WorldVentures lose Ministry of Culture appeal, still a pyramid scheme
WorldVentures was declared a pyramid scheme by Norway’s top MLM regulator back in 2014.
WorldVentures appealed the Gaming Board’s decision but open review, the original decision was upheld.
The decision saw WorldVentures required to cease business operations in Norway, which at the time was one of their primary sources of affiliate recruitment.
Not willing to let that go without a fight, WorldVentures sued the Gaming Board in a Norwegian Trial Court in late 2014.
The Trial Court appeal was denied in early 2015.
This prompted WorldVentures to sue the Norwegian government, with the Ministry of Culture named as a defendant.
In October, 2016, a District Court ruled against WorldVentures and they lost the lawsuit.
WorldVentures appealed the decision in the Bogarting Court of Appeal. The Courts of Appeal are the second-highest court tier in Norway, under the Supreme Court.
Between February 6th to February 14th WorldVentures appeal proceedings were held.
A decision denying WorldVentures an appeal was published on March 5th.
In their appeal, WorldVentures argued that the Gaming Board’s decision was ‘invalid due to improper law enforcement and assessment of evidence.‘
The company also asserted it has
a sustainable business. It is not dependent on new members to fund payments to existing members.
WorldVentures offers a real product and operates real economic activity.
Based on the fact that 95% of WorldVentures members in Norway were also affiliates, the Bogarting Court of Appeal reasoned that
it is less important that the two roles (affiliates and members) were regulated in separate agreements and that there was no legal obligation for members to be affiliates or affiliates to be members.
WorldVentures had argued that the Gaming Board effectively ignoring its pseudo-compliance meant it failed to understand its business model.
The court disagreed and dismissed the argument.
Another argument raised was that the figures that made the company look bad should be ignored because WorldVentures Norway was in a “start-up phase”.
WorldVentures reasoned that
if the company had the opportunity to develop normally, the percentage of members (non-affiliates) would increase.
The Court of Appeal dismissed this argument based on the fact that between May to November, 2014, globally World Ventures only signed up 126 non-affiliate members.
WorldVentures as a company launched in 2005, which obviously puts it far beyond being in a “start-up phase”.
Furthermore, analysis of provided WorldVentures membership figures revealed
the ratio varies somewhat over time and from market to market, but also internationally, most of (WorldVentures’) members are also affiliates.
These facts clearly destroy the argument that, given time to grow in a market, WorldVentures develops more non-affiliates over affiliate members.
The Court of Appeal also reasoned that the overwhelming majority of WorldVentures members also being affiliates, meant that being an affiliate was “absolutely central” to the company’s members.
A certain increase in the proportion (of WorldVentures members) that were only members in Norway would therefore not affect assessment.
In conclusion, the Court of Appeal stated;
It is clear that, in isolation, affiliates in WorldVentures are organized in a pyramid structure.
This is not contested by WorldVentures.
A pyramid structure is a hallmark of network sales.
As shown, the majority of the company’s revenue, which largely consisted of the various remuneration of the participants, did not correspond to the real value of membership benefits and access to affiliate membership.
This is based on the fact that in 2013, ‘only 7.2 per cent of the Norwegian members purchased travel services‘ through WorldVentures.
And note that the Court of Appeal observed that
the proportion is then calculated on the basis of the average membership rate for that year, and does not take into account the major change in the membership (affiliates leaving and being replaced by newly recruited affiliates).
(Thus) the proportion of actual members in 2013 would (actually) be significantly lower.
This lead the Court of Appeal to agree with the Gaming Board, in that “lack of use” showed WorldVentures’ services provided a lack of value.
Another interesting tidbit from the decision is the revelation that globally, discounts acquired from travel purchases equate only to 20.2% of membership fees.
Considering WorldVentures entire marketing shtick is based on saving money on travel services, it’s pretty obvious that isn’t happening.
Even when the maximum discount of 45 percent is taken into account in the calculations, the conclusion is that the discounted trips have little real value for the members.
Perhaps the most damning figures however are what WorldVentures were paying out in commissions versus travel service revenue.
Between 2012 and 2013, WorldVentures generated 209,000 and 217,000 NOK in gross turnover related to travel.
Total company revenue (including affiliate fees) for the same period was 3.9 and 3.6 million NOK respectively.
Total commissions paid out? 1.1 and 1.9 million NOK respectively.
It is thus clear that commissions paid were essentially funded by affiliate fees.
Review of the cash flows shows that there is not enough real economic activity to ensure revenue that can cover WorldVentures’ commission payments.
Most of the turnover is linked to the redistribution of affiliate fees.
WorldVentures’ operations in Norway were a pyramid-like sales system at the time of the (Gaming Board’s) decision.
In addition to upholding WorldVentures is a pyramid scheme, the Court of Appeal also dismissed claims the Gaming Board had handled the case inappropriately.
WorldVentures was also ordered to pay the Ministry of Culture’s legal fees (approx $30,446 USD).
From here WorldVentures can appeal to Norway’s Supreme Court. If granted a hearing, the case would then be heard in Norway’s highest court.
Given WorldVentures’ repeated losses in lower courts and lack of compelling evidence, I’m doubtful the Supreme Court Justices would elect to hear the case.
If I may offer up my own conclusion;
The ultimate take-away from four years of litigation all of this as far as I’m concerned, isn’t so much that WorldVentures is a confirmed pyramid scheme in Norway.
Rather it’s the confirmation that globally, WorldVentures is operating as a pyramid scheme.
Prior to the Court of Appeal’s decision we had the reasoning that if 95% of WorldVentures members were affiliates in Norway, then the percentage was probably pretty similar globally.
What we didn’t have were hard numbers to confirm, which the Bogarting Court of Appeal’s published decision has now helpfully provided.
As per facts and figures provided by WorldVentures themselves,
in June 2017, i.e. 12 years after (WorldVentures’) start-up in the United States, in the whole business there were no more than 25 percent who were only members (non-affiliates).
In reverse, that’s perhaps better reframed as globally, 75% of WorldVentures members are affiliates.
What’s the bet that this translates into nowhere near 50% of WorldVentures’ global revenue being derived from retail sales?
As a point of reference, in Norway between 2012 and 2013 (at the height of growth), WorldVentures’ retail revenue was less than 5.3% and 6% respectively (provided figures don’t differential affiliate and retail travel spend).
What’s the bet globally the figures aren’t much different?
Seeing as WorldVentures is a US MLM company owned and operated by US residents, seems to me like it’d be a slam-dunk regulatory case.
FTC, where you at?