Direct Sales and MLM

The Regulatory Hurdle That Is Politics

By
Clay Brewer

In the legal world, there’s always an angle. It’s our job as attorneys to assist clients in exploring this angle to bridge the gap between the regulatory hurdles–that seem to continue to change–and the long-term business vision that entrepreneurs have for their ventures.EVERYTHING these days is political, especially when it comes to the niche industries like network marketing. If you’re looking for an example of politics influencing a sector, look no further than the FTX crypto disaster. While the founder of FTX perpetrated arguably one of the largest consumer frauds in world history, the man is still not in prison. It might have something to do with the fact he contributed over $80,000,000 to politicians over the past 4 years.But the political environment is merely the angle. There’s always a path forward and a way to overcome the hurdles that businesses encounter along the way. The continuing FTX saga is just another example refuting the common statement entrepreneurs make: “Well, what about that company? They’re doing it.” The primary problem here is that there’s no rational trajectory for what may come down the regulatory pipeline and no model to review to determine what regulators may find objectionable conduct. When politics becomes the driving factor, comparisons are never the right game to play.In our practice, we’ve witnessed the SEC pursue a scorched-earth policy against a small entity that maybe reached $50,000 in gains to promoters with consumer harm minimal if any. It’s obvious this is done to add a quick notch in their belt as opposed to seeking to truly protect consumers. It’s easier to rack up the victories for an easy press release as opposed to getting into the weeds of a hard matter that truly makes change. The trends appear to be moving in the direction of the smaller you are, the more at risk you may be. This used to be the opposite when the big players were the targets. They are still to some extent, but the world is especially different in our industry. Today, it’s mainly about the headlines as regulators try to shift public perception.In short, companies that are subject to the changing tides outlined above should take appropriate measures as quickly as possible pre-launch and then as the company begins to understand how its vision matches the reality. For those companies who are already operational, it’s never too late to right the ship. Clearly defined policy documents, stringent compliance measures and industry understanding, stress testing the compensation plan to ensure the theoretical may withstand the actual. These are but a few mandatory items that all companies MUST do to even have a chance to be successful. Outside counsel is a great resource to have to bounce ideas around and to receive an unbiased, outside perspective on the ideas that you are wanting to implement. If there are spending constraints this early, then the company is likely not ready to launch because management is not prepared to invest in the items that are necessary for long-term success. If long-term success is not the goal but rather short-term, quick monetary gain, then, frankly, get the hell out of the industry because regulators will notice, you aren’t willing to invest in the right areas to get it right, and you are becoming the easy press release target that damages the industry as a whole and places a bigger bullseye on the back of those companies who are seeking to do it right.Be prepared to do it right or simply don’t do it at all because the regulatory hurdle that is politics is coming for you, the little man they avidly claim to protect. FTX is the eye-opening moment into this harsh reality. Consumer harm is the often-quoted motive, but the reality is it has become the mask that shades the internal motives of regulatory enforcement. We best know not only which game we’re playing, but also how to play it.

More Insight

February 26, 2024
By
Clay Brewer
Thoughts A Brewin' Newsletter 7: The California Risk
Learn more
Learn more
February 8, 2024
By
Clay Brewer
Thoughts A Brewin' Newsletter 6: Culture is Dead
Learn more
Learn more
January 29, 2024
By
Brooks Brasfield
Breaking Bad? Navigating the Corporate Transparency Act for Small Business Owners and Commercial Real Estate Investors
Learn more
Learn more