Vemma served with FTC complaint about autoships

25 Comments on “Vemma served with FTC complaint about autoships”

#1

DJ

Aug 25th, 2015 at 11:40 am  DJ(Q)

Apparently Troy Dooly hasn’t read what the FTC clearly states on their web site’s Consumer Protection Page:

Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan.

If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.



#2

Oz

Aug 25th, 2015 at 11:43 am  Oz(Q)

Some more from Vincent Ortega on the complaint:

Vincent Ortega Jr.: Yes Troy Dooly, the autoship is mandatory thats probably the issue. Even thought I think its ridiculous because autoship is the reason why people can sustain an income.

Even though Mary Kay hasn’t done it for years, except I know that my Mom has to grind to get people to remember all the time, which sucks, so I hope Vemma can keep autoship for their reps sake.

So much for removing mandatory autoship with an “affiliate model”.

Also if your income relies on recruited affiliate autoships, you’re quite obviously in a product-based pyramid scheme.



#3

DJ

Aug 25th, 2015 at 11:58 am  DJ(Q)

Troy Dooly still has a lot of learning to do if he thinks the only way to make money in a MLM is by recruiting new affiliates and earning a commission on everyone’s autoship.



#4

anjali

Aug 25th, 2015 at 1:07 pm  anjali(Q)

troy dooly: Having talked with BK this afternoon it seems the FTC have two issues surrounding pack sales as well as autoship sales.

this is cool. i never quite understood how mandatory autoship is any different from inventory front loading. it was just ‘assumed’ that low value autoships which could explain self consumption were ‘okay’, and could fly under the regulatory radar.

it’s good that the FTC is addressing this issue via vemma, and this issue will be resolved for the MLM industry.

poor boreyko, he has hit a really tough patch here. will vemma survive this?



#5

Oz

Aug 25th, 2015 at 3:22 pm  Oz(Q)

Article updated with news of Vemma business operations (affiliate backoffice access and products orders) suspended until further notice.



#6

ed

Aug 25th, 2015 at 4:40 pm  ed(Q)

Hi Guys

Brad and Alex did a good job!

100 of FTC Complaints – read this story:

projects.aljazeera.com/2014/multilevel-marketing/

Karma is getting back to them…



#7

K Chang

Aug 25th, 2015 at 5:42 pm  K Chang(Q)

Vemma has already relied on autoship. Even their promotional material relied on “some to drink and some to share”, i.e. nobody’s selling anything, everybody is BUYING 2paks every f***ing month. And Verve costs give or take, 3-4x as much as Red Bull, and that’s Vemma direct price vs. Amazon retail price.

Vemma’s success is based on “self-consumption”, which had ALWAYS been illegal, from Omnitrition to Burnlounge.

And this will be the battle for the soul of MLM, so to speak. Autoship is just subscription, but an AFFILIATE should NOT need autoship at all (the whole point of affiliate marketing is you market someone ELSE’s stuff as affiliate) and traditional MLM is covered by Amway Safeguard rules such as 10 retail and 70% restock rule. And it’s pretty obvious Vemma, instead of addressing the issues as BK claimed, is attempting to sidestep the issue with lip service only.

9th Circuit Court on Omnitrition was right all along: for Koscot to have any teeth, the end customer CANNOT be a part of the comp plan.

And Dooly is right: if Vemma goes down, the precedent will likely cause vast panic among the entire MLM sector, even the big names like Herbalife and Amway.

But MLM had lost its soul, i.e. “retail”, long time ago.



#8

Whip

Aug 25th, 2015 at 8:50 pm  Whip(Q)

DJ:
Troy Dooly still has a lot of learning to do if he thinks the only way to make money in a MLM is by recruiting new affiliates and earning a commission on everyone’s autoship.

let’s face it…….it’s the way HE makes money to write fluff pieces. His payoff has to come from somewhere.



#9

anjali

Aug 25th, 2015 at 9:53 pm  anjali(Q)

K Chang: Vemma’s success is based on “self-consumption”, which had ALWAYS been illegal, from Omnitrition to Burnlounge.

some corrections [my individual view].

vemma’s success is based on ‘Forced’ self consumption. this is not so much about self consumption, but about Inventory Loading.

self consumption has never been illegal, commissions based off self consumption were made illegal by the omnitrition dicta which you quoted :

ninth circuit court, omnitrition dicta: for Koscot to have any teeth, the end customer CANNOT be a part of the comp plan.

the same ninth circuit court revised this stand in the burnlounge appeal when it stated:

ninth circuit court, burnlounge appeal: BurnLounge is correct that when participants bought packages in part for internal consumption.., the participants were the “ultimate users” of the merchandise..

so, the ninth court has held that bonafide self consumption is sale to an ultimate user, or end customer or whatever you want to call it.

when an MLM like vemma has mandatory amount of product purchase for participation [autoship], they can very well argue self consumption, but a court will not buy this argument, because the recruitment and product purchase are bundled together, and it is not clear how much commission is being paid on the self consumption and how much for the recruitment.

the court will find, like it did in burnlounge that:

but, it is incorrect to conclude that all rewards paid on these sales were related to the sale of products to ultimate users

kevin thompson and some other MLM commentators are posting that the FTC has targeted the wrong company ie vemma .

but i think clarity on this whole autoship argument is necessary and vemma has been getting bad press and lots of complaints over the last couple of years, and so it’s in the dock.



#10

M Norway

Aug 25th, 2015 at 10:07 pm  M Norway(Q)

K Chang:
9th Circuit Court on Omnitrition was right all along: for Koscot to have any teeth, the end customer CANNOT be a part of the comp plan.

The BurnLounge June 03 2014 decision is newer. It clarified the Omnitrition decision.

FTC used that “cannot” logic, but that argument was shut down. Internal consumption can be just as legitimate as external sales to consumers, as long as it is reasonable and not mandatory.

But the court also shut down Burnlounge’s reasoning, that compensation will need to be completely unrelated to product sales to be illegal.

Product purchase can’t simply be a “side effect”, i.e. the theory that a business model will become legal if they add some products to the recruitment scheme, but where people primarily buy those products to qualify for the right to earn commissions.



#11

M Norway

Aug 25th, 2015 at 10:44 pm  M Norway(Q)

DJ:
Troy Dooly still has a lot of learning to do if he thinks the only way to make money in a MLM is by recruiting new affiliates and earning a commission on everyone’s autoship.

He’s talking about how it really is, not about how it should have been. The only realistic way to make money in MLM is to recruit additional “self consumers”.



#12

Whip

Aug 25th, 2015 at 10:50 pm  Whip(Q)

M Norway: He’s talking about how it really is, not about how it should have been. The only realistic way to make money in MLM is to recruit additional “self consumers”.

well, and write positive reviews for shady operators.



#13

anjali

Aug 25th, 2015 at 11:30 pm  anjali(Q)

oz: Vemma served with FTC complaint

so what is an ‘FTC Complaint’ ?

the five FTC commissioners vote on whether to serve a complaint upon a company, which they have ‘reason to believe’ is indulging in unfair and deceptive trade practices.

the FTC secretary serves this complaint on the respondent company.

complaints are public documents which contain a brief summary of the issues involved, alleged violations, along with remedial measures suggested by the commission.

the respondent has 20 days to respond to the complaint unless they file for an extension.

the respondent may also apply for dismissal of the complaint which if denied, gives the respondent 10 days to reply to the complaint, from the date of denial.

then Discovery follows which mostly follows the discovery rules as set down in the FRCP [federal rules for civil procedure].

within 14 days of the reply being filed by the respondent the ALJ [administrative law judge of the FTC], sets a scheduling conference.

then blah blah blah [procedural rules and blah] the ALJ hears the case where the burden of proof is on the FTC complaint counsel.

a settlement may be reached between the FTC and the company with some fines and agreements to future compliance.

or a cease and desist notice may be ordered against the company which can be enforced by a federal court with fines and injunctions.

in short:

The FTC files a complaint when it has “reason to believe” that a party is “using an[] unfair method of competition or unfair or deceptive act or practice.” 15 U.S.C. § 45(b).

An administrative law judge (ALJ) hears the matter, and either party may appeal the ALJ’s decision to the full Commission.

This process may result in a cease-and-desist order, which the FTC can enforce by pursuing an injunction or civil penalties in federal court.

understood, everybody ? thankyou.



#14

Oz

Aug 26th, 2015 at 5:29 am  Oz(Q)

From TINA today:

TINA.org first alerted the FTC to the company in April 2014 when Vemma was deemed a pyramid scheme in Italy.

TINA.org again notified the agency about the company in June 2014, tipping officials to numerous outrageous health claims made by top distributors, including that Vemma could help treat cancer, Alzheimer’s, AIDS, and even save a dying dog.

truthinadvertising.org/takedown-feds-move-against-vemma/



#15

K Chang

Aug 26th, 2015 at 5:40 am  K Chang(Q)

Yeah, the question is how much energy drink is “reasonable” for a single person to consume?

With Burnlounge, it’s pretty obvious that one VIP package is enough per person, but when the advancement to commission is based on self-purchase of such packages, it’s pretty obvious that it was NOT (merely) purchased for consumption but to qualify for commission.

With Vitamins and such there are daily recommended dosage for many of the ingredients (unless it’s something truly exotic) but energy drinks? People drink it like soda pops.

Even Vemma affiliates can’t really tell you if they bought the packs because they intend to drink it, or if they need it to get paid. They’ll say it’s BOTH.

And there is the thorny question for FTC and every MLM lawyer out there… How can self-consumption by affiliates be legal, when it’s really just forced consumption / i.e. inventory loading? And if there is no ‘reasonable amount’ to be defined, then what?

How is Vemma’s “some to drink and some to share (aslong as you autoship enough every month)” different from Omnitrition’s “dump it in the trash, who care (as long as you buy enough to qualify)” attitude?



#16

M Norway

Aug 26th, 2015 at 7:06 am  M Norway(Q)

K Chang:
With Burnlounge, it’s pretty obvious that one VIP package is enough per person, but when the advancement to commission is based on self-purchase of such packages, it’s pretty obvious that it was NOT (merely) purchased for consumption but to qualify for commission.

I didn’t say that you could compare BurnLounge’s business model and Vemma’s model.

“For Koscot to have any teeth, the end customer CANNOT be a part of the comp plan” was a case specific argument, a part of the “discussion”. You can’t apply the same argument to EVERY case.

FTC tried to use an argument like that, but it was shut down as incorrect.

[2. The meaning of “ultimate users.”] (page #18)

BurnLounge claims that when recruits bought packages, they were “ultimate users” and it argues that since these sales were to “ultimate users,” any rewards paid on these sales were related to the sales of products to ultimate users.

The FTC counters that “internal sales to other Moguls cannot be sales to ultimate users consistent with Koscot.”

Neither of these arguments are supported by the case law.

– – – –
ftc.gov/system/files/documents/cases/140605burnloungeopinion.pdf

The internal sale alone didn’t make BurnLounge become a pyramid scheme. Other factors were more important.

It didn’t make BurnLounge become legitimate either.

BurnLounge is correct that when participants bought packages in part for internal consumption (to obtain the ability to sell music through BurnPages and to use the package merchandise), the participants were the “ultimate users” of the merchandise and that this internal sale alone does not make BurnLounge a pyramid scheme.

But it is incorrect to conclude that all rewards paid on these sales were related to the sale of products to ultimate users.

The Moguls bough those packages in part for consumption, in part for the right to earn recruitment based commissions.

The court had to analyse “Which one is what?”, i.e. which part is related to consumption and which part is related to a right to earn commissions.

That’s the only rational way to analyse it when you have products bundled with an opportunity, and the parties both have some valid arguments.

* It will be incorrect to see those purchases as “completely unrelated to consumption”

* It will be incorrect to see them as “100% consumption motivated”, too.



#17

K Chang

Aug 26th, 2015 at 7:44 am  K Chang(Q)

Frankly, the case law would be MUCH easier if you forcibly separate the consumer from the distributor, ie. an affiliate can order and consume products, but it cannot be commissionable, for either himself or his uplines. He can enjoy discounts instead.

Trying to determine what’s “reasonable amount” of self-consumption is a fool’s errand, IMHO.

The entire point of MLM is market to OTHER PEOPLE via RETAIL. Selling to oneself goes against the very soul of MLM, and gets well into the blackwhite newspeak category.



#18

anjali

Aug 26th, 2015 at 8:15 am  anjali(Q)

K Chang: Frankly, the case law would be MUCH easier if you forcibly separate the consumer from the distributor,

i don’t think it is the job of the law to keep things ‘simple’, but rather to keep things ‘right’.

the FTC tried this ‘surgery’ in omnitrition, but it never became caselaw, and was rejected in burnlounge which IMO was a Fair Decision.

MLM companies have different compensation plans and you have to see how they work, to decide whether the self consumption going on is reasonable or not.

in other news it is being reported that the vemma back office is down because the FTC has an onsite investigation yesterday.

some vemma reps are posting on FB that the back office will be up and running soon, and order will start going out from today.

Sarver said the company was shut down Monday while FTC officials conducted an on-site investigation. On Tuesday, Vemma affiliates continued to get error messages warning that product orders “are temporarily unavailable at this time”

cincinnati.com/story/news/2015/08/25/ftc-targets-company-enquirer-investigation/32348675/



#19

Matthew Nestler

Aug 26th, 2015 at 8:45 am  Matthew Nestler(Q)

Kevin Thompson, the MLM attorney stated:

It’s a very big deal. Remember, Vemma is a long-time DSA member. The DSA has come to the side of Herbalife and helped them out. We’ll see how they respond here.

The FTC sued the wrong company, in my opinion. They would’ve gotten more bang for their buck if they popped one of the many bubbles forming in the space.



#20

M Norway

Aug 26th, 2015 at 10:07 am  M Norway(Q)

K Chang:
Frankly, the case law would be MUCH easier if you forcibly separate the consumer from the distributor, ie. an affiliate can order and consume products, but it cannot be commissionable, for either himself or his uplines. He can enjoy discounts instead.

That wouldn’t be fair to the defendants in that specific case. 🙂

Pyramid scheme isn’t about sale. It isn’t the sale of products that will make a business become illegal or legal. The illegal factor is the pyramid scheme itself.

Pyramid schemes have the following elements:
1. Payment of money from participants
2. For the opportunity to earn rewards
3. That are based on the recruitment of other participants.

There’s no “sale” or “consumption” in that definition. MLM based pyramid schemes have “sale or consumption” as an additional factor.

A. Prong 1: Participants in the BurnLounge business paid money in return for the right to sell a product.



#21

anjali

Aug 26th, 2015 at 1:09 pm  anjali(Q)

the FTC has always been pretty clear about it’s dim view of autoship, at least since 2004. the DSA president neil offen wrote to the FTC in 2004 seeking clarification on internal consumption.

here is the relevant part, which clarifies the FTC’s stand on the ‘type’ of self consumption that is not acceptable:

Much has been made of the personal, or internal, consumption issue in recent years. In fact, the amount of internal consumption in any multi-level compensation business does not determine whether or not the FTC will consider the plan a pyramid scheme.

The critical question for the FTC is whether the revenues that primarily support the commissions paid to all participants are generated from purchases of goods and services that are not simply incidental to the purchase of the right to participate in a money-making venture.

The Commission’s recent cases, however, demonstrate that the sale of goods and service; alone does not necessarily render a multi-level system legitimate.

Modem pyramid schemes generally do not blatantly base commissions on the outright payment of fees, but instead try to disguise these payments to appear as if they are based on the sale of goods or services.

The most common means employed to achieve this goal is to require a certain level of monthly purchases to qualify for commissions. [oz, italics please]

While the sale of goods and services nominally generates all commissions in a system primarily funded by such purchases, in fact, those commissions are funded by purchases made to obtain the right to participate in the scheme.

Each individual who profits, therefore, does so primarily from the payments of others who are themselves making payments in order to obtain their own profit.

As discussed above, such a plan is little more than a transfer scheme, dooming the vast majority of participants to financial failure.

its amazing that established companies like vemma, have not taken heed of this letter which clearly makes mandatory autoship unacceptable.

vemma affiliates are busting their butts all over FB claiming that vemma changed its plan a couple of years back and autoship is no longer mandatory.

vemma appears to base its payment of commissions on PV [personal volume] instead of autoship, and advises ‘Auto Delivery’ to its affiliates as a Convenience. this seems like psuedo compliance BS to me.

anyways if the FTC has run an on-site investigation of the vemma business, they will gather information about How Many Affiliates are on Autoship, which will expose the psuedo compliance wordsmithing .

the compensation plan of vemma says:

If you are ready to achieve your financial dreams or just create an extra stream of income, now is the perfect time to join Vemma as an Affiliate.

Simply choose an Affiliate Starter Pack, set your Auto-delivery so you can enjoy the products you want consume and share with others every month, and start telling others about premium Vemma products.

i don’t know if this is the the old compensation plan or not, maybe vemma affiliates can post the new compensation plan here, if this one is outdated.

vemma.com/opportunity/get-paid.cfm



#22

Oz

Aug 26th, 2015 at 1:13 pm  Oz(Q)

Article updated with details of the FTC’s Vemma complaint.



#23

K Chang

Aug 26th, 2015 at 3:16 pm  K Chang(Q)

Of course it’s pseudo-compliance… If you require 2pak (or equiv) orders monthly to qualify for downline commission, it may as well as be “mandatory”.



#24

Oz

Aug 26th, 2015 at 3:18 pm  Oz(Q)

By merit of retail commissions not existing, Herbalife autoships are therefore also “forced”.

No autoship and recruitment of affiliates who put in a monthly autoship order = no commissions.

The possibility of retail in Herbalife is just as much of a pseudo-compliance element as it is/was in Vemma.



#25

K Chang

Aug 26th, 2015 at 3:48 pm  K Chang(Q)

Matthew Nestler, quoting Kevin Thompson: The FTC sued the wrong company, in my opinion. They would’ve gotten more bang for their buck if they popped one of the many bubbles forming in the space.

Or FTC knew exactly what it’s doing… it has enough evidence onhand to bury Vemma, after having learned how courts may interpret Burnlounge, and it’s a warning for the industry to shape up or FTC will come in and don’t complain when the apple cart gets flipped.

Herbalife, any one?

Unlike Herbalife with its legion of lobbyists and PR firms, AFAIK Vemma didn’t bother with any (or at least none that are public).

The only ones yapping about Vemma are its affiliates and MLM insiders (like KT and the other MLM lawyers, and Dooly). FTC don’t have to worry about political pressure and such in this case.

KT himself wrote on his lawyer blog back in 2010:

…If a company has a forced inventory requirement, it’s an immediate red flag because it’s an indicator that the product is serving as a subterfuge of the money transfer scheme.

Additionally, it’s an indicator that the product lacks marketability and that the business depends upon constant recruitment of new participants to engage in the inventory requirements…

Autoship is a forced inventory requirement. The fact that it *could* be stopped at any time is irrelevant when it’s a qualifier for commission / cycle. As per Vemma’s own comp plan:

Each sales organization must be qualified to earn commissions and bonuses.

You qualify your sales organization by being active with 120 PV (volume associated with the products purchased on your account and/or half the QV from your personally enrolled Customer(s) purchase) every month,

They don’t care if you self-qualify or recruit-qualify or mix the two. In fact their own website says “3 ways to qualify”: self-qualify (buy 120 PV yourself), downline qualify (both downlines buy 120 pv, so 1/2 qualifies you), half-n-half (both downlines buy 60pv, you buy 60 pv).

There is no retail. It’s affiliate recruiting affiliates.