell companies that live by the rules from companies that don’t. And that those companies who are committed to the future of the industry need to work to come to terms with the FTC and/or help companies that are shut down by the FTC in order to insure that this new strategy does not become business as usual for the FTC.