MLM attorney Gerald Nehra and the FTC’s proposed Business Opportunity Rule

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I thought it might be some fun to do a little research on Gerald Nehra, the attorney for Shop To Earn, who likes to intimidate bloggers who write negative reviews of MLMs. I found this item from Nehra, in response to the FTC’s proposed Business Opportunity Rule.

The rule is unlikely to be enacted in any form that will do something to stop the abuses by multi-level marketing companies. Nonetheless, these comments are fun to read. Nehra’s biggest complaint in this note? The fact that it will take time to comply with the rules! Heavens, no!

Business Opportunity Rule, Matter No. R511993

The underlying basis of this Proposed Rule is so flawed that I have to ask, “FTC—What were you thinking?” I have issues to bring up—many issues. Due to the 4000 character space limitation imposed on this form of submission, this is a one issue submission. My other issues will be in other submissions.

THE FIVE HOURS PER YEAR OF EXTRA WORK – ISSUE
On Page 84 “As discussed in section H above, FTC staff estimates that the total number of hours initially to comply with the proposed rule to be approximately 16,000 (3,200 sellers x 5 hours), with a total initial legal and clerical cost of $4,000,000 (16,000 hours x $250). FTC staff expects that the annual burden will diminish after the first year, however, to approximately 12,800 hours (3,200 sellers x 4 hours) or fewer, for a total average of annual legal and clerical labor costs of $3,200,000 (12,800 hours x $250), or less.” FTC—WHAT WERE YOU THINKING?

How can you describe maintaining records of a two-year look back on cancellation requests and maintaining records of a three-year look back on purchases (or the ability to identify the ten prior purchases nearest the prospect), and then state your estimate of the initial and continuing legal and clerical cost of WHAT? Did I read this correctly? Note that this is just a part of the new record keeping and disclosure required. But for ALL of the new record keeping and disclosure required, the FTC estimates five hours of legal and clerical time—total—FOR THE ENTIRE FIRST YEAR for each company, and then four hours total—PER YEAR—after the first year. And the FTC sent these figures to the Office of Management and Budget.

Many companies will be submitting powerful evidence of how wrong this estimate is. I know of one company with evidence of error, not by a factor of 100, but by a factor of 1,000. The words “legal and” are inserted before “clerical” twice in the above estimate prepared by the Rule drafter(s). So legal costs are at least acknowledged, but are INCLUDED in the estimates. No company officer in their right mind would implement compliance with this rule, as written, without legal counsel. And who would they ask? If they do not have an in-house legal department, they will ask their on retainer network marketing legal counsel (if they have one.)

My full time legal practice is devoted to advising network marketing companies, so I know of which I speak. There is NO WAY I would commit to legally advising a company on complying with this rule, for the legal fees of – PER YEAR – what is left over, or NOT spent with the clerical people – of the 5 hour @ $250/hr. first year estimate, and the 4 hour @ $250/hr. following years estimate.

Perhaps writing it out this way will allow the reader to see how ludicrous and ridiculously low these estimates are. I would not estimate anything under two hours PER MONTH to interact with and continuously advise a network marketing client company on compliance with this rule. My hourly rate is $275 per hour, when not on an unlimited access retainer. My one year, unlimited access retainer of $12,000 would be raised to $15,000 if this rule were in effect.

This underlying premise of this proposed rule – namely – that 5 hours of legal and clerical effort, per company, will be required in the first year of the rule – is so flawed, so understated, so erroneous, that the only solution is to withdraw the proposed rule completely – and not put forth another version until the Federal Trade Commission understands and states with some reasonable semblance of accuracy, what “legal and clerical” burdens the proposed rule will impose on the business community.

Submitted by: Gerald P. Nehra Attorney at Law

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