Examining the FTC’s Stance on Representations of Business Expenses in the Direct Selling Industry
On April 13, 2026, the FTC filed a complaint against Forever Living,[1] alleging that the direct selling company failed to accurately represent potential earnings in its Income Disclosure Statement (IDS) by omitting distributor expenses.[2] Along with the FTC’s complaint against International Markets Live, Inc. (IML),[3] the Forever Living complaint is the latest action taken by the FTC against a direct selling company that allegedly misrepresented potential earnings in its IDS. Indeed, at the 2026 Multi-Level Marketing Conference, the Associate Director of the Division of Marketing Practices at the FTC, Lois Greisman, noted that this case marks the first time in her memory that the FTC has critiqued claims of “extra,” “modest,” or “supplemental” income.[4] The FTC’s focus on IDS is not surprising: ensuring that a direct selling company’s IDS reliably and accurately reflects the actual experience of a typical distributor has long been the FTC’s requirement.
In this article, we break down the FTC’s current stance on IDS and their representations of distributor expenses as demonstrated by its recent publications on the subject: the FTC’s (1) Business Guidance Concerning Multi-Level Marketing (“2024 Guidance”),[5] (2) Multi-Level Marketing Income Disclosure Statements (“2024 Staff Report”),[6] and (3) Proposed Earnings Claim Rule Regarding Multi-Level Marketing (“2025 NPR”).[7] We then present three tools that experts can use to accurately assess business expenses incurred by distributors.[8]
The FTC’s Stance on Representations of Distributor Costs
In April 2024, two years before the FTC took action against Forever Living, the FTC published the updated Business Guidance Concerning Multi-Level Marketing that detailed the principles and practices that the FTC would consider in its assessment of whether a direct selling company offers an unlawful compensation structure and operates as an illegal pyramid scheme. Following the release of the 2024 Guidance, in September 2024, the FTC staff published a report on IDSs in which they analyzed 70 publicly available IDSs from a wide range of direct selling companies.[9]
Both the 2024 Guidance and the Staff Report discussed the FTC’s focus on direct selling companies’ representation of distributor expenses. The 2024 Guidance stated that, in addition to including all relevant participants[10] and avoiding extrapolation of earnings,[11] claims “about earnings should take into account both what participants earn and what they spend”[12] (i.e., IDSs should report net earnings, rather than revenue).
In particular, according to the FTC, expenses such as costs for product purchases, travel for conferences, tools or services, and training must be subtracted from any revenue earned to determine whether the participant has made a profit or lost money.[13]
The Staff Report found that many of the reviewed IDS did not account for expenses incurred by distributors, including those that are observable in distributor-level data (such as fees for registration, websites, or sales aids) and those that are unobservable (such as travel or business infrastructure).[14] Additionally, the Staff Report explained that in every IDS the staff reviewed where expenses are provided, “such information is less prominent than the dollar amounts that MLMs pay to participants.”[15]
In 2025, the FTC published a notice of proposed rulemaking regarding earnings claims of direct selling companies and an advanced notice of additional provisions to this earnings claims rule (“2025 NPRA”).[16] The 2025 NPR cited research which found that 34 analyzed publicly available IDS typically did not mention distributor expenses, and when they did, the disclosure provided no expense data that a consumer could use to assess the distribution of net earnings.[17] The 2025 NPR emphasized the importance of reporting net earnings, stating that, at minimum, direct selling companies “should know how much participants pay to the [company], such as fee to join the [company], mandatory or optional fees (e.g., website fees, fees for conferences and training events, product purchase costs, and costs to obtain marketing materials and samples).”[18]
Experts have tools to assess the portion of product purchases that can be considered to provide consumption value to distributors. For example, the Herbalife’s 2016 Stipulated Order defined allowable personal consumption as the greater of (1) $125 product expenditures or (2) the 75th percentile of average monthly product expenditures among preferred customers in the previous 12 months.[19] In other words, experts can use the purchases of preferred customers to assess the portion of products that can be considered to provide consumption value to the distributors who purchased them. If the direct selling company does not have a preferred customer program, experts can separate distributors interested in the business opportunity from “de facto discount buyers,” identified with a set of proxies. For example, if a participant, over the preceding 24 months of any given month (1) received no commissions, (2) recruited no downline distributors, (3) purchased no sales aids, or (4) never advanced in rank, that participant can be considered a de facto discount buyer disinterested in the business opportunity. Purchases of these de facto discount buyers, rather than preferred customers, can be used to assess the portion of products that can be considered to provide consumption value to the distributors who purchased them.
Importantly, the FTC’s guidance is not law.[20] The FTC’s stance on the inclusion of costs in an IDS has not yet been tested in courts.
Tools for Accurately Assessing Business Expenses
The assessment of costs incurred by individuals pursuing the business opportunity—which the FTC insists ought to be accounted for in the IDS—can be demanding. Many of these expenses are not observable in the business intelligence distributor-level data (e.g., cost of setting up and maintaining the business, cost of travel to conventions and other events, etc.). Even the observable expenses (e.g., starter kits, fees for registration and renewal, distributor websites, marketing and sales aids), which are generally captured in the order-line (SKU)-level data, can be challenging to assess, especially in instances where the expenses are not readily identifiable. For example, the assessment of costs associated with sales aids may require a thorough review of SKU descriptions, associated prices, and volume points. Experts have a number of tools to assess these costs, described below. Ultimately, the tool used to assess costs may be determined by the available data, budget, and timeframe. Courts have yet to test which tool may be preferred.
Typical and Recurring Expenses
Experts can impute typical and recurring distributor expenses by assuming that all distributors incur the same expenses in the relevant period, such as enrollment fees, website fees, membership renewal fees, or costs to attend annual conferences or other mandatory training. Because this tool is straightforward and doable with limited data, budget, and timeframes, we find that it is most frequently employed. However, this tool lacks a degree of precision. For example, depending on the company’s policies, not all distributors would opt to pay a website fee. Similarly, distributors may opt to pay monthly renewal fees in only a few months, rather than twelve.
Non-Commissionable Items
If order-line data are available, an expert can use item price and associated volume points to identify items that do not generate commissions for distributors, assuming that non-commissionable items have positive prices but carry no volume points.[21] This approach is likely more costly and time-intensive compared to the assessment of typical and recurring expenses, but it allows expenses to vary by distributor; it more precisely assigns expenses. However, to the extent that certain non-business expense items have positive prices but no associated volume points, this approach may overstate business expenses and thus understate net earnings.
Detailed Review or Order-line Data
Lastly, given sufficient time and resources, an expert can assess distributor expenses with a detailed review of information contained in order-line data. In some instances, the data include information regarding product categories (e.g., starter kits, sales aids, ticketed events), which makes this approach relatively straightforward. However, in instances where this information is unavailable, an expert may identify purchases that can be considered business expenses by item description and associated volume points. While this approach offers relatively precise, distributor-specific, and flexible estimates of business expenses, it is more expensive and likely more time-intensive than the other approaches described.
Direct Selling Companies Should Consider Disclosing Business Expenses in Preparing Their IDSs
Given the FTC’s current focus on the inclusion of business expenses in IDSs, direct selling companies should consider a second look at how they account for these costs in their earnings representations. Depending on budget and timeframes, companies have a number of options for bringing their IDSs up to the standards of the FTC in order to avoid the scrutiny currently experienced by Forever Living.
CITATIONS
[1] Complaint for Permanent Injunction and Other Relief, FTC v. Forever Living Product International, LLC, et al., In the United States District Court for the District of Arizona, Case No. 2:26-cv-02526, April 13, 2026 (“Forever Living Complaint”).
[2] The FTC claimed that “contrary to Defendants’ representations that consumers are likely to make a profit as [distributors], Defendants’ data show that the vast majority of consumers pursuing the [business opportunity] incur expenses (indeed, Defendants encourage them to do so) but receive no income from Forever Living.” (Forever Living Complaint, ¶ 4.) The FTC included product purchases and shipping costs as expenses. See Forever Living Complaint, ¶ 18.
[3] The complaint notes that IML’s representations of distributors’ earnings “are inflated, because they do not account for any advertising costs or other expenses that salespeople might incur, such as travel and lodging at IML sales events and conferences. While IML admits that the IDS earnings figures do not take into account business expenses, that statement is hidden in fine print at the bottom of the document.” (Complaint for Permanent Injunction, Monetary Judgement, and Other Relief, FTC and the State of Nevada v. International Markets Live, Inc., et al., United States District Court for the District of Nevada, Case No. 2:25-cv-00760, May 20, 2025, ¶ 105.)
[4] Ms. Greisman also explained that the Forever Living case is unique in that it addresses “pretty significant” shipping costs.
One of the FTC’s three counts of violations of the FTC Act was “Failure to Disclose Material Shipping Costs.” (Forever Living Complaint, ¶¶ 101–103.) Under the proposed order settling the FTC’s allegations, the FTC requires Forever Living to disclose any fact material to consumers concerning the business opportunity, including total expenses and costs. (Stipulated Order for Permanent Injunction and Other Relief, FTC v. Forever Living Products International, LLC, et al., In the United States District Court for the District of Arizona, Case No. 2:26-cv-02526, April 14, 2026, p. 4.)
[5] FTC, “Business Guidance Concerning Multi-Level Marketing,” April 2024, available at https://www.ftc.gov/business-guidance/resources/ business-guidance-concerning-multi-level-marketing (“2024 Guidance”).
[6] FTC Staff, “Multi-Level marketing Income Disclosure Statements,” September 4, 2024, available at https://www.ftc.gov/system/files/ftc_gov/pdf/ mlm-ids-report.pdf (“2024 Staff Report”).
[7] FTC, Notice of Proposed Rulemaking: Earnings Claim Rule Regarding Multi-Level Marketing, January 13, 2025, available at https://www.ftc.gov/legal-library/browse/federal-register-notices/earnings-claim-rule-regarding-multi-level-marketing (“2025 NPR”).
[8] While these adaptations generally require direct sellers to adopt conservative measures of participants’ earnings and treat the IDS as a risk management tool, we are cognizant of a potential tension between this approach and the IDS as a marketing tool meant to attract potential participants. For more information on the FTC’s recommendations, see “Breaking Down the FTC’s Updated Business Guidance Concerning Multi-Level Marking and Income Disclosure Statements,” published by Branko Jovanovic and Monica Zhong in the Journal of Direct Selling Research, January 2025.
[9] 2024 Staff Report, p. i.
[10] 2024 Guidance, question 24.
[11] Ibid..
[12] Id., question 13.
[13] See 2024 Guidance, question 13. Note that the FTC’s response to question 14 states that “[i]f an MLM or MLM participant does not have access to data showing what participants typically spend pursuing the business opportunity (e.g., product or service purchases, website fees, party costs, and training or conference expenses), they should refrain from making any earnings claims.” In response to question 23, the FTC states that “If an MLM does not have evidence of the typical earnings of its participants (including any costs that its typical participants incur), it should refrain from making any earnings claims and ensure its participants do the same.”
In the Forever Living complaint, the FTC appears to suggest that Forever Living’s statement that “they are ‘unable to provide documents that provide the underlying data for [that] IDS or otherwise substantiate this document’ is proof that Forever Living could not substantiate its IDS given that all documents related to the earnings claim were preserved pursuant to a June 28, 2022 legal hold (i.e., any substantiation documents would have been preserved). (Forever Living Complaint, ¶ 54.)
Economist Stacie A. Bosley, frequently cited by the FTC (see, e.g., 2025 NPR), explained that the Direct Selling Association’s self-regulation body, the Direct Selling Self-Regulatory Counsel, maintains its own guidance on appropriate IDSs which states that “disclaimers should incorporate ‘mandatory or de facto mandatory costs of participation in a direct selling business opportunity.” She and her colleagues observe, however, that “there may be different interpretations of ‘mandatory’ or ‘de facto mandatory,’ and [direct selling] firms may characterize most or all incurred expenses at voluntary.” (Stacie A. Bosley, Kiana Kotasek, Sarah Greenman, and Samantha Snyder, “Earnings Claims and Disclaimers in Multilevel Marketing: Testing the Impact of Self-Regulatory Guidance,” Journal of Public Policy & Marketing, Vol. 45, No. 2, 139–157, May 31, 2024, p. 142.
[14] In regard to external expenses, the Forever Living complaint claims that “Defendants do not know to what extent [distributors] incur expense other than for the purchase of products, services, or access to trainings or conferences from Defendants.” (Forever Living Complaint, ¶ 78(b).)
[15] 2024 Staff Report, p. 12.
[16] FTC, Advance Notice of Proposed Rulemaking: Earnings Claim Rule Regarding Multi-Level Marketing (Additional Provisions), January 13, 2025, available at https://www.ftc.gov/legal-library/browse/federal-register-notices/earnings-claim-rule-regarding-multi-level-marketing (“2025 NPRA”).
Neither of these proposed rules were prescriptive, arguing that “what constitutes a reasonable basis is fact-specific and depends on the claim that is being made and the surrounding circumstances.” (2025 NPR, p. 52.)
[17] 2025 NPR, pp. 14–15.
[18] 2025 NPRA, pp. 22–23.
In March 2025, Washington State provided a template for an acceptable IDS in a consent decree for a direct selling company. The template requires that expenses considered in the profit calculation include “fees, starter kits, product purchases, tickets for conventions or training programs, shipping and handling and sales aids.” It notes that “[p]possible additional expenses not represented. . . may include:
- Additional fees or tickets for conventions or other training programs
- Travel
- Lodging
- Food
- Childcare
- Packaging & shipping
- Purchasing Product from other [distributors], and
- Other business expenses.”
At the 2025 Annual Multi-Level Marketing Conference, two Assistant Attorneys General in the Washington State Office of the Attorney General presented this template in a session on FTC, State of Washington AG; State statutes; and Google Trends to detect pyramid scheme activity.” (Multilevel Marketing: The Consumer Protection Challenge (May 8–9, 2025), https://www.mlmconference.com/schedule-1.)
[19] Stipulated Order for Permanent Injunction and Monetary Judgement, FTC v. Herbalife International of America Inc., et al., United States District Court for the Central District of California, Case No. 2:16-cv-05217, July 25, 2016, pp. 9–10.
[20] 2024 Guidance, question 33: The 2024 Guidance “is an FTC staff business guidance document. It does not necessarily represent the views of the Commission or any Commissioner and is not intended to, and does not, create any rights or obligations with respect to the Commission, FTC staff, or the public.”
[21] In this approach, experts can calculate shipping costs as well. Business expenses including shipping costs would be calculated as the sum of product price × quantity for products with no associated volume points plus the sum of all shipping costs. Note, however, that experts could not account for shipping costs passed through to end users without detailed field sales data.