FTC counters with Alkazin’s “familiarity with pyramid schemes”
Following Tom Alkazin’s response to the preliminary injunction granted against him, the FTC have filed their reply.
In it regulator alleges ‘many of the arguments Alkazin‘ filed in his response are redundant, based on the courts ‘finding that Alkazin participated in both the deceptive income claims and pyramid marketing‘.
The FTC claim the granting of the injunction against Alkazin is evidence enough of this to begin with.
Nevertheless, the regulator’s reply does acknowledge “new legal discussion” raised by Alkazin in his response and seeks to address them.
Tom Alkazin’s “lack of control” of Vemma
One of the cornerstones of Alkazin’s response is his lack of control over Vemma. This, Alakzin claims, means he should not be held as responsible as those who actually had control of Vemma.
FTC contends that case law supports ‘liability for participation even in the absence of control‘.
While the line between acts of participation and acts of control may be blurry in some instances, the Ninth Circuit is very clear that “control” in the sense of the ability to determine the acts of the company is not a necessary element of individual liability.
Alkazin’s prominent role in the Vemma affiliate network, his personal deceptive income claims, his support of the highly deceptive “Young People Revolution” (“YPR”) campaign, and his personal promotion of the pyramid are more than sufficient to support Section 5 liability.
The regulator maintains that Alkazin’s role in Vemma ‘meets the legal threshold of participation under Section 5 of the FTC Act‘.
Alkazin participated in promoting the pyramid through deceptive income claims and through promotion of the elements of the pyramid itself: encouraging prospects to purchase product to qualify for bonuses and recruit others to do the same.
Alkazin presented himself and his family as an illustration of the lucrative income a Vemma Affiliate could supposedly earn from the Vemma business opportunity.
Marketing materials touting Defendant Alkazin’s income and his status as top earner for the company were integral to Vemma’s pitch to consumers.
Alkazin’s statements about the Vemma business opportunity imply, or in some instances directly state, that Affiliates can achieve the same level of success that Defendant Alkazin achieved
Mr. Alkazin made these claims even though he was aware, through his familiarity with Vemma’s income disclosure statements, that the vast majority of Affiliates made little money.
Vemma’s Young People Revolution, or YPR, also gets a mention. The FTC reasserts that, through YPR, Alkazin ‘helped disseminate deceptive earnings claims by others‘.
YPR originated from successful recruitment efforts on college campuses by Mr. Alkazin’s downline, including his son Brad and Alex Morton.
He promoted the YPR movement by featuring YPR leaders who had reached a certain rank on his website. He also developed YPR-focused live events, choosing discussion topics and selecting the speakers.
Even after being provided Alex Morton’s “Zero to Sixty” video on January 1, 2013, he selected Mr. Morton to speak at events and assisted him with presentations.
In short, Alkazin developed and promoted representatives of the YPR movement even after he knew they were making outlandish and false income claims.
Tom Alkazin was “familiar with pyramid schemes” and should have known better
Getting a bit personal, the FTC cite Alkazin’s MLM and use it to establish a ‘familiarity with pyramid schemes in general‘.
Mr. Alkazin has over 40 years of experience in the MLM industry.
His involvement began when he was an Amway distributor along with Defendant Boreyko’s parents.
Throughout that time period, he has always known that there are critics who believe that multi-level marketing schemes can easily turn into pyramid schemes.
He was also aware of numerous news articles and publications that accused Vemma of being a pyramid scheme well before the FTC’s action.
He was also aware of the Italian Competition and Market Authority’s investigation of Vemma while it was occurring in 2013 and 2014, though he claimed not to have known the specifics of it beyond that it involved the compensation plan.
Despite Mr. Alkazin’s familiarity with pyramid schemes in general and the specific pyramid accusations against Vemma, he nonetheless promoted the core elements of a pyramid scheme by encouraging affiliates to purchase affiliate packs and sign up for auto-delivery of products in order to qualify for bonuses, and recruiting others to do the same.
The FTC bring up Vemma’s “2&Go” promotion as an example.
Alkazin claims he had nothing to do with the creation and design of 2&Go. The FTC assert otherwise.
Although the discovery period is still open, the FTC will assume for the sake of argument that Defendant Alkazin did not create or participate in the first draft of the program.
However, as stated in his declaration, he reviewed the program before its launch and provided input.
In fact, his input included rejecting a suggestion to change a pyramid-type diagram in the program’s brochure to a bracket-type diagram, which Vemma proposed in order to make the program look less like an illegal pyramid scheme.
After the 2&Go plan was finalized, he promoted it at Vemma’s June 2015 convention that was videotaped and disseminated to its Affiliates.
Mr. Alkazin also discussed the program in a May 2015 “live call” and at another live presentation in Carlsbad, California in August.
He was scheduled to do presentations in Toronto and Charlotte, North Carolina had the FTC not filed its action.
More generally, Defendant Alkazin was well familiar with Vemma’s compensation plan. He taught it to other affiliates on many occasions.
In summary, while Defendant Alkazin may not have had final control over Vemma’s compensation or marketing operations, he participated significantly by leveraging his success and credibility as Vemma’s top earner to promote the pyramid scheme and train others to do the same.
Conclusion
The FTC conclude their filing with the assertion that Alkazin’s ‘conduct and the nature of his wrongs show a likelihood of recurrence and future harm‘.
As noted by Defendant, “[p]ast wrongs are not enough for the grant of an injunction,” but a “cognizable danger of recurrence” is sufficient to obtain such an order.
As shown in the factual record before the Court, Defendant Alkazin’s participation in deceptive income claims and pyramid marketing, both direct and implied, was comprehensive, long-standing, and highly profitable.
There is “a cognizable danger” that, if not enjoined, he will resume the conduct with a different company.
Alkazin is is believed to have signed up as a Xango affiliate after the FTC shut down Vemma. Our 2013 BehindMLM review of Xango identified concerns about a focus on affiliate autoship recruitment, not unlike Vemma.
Curiously, Alkazin appears to have left Xango since then.
In his June 9th deposition with the FTC, Alkazin claims to still hold his Vemma affiliate position.
When asked if he held ‘any positions in any other multi-level marketing compan(ies)‘, Alkazin responded, “I do not”.
A final decision on the granted injunction against Tom Alkazin has yet to be made. Stay tuned…
Footnote: Our thanks to Truth In Advertising for providing a copy of the FTC’s July 22nd response filing.
This does bring up an interesting topic of discussing… Just how *much* stake does a MLM participant have with a company, even one as high up as Alkazin?
We’re not talking Tartol high in HLF (he’s on the board of directors, IIRC, with at least 8 other members of family/relative in HLF) but still, Alkazin knew Boreyko for decades.
The whole idea of MLM is to delegate part of the organization building to the participants and let the “leaders” sort themselves out and build a sales network, hypothetically speaking.
So where does corporate responsibility end and individual responsibility begin?
In the Burnlounge case, the top affiliate charged was also the CEO’s right hand man and even invested in the company. He was definitely involved in the decision making.
FTC is arguing that someone as close as Alkazin to Vemma / Boreyko is practically part of the management and definitely part of the insider’s circle. Will this argument fly?
This is definitely a gray area that needs to be addressed legally.
MLM is supposedly about delegation of power and brand to a bunch of independent sales “teams”. There certainly are ways to create a pyramid WITHIN an existing MLM.
The various Amway Motivational Orgs (AMOs) were evidence of that. HLF suffered bad publicity from a similar cult in Israel (HLF’s own contribution notwithstanding).
But how far down does **** flow, so to speak?
If only the management can be charged, with being responsible for the pyramid scheme, and the top affiliate can simply jump to a different company (often with genealogy/org intact) and repeat, then it’s whack-a-mole until the affiliate decide to start his/her own company and got whacked as management (something Alkazin avoided).
And how much weight does “I was only following orders” carry with the court? (Which was Alkazin’s primary defense)
I think the FTC has Alkazin on the 2&Go decision making. A line was crossed when Alkazin had direct input into how that promotion was released and marketed company-wide.