FTC Compliance for MLM Companies
What the Federal Trade Commission has proposed, what it has actually enforced between March and May 2026, and what a direct selling operator should be writing down before anyone asks.
This page is not legal advice
It is a plain-language summary of public regulatory material, current as of 9 August 2026. Every regulatory statement below links the primary source it came from so you can read it yourself. Regulations, proposed rules and enforcement positions change, and nothing here has been written with knowledge of your company, your compensation plan or the claims your field is making.
Take advice from a qualified attorney about your own plan, your own marketing materials and your own claims before relying on any of it.
Why this matters to you right now
Between March and May 2026 the Federal Trade Commission brought or resolved four separate matters against direct selling and business-opportunity sellers, and every one of them turned on earnings claims. Five defendants behind the IM Mastery Academy scheme agreed to surrender nearly $90 million in assets over false or baseless earnings claims (FTC, 13 May 2026). Forever Living Products International, its CEO and its president were permanently prohibited from making deceptive earnings claims (FTC, 14 April 2026). An individual top-level distributor was pursued in her own name (FTC, 13 April 2026). And an AI-marketed business opportunity was shut out of the market entirely (FTC, 24 March 2026).
None of these were about compensation plan geometry. None were about whether the products were good. They were about what somebody said people could earn, and whether there was anything on paper behind it at the moment it was said. That is the exposure a founder should be managing, and it is a records problem before it is a legal one.
The proposed MLM Earnings Claim Rule
Read this first: the Earnings Claim Rule described below is a proposal. It was published as a Notice of Proposed Rulemaking in January 2025. It is not currently binding on anyone, and this page does not tell you it is. Treat it as the clearest available signal of how the FTC intends to regulate, not as a rule you are breaking today.
In January 2025 the FTC published a Notice of Proposed Rulemaking that would expand the existing Business Opportunity Rule (16 CFR Part 437) to cover “money-making opportunities” such as business coaching and investment opportunities. In a companion rulemaking referenced in the same notice, the Commission proposed a new Earnings Claim Rule specifically addressing MLM companies. The MLM-specific rule is deliberately carved out of the money-making-opportunity definition so that the two rules do not overlap (FTC Business Opportunity Rule NPRM, 13 January 2025).
Both proposed rules would put the same two duties on a seller who makes an earnings claim:
A reasonable basis, in writing, at the time the claim is made
Not assembled afterwards when someone asks. The proposal requires written substantiation to exist at the moment the claim goes out.
Made available on request
To prospective purchasers, and to the Commission. Substantiation you cannot produce is, for this purpose, substantiation you do not have.
The industry is not united on this. The Direct Selling Association formally opposed extending Business-Opportunity-Rule-style regulation to the MLM industry in its comments on the earlier Advance Notice of Proposed Rulemaking, while consumer advocacy groups including Truth in Advertising and the Consumer Federation of America supported expanded regulation (NPRM §II.B, citing DSA ANPR Comment No. 29). The outcome of the rulemaking is not settled, which is precisely why the sensible operator response is to build the record-keeping habit now rather than wait to find out.
Worth noticing: the substantiation duty attaches to the claim, not to the rule. The four enforcement actions below were brought under existing law, without the proposed rule. The proposal would formalise an expectation the Commission is already enforcing.
How the FTC is proposing to define an MLM
The FTC's draft text proposes three alternative regulatory definitions of “MLM” — Alternatives A, B and C in the rule text. They differ in wording, but all three are built on the same underlying test: does a participant earn compensation, in whole or in part, from the purchases, sales or activity of downline participants they did not personally recruit? (NPRM §II.D.1 and definitions, 13 January 2025)
This is the single most useful paragraph in the whole notice for an operator designing a plan, for two reasons. First, it is the clearest current articulation of how a federal regulator thinks about multi-level compensation. Second, it makes the plan's marketing label irrelevant. Binary, unilevel, matrix, hybrid, “we're not really MLM, we're social commerce” — none of that engages the test. The question is purely mechanical: is anyone paid on activity from people they did not personally sign up?
The rule text is explicit that this is the norm rather than the edge case. It describes “the (very common) structure in which compensation is or can be affected by both the activities of one's immediate downline and the activities of non-directly recruited downline participants” as exactly what the definition is built to capture (NPRM, definitions and §II.D.1). If your plan blends personal sales with team overrides — and most do — assume you are inside the definition and plan accordingly.
The notice also shows how granular the Commission's attention is. It cites a company's own policies and procedures document — Nu Skin's US Policies and Procedures — as an example of a company reserving discretion to place company-referred customers into a particular distributor's downline (NPRM n.74). Even “who counts as recruited by whom” is a design choice a regulator has read your policy document to understand. If you are still shaping your plan, our page on compensation plan structures covers the mechanics of placement and overrides.
What the four 2026 enforcement actions have in common
Four actions between March and May 2026. Different companies, different products, different sizes. One fact pattern: an earnings claim without a documented basis in what participants typically experienced.
| Action | Date | What it turned on | Source |
|---|---|---|---|
| IM Mastery Academy IYOVIA, iMarketsLive, IM Academy |
13 May 2026 | The FTC and the State of Nevada announced that five defendants would surrender nearly $90 million in assets to settle charges of false or baseless earnings claims. The scheme is alleged to have generated more than $1.2 billion since 2018. | FTC press release |
| Forever Living Products International | 14 April 2026 | An order permanently prohibiting the company, its CEO and its president from making deceptive earnings claims. The FTC alleged most “Forever Business Owners” made little or no money despite claims of substantial income, including a company officer stating on video, “We will be paying millions in bonuses next year.” | FTC press release |
| Stormy Wellington An individual, not a company |
13 April 2026 | A settlement with a high-level participant in two different MLMs (Total Life Changes and Farmasi) over allegedly false claims — including a social-media post promising to “help 1000 families make 5-7 figures in the next 90 days to 12 months.” A rare example of the FTC pursuing an individual top-level distributor rather than the company. | FTC press release |
| Air AI AI claims on a business opportunity |
24 March 2026 | A settlement banning Air AI and its owners from marketing business opportunities, over claims the company misled small businesses about earnings potential and refund guarantees for an “AI-powered phone call” product. The proposed order includes an $18 million monetary judgment, largely suspended for inability to pay, with $50,000 actually payable. | FTC press release |
The one that generalises furthest: an individual was pursued
On 13 April 2026 the FTC settled with a high-level participant in two different MLMs over her own social-media earnings claims. She was not the company. The claim in question was a post, not a piece of approved corporate collateral (FTC, 13 April 2026).
For an operator this cuts both ways. Your top earners carry personal exposure for what they post. And a company that has no practical way of seeing what its field publishes, no policy against unsubstantiated claims, and no record of ever having enforced one, is in a weak position to argue those posts had nothing to do with it.
The other: AI messaging does not get its own rules
The Air AI action concerned earnings claims and refund guarantees layered onto an “AI-powered” business opportunity sold to small businesses. The settlement bans the company and its owners from marketing business opportunities at all (FTC, 24 March 2026).
If you are adding AI messaging to your opportunity — AI-assisted prospecting, AI-scored leads, an AI tool in the starter pack — the earnings claims you attach to it are assessed the same way as any other. The technology does not supply the substantiation.
Penalty exposure, described honestly
Violations of the Business Opportunity Rule can carry civil penalties. The structure of that exposure is not in dispute: penalties are assessed per violation, and per day, and the maximum amount is adjusted annually for inflation. The per-day, per-violation multiplier is the part that matters commercially — a single piece of marketing that runs for a quarter is not one violation.
We are not going to quote you a number, and you should be sceptical of pages that do
A specific per-violation dollar figure circulates widely in secondary commentary about MLM and business-opportunity enforcement. When we tried to trace it, the only source we could find for it was a law-firm client publication. We could not locate a primary FTC penalty schedule confirming that the specific rate applies to the Business Opportunity Rule. So we have left the number out rather than repeat it and lend it authority it has not earned.
If you need the current figure — and if you are budgeting for regulatory risk, you do — get it from the FTC's own current civil penalty inflation-adjustment table on ftc.gov, or from your attorney. The amounts change every year. Any figure you find in a blog post, including this one, is stale the moment the adjustment is published.
Note also that the monetary outcomes in the 2026 actions were not civil penalties in the ordinary sense. The IM Mastery matter was an asset surrender of nearly $90 million; the Air AI order carried an $18 million judgment largely suspended for inability to pay. The lesson is not that the second number is small. It is that an $18 million judgment and a permanent ban on marketing business opportunities ends the business either way.
The second track: state law
The FTC is not your only regulator, and there is no uniform state MLM statute. What recurs across states is a single distinction: is participant income primarily derived from product sold to end users, or from recruiting new participants? Washington's guidance under its Anti-pyramid Promotional Schemes Act (RCW 19.275.030) puts it plainly — successful participants “make money primarily from the products they sell to end users — not to themselves... or other participants” (Washington Attorney General). California applies a comparable test under Penal Code § 327 (California Attorney General), and New York criminalises pyramid and chain-distributor schemes under General Business Law § 359-fff (New York Attorney General).
Some states carve legitimate direct selling out of their anti-pyramid statutes on conditions. Georgia's statute defines a pyramid promotional scheme around compensation derived primarily from recruitment rather than product sales, and does not prohibit compensation based on product purchases so long as the plan does not “promote or induce inventory loading” (O.C.G.A. § 16-12-38). In practice that puts your buy-back and return policy, and whether your plan pressures distributors to hold stock, closer to the centre of state-level risk than the shape of the plan itself.
Legislative activity is live but not always successful. Florida's HB 265 / SB 712, the “Direct Sales Consumer Protection Act”, would have created a standalone anti-pyramid statute with felony penalties, effective 1 July 2026 had it passed. It died in the Industries & Professional Activities Subcommittee on 13 March 2026 and did not become law (Florida Senate bill history). Do not assume a bill you read about last year is in force.
A practical checklist: what to retain, and why
This is derived from the substantiation duty in the January 2025 proposal — a reasonable basis and written substantiation existing at the time the claim is made, producible on request (FTC NPRM, 13 January 2025). Working backwards from “produce it on request” gives you four things worth keeping, and one habit.
1. The claim, exactly as published, with its date
A screenshot or archived copy of the actual asset — the deck slide, the landing page, the email, the post — and the date range it was live. “We think the wording was roughly...” is not a record. If you cannot show what you said and when, you cannot show what you had behind it at the time.
2. The data the claim rested on, as it stood on that date
The actual commission and payout figures the claim was drawn from, frozen at the point of publication. Recalculating from today's data answers a different question and answers it badly — a claim that is defensible now may not have been defensible when it was made, and vice versa.
3. The population the claim described
Who is in the denominator. Every participant who enrolled? Only those active in the period? Only those who hit a rank? The Forever Living matter alleged that most participants made little or no money while the company claimed substantial income (FTC, 14 April 2026). A number that is true of your top 2% and presented as what a joiner can expect is the fact pattern in that case.
4. Who approved it
A named person and a date. This is the cheapest control on the list and the one most companies skip. It also creates the moment at which somebody has to look at the number before it ships.
And the habit: police what the field publishes
The 13 April 2026 action was against an individual distributor for her own posts (FTC, 13 April 2026). Have a written policy on earnings claims, give the field pre-approved language they can actually use, monitor for claims outside it, and — the part that matters — keep the record of the times you told someone to take a post down. An unenforced policy documents that you knew.
Most of that is a records discipline rather than a legal one, which is why it is worth building into how your company runs rather than reaching for it in a crisis. Whatever platform you use, you want commission history, payout history and outbound communications to still be there and still be dated a year later. Our reporting overview shows what BizBase surfaces from those records, and the MLM software overview covers how commissions are calculated and stored in the first place. If you are still at the planning stage, the MLM startup guide is the place to begin.
Frequently asked questions
Where BizBase fits, and where it does not
BizBase records what it calculates and what it sends. Every commission is stored as its own line item with the amount, the percentage applied, the qualifying volume behind it, the level it was paid at, the pay period, its status, and the timestamps for when it was approved and when it was paid. Wallet movements are stored with the balance before and after. Withdrawal requests are stored with the amount, the fee and the net. Every email the platform sends is logged with the recipient, the subject, the body as sent, and the time it was sent.
That is record-keeping. It is not a compliance product.
BizBase does not review, approve or assess earnings claims. It has no feature that judges whether something you published was substantiated, it does not produce an income disclosure for you, and it will not tell you whether a claim is defensible. There is no such feature and we are not going to imply there is one.
What it gives you is the underlying data — what was actually paid, to whom, over what period — which is the raw material you would need if you were ever asked to show the basis for a number you published. Deciding what to claim, documenting why, policing your field and answering for all of it remain your responsibility, and your attorney's brief.
If you want to see how the commission engine and the records behind it work, look at compensation plans and reporting, or start with the platform overview. Pricing is published in full.
Sources current as of 9 August 2026. No new FTC business-opportunity or MLM enforcement action or rulemaking milestone was identified between 8 July and 7 August 2026; the IM Mastery Academy settlement of 13 May 2026 is the most recent action in the material this page is built on. This page is not legal advice.