Review of Vemma’s revised compensation plan
Having only just resolved objections to Vemma automatically reclassifying affiliates as customers, now the company is again clashing with the FTC.
The latest dispute is over Vemma’s proposed compensation plan revision, which would govern it’s MLM income opportunity globally.
A copy of the proposed revision plan was included in a Vemma filing seeking a hearing on the dispute, so I figured we’d go over it and see what Vemma affiliates have in store for them.
In the conclusion I’ll also be going over the FTC’s objections and Vemma’s assertions about the plan, weighing in on whether or not they respectively have any merit.
In Vemma’s revised compensation plan, Personal Volume (PV) is defined as sales volume generated by recruited affiliate purchases and retail customer orders.
In order to qualify for commissions a Vemma affiliate must generate 50 PV a month. An affiliate must also recruit/obtain two affiliates or customers (one on either side of their binary team).
These recruited affiliates or acquired retail customers must maintain a minimum 25 PV over a rolling four-week period.
To maintain commission qualification, a Vemma affiliate must maintain a minimum 25 PV every four weeks. Platinum or higher ranked affiliates must maintain 50 PV.
The 51% Rule
Vemma affiliates ‘will only be paid on the volume … that is at least 51% customer volume’.
Vemma are enacting this as a sliding scale, paying out pro-rata commissions on total volume that does not meet the 51% rule.
For example, if you had $100 in organizational volume of which $51 came from (retail) customers and $49 came from affiliates, you would be paid on the entire $100.
However, if only $40 of your organizational volume came from (retail) customers and $60 came from affiliates, you would only be paid on $79 of your organizational volume.
The $79 amount in the example above is calculated by only paying out $39 of the affiliate volume and $40 of the retail volume.
The $21 in unpaid affiliate volume would be flushed for failing to comply with the 51% rule.
Vemma Affiliate Ranks
There are nineteen affiliate ranks within Vemma’s revised compensation plan.
Along with their respective qualification criteria, they are as follows:
- Bronze – generate at least 1 binary cycle over a four-week period
- Silver – generate at least 5 binary cycle over a four-week period
- Gold – generate at least 10 binary cycle over a four-week period
- Diamond – generate at least 20 binary cycle over a four-week period
- Star Diamond – generate at least 35 binary cycle over a four-week period
- Platinum – generate at least 50 binary cycle over a four-week period
- Star Platinum – generate at least 75 binary cycle over a four-week period
- Executive – generate at least 100 binary cycle over a four-week period
- Star Executive – generate at least 175 binary cycle over a four-week period
- Presidential – generate at least 250 binary cycle over a four-week period
- Star Presidential – generate at least 375 binary cycle over a four-week period
- Ambassador – generate at least 500 binary cycle over a four-week period
- Star Ambassador – generate at least 1000 binary cycle over a four-week period
- Royal Ambassador – generate at least 2000 binary cycle over a four-week period
- Star Royal Ambassador – generate at least 4000 binary cycle over a four-week period
- Pinnacle Leader – generate at least 6000 binary cycle over a four-week period
- Star Pinnacle – generate at least 10,000 binary cycle over a four-week period
- Royal Pinnacle – generate at least 15,000 binary cycle over a four-week period
- Legend – generate at least 20,000 binary cycle over a four-week period
Rank Achievement Bonus
Upon qualifying at the Silver or higher ranks for the first time for two consecutive four-week periods, the following Rank Achievement Bonuses are paid out:
- Silver – $100
- Gold – $250
- Diamond – $500
- Star Diamond – $625
- Platinum – $750
- Star Platinum $1000
- Executive – $1500
- Star Executive – $2000
Presidential or higher ranks also pay a bonus, however these ranks must be held for a minimum four consecutive four-week periods.
- Presidential $3000
- Star Presidential – $5000
- Ambassador – $10,000
- Star Ambassador – $15,000
- Royal Ambassador – $25,000
Note that Presidential or higher bonus qualification also requires at least one personally recruited Star Platinum ranked affiliate on both sides of their binary team be maintained.
Residual commissions in Vemma are paid out via a binary compensation structure.
A binary compensation structure places an affiliate at the top of a binary team, which is split into two sides (left and right):
Positions in the binary are filled via the acquisition of retail customers and direct and indirect recruitment of an affiliate downline.
Commissions are paid out as sales volume is generated on either side of the binary, which includes recruited affiliate purchases and sales to retail customers.
For very 180 points of sales volume matched with 360 points on the other side of the binary, a “cycle” is generated.
At the end of each week, Vemma affiliate are paid approximately $20 per cycle they generate.
Note that the $20 commission payout can vary slightly, as it is calculated based on ‘total sales divided by the amount of qualified cyclers‘ company-wide.
Additional Binary Positions
If a Vemma affiliate maxes out the binary cycle commissions for four consecutive weeks, they are given an additional binary position above their existing maxed out position.
This effectively permits an affiliate to double-dip on existing binary commissions earnt.
Note that each affiliate is capped at obtaining two additional binary positions in this manner.
Matching Binary Bonus
A Vemma affiliate can qualify for a first-level Matching Binary Bonus by personally recruiting or acquiring at least 4 affiliates or retail customers respectively.
One qualified, an affiliate earns a 10% matching bonus on binary commissions earned by personally recruited affiliates.
If an affiliate personally recruits or acquires at least 6 affiliates or retail customers respectively, they can also qualify for a second-tier Matching Binary Bonus.
This second-tier match pays an additional 10% on the binary earnings of level 2 recruited affiliates (affiliates recruited by personally recruited affiliates).
Note that affiliates who are not Platinum or higher ranked, are capped at earning $5000 in matching bonuses every four weeks.
Also note that if an affiliate is not qualified to receive the Matching Bonus, it is instead paid out to the first qualified upline affiliate.
An affiliate cannot receive a passed up first and second-tier commission from the same downline affiliate.
Balanced Team Bonus
The Balanced Team Bonus is made up of ‘approximately 3% of the sales generated from countries that participate in the Balanced Team Bonus‘.
The bonus is based on specific rank structures and points generated in an affiliate’s downline.
Unfortunately the documentation filed by Vemma has been stripped of its formatting, so the qualification criteria provided didn’t completely make sense to me.
I have however included what I was able to make out below:
- Bronze (have at least 500 points of sales volume on both sides of the binary) – up to $100 per share
- Silver (have a personally recruited Bronze and at least 500 points of sales volume on both sides of the binary ) – up to $200 per share
- Gold (have a personally recruited Silver and at least 500 points of sales volume on both sides of the binary) – up to $300 per share
- Diamond (have a personally recruited Gold and at least 500 points of sales volume on both sides of the binary) – up to $400 per share
Note that Executive or higher ranked affiliates are unable to earn the Balanced Team Bonus.
Following objections raised to Vemma’s wishing to continue to classify affiliates as retail customers, the FTC received Vemma’s revised compensation plan revision on October 7th.
On October 12th, the regulator wrote back with its continued objections:
While we acknowledge Vemma’s efforts to address some of the FTC’s concerns, we cannot approve the plan as written.
The revision does not address the structural problem described in our October 5 letter – the compensation plan provides no additional incentives for retail sales and will likely result in an endless chain of recruitment.
Most resulting purchases will be motivated by the business opportunity rather than personal consumption, in violation of the preliminary injunction.
This is a fundamental flaw in the plan that will require major changes to address.
Second, the revision does not address the FTC’s objection to Vemma’s interpretation of the “51% rule”.
Third, while the objectionable definition of “Customer” has been removed, the plan provides no alternative definition of “Customer” or “Affiliate”, which are essential terms for purposes of the operation of the “51% rule” and the compensation plan as a whole.
While Vemma may intend to define these terms in other documents, as noted in our October 5 letter it is difficult for the FTC to approve this document in isolation when there may be other materials that will greatly impact the compensation plan.
We encourage Vemma to present all materials that are essential to a complete understanding of the compensation plan, rather than presenting the plan in a piecemeal fashion.
Vemma replied a day later on October 13th:
(i) You assert that the revised plan provides “no additional incentive for retail sales and will likely result in an endless chain of recruitment”.
You do not, however, identify what specific part of the plan is objectionable or violates any part of the Court’s Order.
Your assertion is not supported by the language of the revised plan and the Court’s Order.
(ii) You assert that the “51% rule” states in the revised plan violates the Order.
Again, you do not identify what specific provisions of the rule violate the Court’s Order.
This assertion also is not supported by the language of the revised plan and the Court’s Order.
(iii) You state that the definitions of “Affiliate” and “Customer” need to be defined in the revised plan.
Vemma will add definitions to the plan, and will use the terms as defined in the Affiliate re-classification message which the FTC previously agreed to.
After some more back and forth, the FTC’s objections remained unresolved.
I personally have identified two issues with the proposed revision, which tie in to the FTC’s objections.
The first is pretty straight forward and pertains to commission qualification.
As per the current proposed compensation plan, to qualify for commissions at least two retail customers and/or recruited affiliates are required (can also be one of each).
Yet in order to remain “active” for commissions, the following criteria is provided:
As soon as you qualify your sales organization by enrolling at least one active Customer on each of your left and right team (active is defined as having an active 25 PV every month), you are then eligible to earn income.
PV as per the proposed compensation plan is defined as follows:
Volume that is assocated with 100% of the QV from your personally enrolled customer(s) or affiliate(s) purchases.
Where is the incentive to focus on retail over recruitment? It’s an and/or requirement, which could easily be amended to focus on retail sales.
Abolish recruited affiliate purchases from counting towards commission qualification.
By all means still pay on such volume through the binary, but do not include it for the purpose of commission qualification.
This felt like a no-brainer, so I’m not sure why it wasn’t implemented to begin with.
The second issue I identified pertains to the 51% rule.
As per the preliminary injunction, Vemma are prohibited from paying
any compensation related to the purchase or sale of goods or services unless the majority of such compensation is derived from sales to or purchases by persons who are not members of the Marketing Program (retail customers).
I took “any compensation” to mean that if an affiliate does not satisfy the 51% rule, then they earn nothing.
This, by virtue, was a retail qualifier that Vemma had to include in its compensation plan going forward.
Instead they’ve opted for a pro-rata approach, which is problematic.
The whole point of the FTC lawsuit against Vemma is to put a stop to what they allege is a pyramid scheme.
Under Vemma’s proposed revision plan, an affiliate can still focus on recruitment and get paid.
They won’t get paid as much as the old plan, but even with a token offering of retail, will still get cut a commission check.
This affiliate didn’t focus on retail sales and no matter how little Vemma might have paid them.
Furthermore, and more importantly, revenue entering Vemma was derived, in this example, primarily from Vemma affiliates.
What good is restricting affiliate payments pro-rata if Vemma as a company are still seeing the majority of their revenue sourced from affiliate purchases?
If anything, Vemma have gone and repurposed the 51% rule as a potential money-spinner, pocketing commissions affiliate are not paid in lieu of having less than 51% retail volume.
Write the FTC on this very matter:
We believe the 51% rule should be all or nothing.
An affiliate is entitled to full compensation if the majority of downline sales volume comes from customers rather than affiliates, and not entitled to any compensation if the reverse is true.
The 51% rule as interpreted by Vemma is not an adequate safeguard given the incentives of the binary comp plan.
The rule would also have to be applied across the board for all bonuses, including bonuses based on rank or rank advancement.
The counter to this is I suppose that in only paying commissions using retail volume as a base ratio match, that this in and of itself encourages retail sales.
As per Vemma’s take on the rule:
Under the Revised Compensation Plan, Affiliates will be motivated to enroll and sell products to new and existing Customers because their compensation under the plan is tied directly to the volume of Customer sales in their sales organization.
If they have no Customer sales, they receive no compensation. If less than half of their sales in their sales organization comes from Customers, then their compensation under the plan will be based on less than all of the sales volume in their organization by operation of the 51% Rule.
Thus, Affiliates under this Revised Compensation Plan are required by the very terms of the plan to enroll and generate sales of product by Customers if they want to earn any rewards under the program.
They’re not required, with commissions payable well below the 51% retail threshold. And it also doesn’t stop revenue flowing into Vemma from being primarily sourced from affiliates. And that to me runs counter to the spirit of the preliminary injunction.
What good is restricting affiliate commissions if Vemma as a company are still primarily able to generate revenue from recruited affiliates over retail sales?
The solution as I see it is to exclude downline affiliate purchase volume from commission qualification, and tie affiliate rank promotion (which in turn is pegged to binary earnings caps) to mandatory retail sales volume requirements.
Seeing as the ranks are based on binary cycles, implement the 51% rule there and require that cycle volume require 51% retail volume or an affiliate doesn’t qualify for any binary commissions.
Pending an unexpected resolution between Vemma and the FTC, a hearing on the matter has been scheduled for October 21st.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of Vemma’s Motion to Approve Revised Compensation Plan.
Update 21st October 2015 – The FTC has filed their response to Vemma’s motion, which is basically a reiteration of the points raised in their discussion.
Despite misrepresentations from other corners of the industry, the FTC aren’t objecting to the use of a binary compensation plan. Rather the regulator is objecting to
a binary compensation plan that lacks sufficient retail incentives and safeguards.
This, the FTC claim
is expected to act as a money-transfer scheme, siphoning money from later entrants to compensate earlier entrants.
This establishes a structure where “individual earnings are dependent on the ongoing ability of a participant to recruit others into the same system,” thereby creating a system “where the vast majority of participants cannot recruit their personal investment.”
A hearing on the matter is scheduled to take place later today.
Update 22nd October 2015 – The hearing on the revised compensation plan was held yesterday before Judge Tuchi, with the matter taken under advisement.
Hopefully we’ll get a decision on the matter within the next week.
Update 29th October 2015 – Judge Tuchi’s decision has been published, with the ruling in favor of the FTC.
Vemma’s revised compensation plan as reviewed in this article is DOA.
i think the structural problem the FTC refers to is the monthly 50PV requirement, which lends itself to almost mandatory autoship, which in turn lends itself to endless chain recruitment.
the ‘monthly’ qualification should be done away with. as and when an affiliate reaches 50PV, they should be qualified for commission.
vemma can offer additional incentives to affiliate groups which generate >50 retail. vemma can fine [commission cuts] affiliate groups which generate less than 50% retail using the same sliding scale method for compensation calculation. this will guide affiliates in the right direction.
i think this is a very harsh interpretation of the injunction and not very practical.
an affiliate cannot ‘control’ downline sales to ‘perfection’. if the downline sales volume turns out to be 51% to affiliates and 49% to retail customers, then the affiliate will earn nothing and all his work will come to naught. this is not fair.
i dont think affiliates will run around making sales to only downline recruits, only to have it flushed away.
to earn commissions, they will try to balance the sales between retail customers and downline recruits to an extent that is ‘humanly possible’.
the sliding scale method would be fair way to reward affiliates IMO.
what does vemma mean by ‘active customers’? it is not very clear. downline recruits are expected to have 25PV for an affiliate to qualify for commissions, so is vemma playing word games here?
and vemma cannot use the ‘or’ suggestion for PV satisfaction. that would be against the spirit of the injunction.
Would affiliates maintain a 50PV a month autoship order, just so their upline qualifies for commissions? Their own autoship doesn’t qualify them, so technically they could spend nothing each month and still qualify.
to earn commissions, an affiliate needs two ‘active customers’ on his right and left, who purchase 25PV each every month.
as i see it, vemma is trying to cultivate a class of ‘discount self consuming affiliates’, who cannot qualify for commissions on their purchase, and hence can be treated at par with retail customers.
new affiliates sign up for free, and may not be willing to take up the challenge of 50PV per month of which half has to be retail.
new recruits may be encouraged to start with self consuming 25PV per month at the new discounted price, and use their products for self use and as samples to attract new recruits and retail customers.
some new recruits will move up to doing the the 50PV qualification every month, and some recruits will sign out after self consuming for a while.
vemma will say that the 25PV self consuming recruits are retail customers, as they have nothing to gain but the discount.
this is why vemma has used the ‘or’ choice:
technically speaking, if vemma treats recruits who are purchasing discounted products without any chance of earning a commission on their self purchase, as ‘customers’, it is quite correct.
however why is there a requirement that such customers have to consume 25 PV every month? they should be allowed to purchase any quantity they like.
vemma is trying to construct a half assed ‘buying club’ scenario, but they are too addicted to their autoship model to let go of it completely.
The first problem here is that the whole compensation plan revolves around “aquisition of people” rather than on “sale of products”.
The second problem is that it pays out on “organizational volume” rather than on “sale of products”.
Some parts of the compensation plan seem to be completely unrelated to sale of products to non-participants.
The third problem is that Vemma itself can be seen as a participant (legally speaking), a specific type of participant. It will continue to profit from the illegal parts.
The fourth problem is that “binary cycles” can be generated solely from purchases by participants, i.e. multiple commissions and bonuses don’t require any sale to non-participants — they will be paid out anyway based on rank.
The fifth problem is that the compensation plan doesn’t really reward retail sale in small scale, e.g. new affiliates trying to run a balanced business with 50% or more sale to friends and family (or to some random retail customers). It won’t pay ANYTHING if the affiliate have only one customer, it will be impossible to generate 360 + 180 sales volume.
A part of the fifth problem is the very low retail sale commission. 360 + 180 = 540 sales volume = about $1,000 in sales for the right to earn $20 commission.
FTC has met its burden of proof that it is likely to succeed with its lawsuit.
Vemma failed to prove the opposite. It only created some reasonable doubts about that there might be some significant retail demand for the products even without the attached opportunity.
Vemma’s reward system was halted. It can’t continue to pay out any commission or bonus based on that old reward system. The old reward system was simply too focused on recruitment of affiliates.
If people recruited a downline of affiliates under the old compensation model, then they cannot continue to profit from it under a new one without any changes.
I have checked multiple of Vemma’s compensation plans. This “revised” one looks very similar to all the old ones. 🙂
There are SOME differences, e.g. some countries may have some different elements. Example:
My impression here is that Vemma is trying to trick FTC and the court to “approve” the different elements of the old compensation plan — something it later can use as a defense argument “FTC didn’t object to that”.
FTC is using the correct strategy here = “focus on the major aspects rather than on the details”.
It will be up to Vemma itself to come up with a compensation plan that actually can work in reality without violations of the injunction.
FTC doesn’t have the authority to “approve” business plans, it can only object to certain aspects of a plan. The court doesn’t have that authority either.
The injunction specified minimum 50% of the commission to come from non-participants. Or it actually used “more than 50%”.
A product based pyramid scheme will require the following elements …
* payment from participants
* for the opportunity to earn rewards
* that derive primarily from the introduction of other participants
* rather than from sale or consumption of goods or services
Vemma had products bundled with the opportunity itself, i.e. affiliates could indirectly pay for the eligibility to earn recruitment based rewards by purchasing an amount of products each month. And they were encouraged to “self qualify” each month.
That “self qualification” has been removed = one of the required elements seems to have been removed. People focused on law theories may see that as a valid solution.
But the reality may be different. The “self qualification” may still exist in a different form. Pyramid scheme cases are generally about how the businesses operate in reality.
There’s nothing that will prevent affiliates from “self qualifying” by using slightly different methods. Here’s one example:
1. join as an affiliate
2. recruit two friends or family members as customers (fake ones)
3. let them pay for 25 PV monthly purchases (to qualify yourself)
4. buy the products back from your fake customers
I used the term “fake customers” to indicate that they won’t really need to be interested in the products themselves.
Hallelujah. Tell it like it is Brother Nor.
Vemma is actually trying to get some customers (“supportive product purchases”), e.g. Bob Proctor has published a “Support Vemma” video, Troy Dooly published something similar, etc.
Bob Proctor’s video:
It may create some real sale to real external customers for a short period of time.
There hasn’t been any disputes about what paragraph 4 says?
I have quoted it several times, and I haven’t changed anything.
Here’s my initial comment in the other thread.
I have claimed that 50% will be enough when applied to the realities of the case. And I still believe that is the most correct interpretation — the interpretation that eventually will prevail if there’s any disputes about how to apply the rule to scenarios similar to my example.
I have clearly said that I believe people have interpreted it too literally, that they have looked at theories rather than realities.
Ugh, apparently there’s now a Vemma legal fund people can donate to.
This is a private business and the whole “attack on the MLM industry” crap from people who should know better needs to stop.
It seems to first have been announced by businessforhome.org.
It’s partly correct. Autoship isn’t any problem in itself, but “qualifying purchase” may be a problem.
Kevin Thompson and Jeffrey Babener have pointed out that the injunction is “Vemma specific — not an attack on the MLM industry as a whole”.
That’s correct as far as the Preliminary Injunction is concerned but the FTC v Vemma case is about more than the terms of the injunction, in fact the case has not even been presented yet, so yeah this case can readily be seen as an attack on the industry as a “whole” if the whole industry operates like Vemma.
Tell it to the judge. He wrote the Order.
“Big question mark” (I have no idea what you’re talking about there). That’s the third “big question mark” I have posted. I believe you derailed relatively early in that discussion.
The only comment so far after 7 hours is from Ted Nuyten himself.
i remember kevin thompson posting about a ‘vemma defense fund’ just a few days after vemma was shut down.
at that point emotion amongst vemma affiliates was high with ‘we love boreyko and give us vemma now!’.
things have cooled off a bit since then. the injunction requiring 50% retail and the liquidation of vemma europe and australia will naturally take a toll on affiliate support.
so, i don’t see the ‘defense fund’ collecting big money, after the first round of ‘sympathy contributions’.
if this was an “attack on the MLM industry”, the DSA will lend its support.
in burnlounge, when the FTC argued that internal sales were not sales to ultimate users under koscot, the DSA filed an amicus brief saying that if internal sales were not counted as sales to ultimate users, then the entire MLM industry would be affected.
the court resolved the matter by ruling that internal sales were sales to ultimate users, under the ‘right conditions’.
the FTC, in it’s 2004 advisory to the DSA, had clearly stated its position against self qualifying autoship, and the DSA did not write back to the FTC disagreeing with this stand.
since the FTC vemma action, the DSA has maintained a hands off attitude. they clearly do not see vemma’s self qualifying autoship as an ‘industry right’ which has to be supported in court.
IMO the DSA knew that many MLM companies were stepping over the line by using the same plan as vemma, but adopted an ostrich approach and did not have the foresight to see that the FTC could launch an attack on this ‘gray area’.
now that push has come to shove, the DSA has promptly dumped vemma, which is why DSA chief mariano should resign and the DSA should be rebooted for better self regulation.
in short, vemma affiliates should ask themselves why they should pay for the legal defense of vemma, when the DSA, of which vemma is a member, is not throwing its weight behind it.
I found an older source “Newsmax.com”, from September 11 2015.
Everyone has attempted to interpret the Order but only you have created your own version of it.
anjali: as i see it, vemma is trying to cultivate a class of ‘discount self consuming affiliates’, who cannot qualify for commissions on their purchase, and hence can be treated at par with retail customers [non participants]
i agree that the vemma court injunction specifies that minimum 50% of the commission is to come from non-participants.
IIRC, jeffrey babener had suggested in a post on behindmlm, that vemma could appeal para 4 of the injunction, which made this specification.
but, we see that vemma did not ‘directly’ appeal para 4.
i think, by reducing affiliate product prices and creating a ‘retail margin’, vemma has introduced a new category of affiliates who can join vemma for the discount, without access to the compensation plan.
vemma may ask the court for this^ category of affiliate customers to be treated at par with retail customers [ie ultimate users], under its new compensation plan.
the FTC has a soft corner for ‘buying club’ MLM set up’s as evidenced by their 2004 DSA advisory and even in their document excluding MLM from the ‘business opportunity rule’ .
the seminal amway 1976 decision, also recognized that many people join an MLM only to enjoy products at a discounted rate. this idea thus, has a firm legal grounding and i don’t see it being overturned, as it is logical.
vemma has constructed it’s new compensation plan to include a class of discount buying affiliates, and the FTC has challenged this compensation plan. thus, para 4 will get challenged in court, and vemma will achieve its ‘appeal against para 4’ in a roundabout fashion.
i dont have anything against this new class of customers, except that i think there should be no ‘fixed’ monthly PV purchase for customers.
when is vemma’s ‘Motion to Approve Revised Compensation Plan’ scheduled for hearing?
Correct. I’m not sure about “everyone”, but “people in general” seem to have interpreted paragraph 4 too literally.
I used a hypothetical example to test it …
In a dispute like that, 50% will be enough. The law will NOT require that the affiliate sell 25 boxes of Verve to retail customers.
You probably believe in the idea that paragraph 4 will need to be interpreted literally exactly as it has been written, e.g. that it will require the affiliate to sell 25 boxes of Verve to retail customers rather than 24 boxes?
You have tried to avoid that question. Instead you have focused on “other people have interpreted it to be 51%” plus some ideas I have been unable to identify (I have only replied with “big question mark”).
There hasn’t really been any disputes about that.
I was the first one to point out that the law doesn’t really require 51% for “majority of compensation”.
That has been clear right from the start (post #220 etc.).
51% was used as an EXAMPLE in an e-mail sent by Boreyko to the Vemma affiliates. So yeah thanks for being “the first one” (and only one) to believe that Boreyko spoke for the Court.
Where did you get that idea from?
I will be unable to recognize ideas like “you’re the first and only one to believe that Boreyko spoke on behalf of the court”. I don’t have any weird ideas like that.
“You’re the first and only one” may be correct enough, but the idea attached to it sounds completely weird. You may have misinterpreted a statement?
Here’s my previous statement …
“The law doesn’t really require” in that statement refer to Arizona statutory definition for pyramid scheme. The legal logic has been explained earlier in the other thread.
More to the point is where you got the idea that 51% was required. You didn’t see that number in any Court document did you?
You neve3r cited a statutory definition. You cited a general description for laymen from the AG website.
I first checked the court order for relevant guidance, and then I looked for other relevant legal sources.
Please note that I identified a specific scenario = 24 boxes of Verve for self consumption + 24 boxes of Verve sold to an external customer. That will be enough to meet the requirement for “majority of compensation”. The law doesn’t require more than 50% for that specific type of majority.
In case of a legal dispute about it, the court will need to look at external legal sources = case law or statutory rules. I only managed to find a statutory definition, so I applied that one (Arizona pyramid scheme definitions).
The court cannot refer to its own order as a legal source, i.e. it can’t use its own order to interpret the meaning of its own order. The court cannot refer to dictionary definitions either if it can find valid legal sources, e.g. it can’t use the argument “Merriam-Webster defines majority to be more than 50%”.
It wasn’t necessary. Most people will accept the consumer information as valid enough, i.e. it wasn’t very likely that there would be any disputes about the source.
Here’s from Jeff Babener’s collection of legal knowledge …
“Which is derived primarily from” means more than 50% in that definition — for compensation derived from the introduction of other participants.
But the court order focused on the opposite, on compensation derived from non-participants. So I concluded that 50% would be enough. The law doesn’t require more.
How do you know what the law requires? I for one am not willing to concede that the explanation provided to layman concerning pyramid schemes which you selectuvely snatched from the AG website is the law in this case … and you have not proved otherwise.
What IS definitive at this stage of the case is that “greater than 50% in retail sales is a requirement.
There is no ‘specific” type of majority involved here, so quit grasping at straws. . Greater than 50% by definition is a majority.
51% is also a majority and has been used in various examples for the sake of convenience. 50% is never a majority and you have offered no proof that this court must recognize it as such.
I looked at the statutory definitions for MLM pyramid schemes in Arizona. But I first tried to find relevant guidance in the court order itself.
I linked to an alternative source, to Jeff Babener’s collection of legal knowledge?
“unless the majority of such compensation is derived from sales to or purchases by persons who are not members of the Marketing Program;” is clearly about a specific type of majority.
Are you also ready to conclude that the order as written is insufficient to ensure that compensation is “derived primarily” from retail sales? Well it is, and that is what the court intended.
If as you and Babener suggest, a Pyramid scheme can be identified by determining that “a participant receives “compensation which is derived primarily from any person’s introduction of other persons etc,” then the opposite case should be sufficient to convince the court that the operation is NOT being operated as a pyramid scheme (which is the purpose of the preliminary injunction.)
Your 50/50 theory leaves the court in no-man’s land. It does not establish one thing or another and because of that it does not work.
There is a reason why the court demanded “greater than 50% and that reason is so that the court is able to conclude that the compensation is ‘primarily derived’ from sales to those who are not participants in the marketing plan.
50/50 is not so nifty. Its in the muddy middle.
I will conclude that the court didn’t expect this type of nitpicking (and neither did I), so it didn’t carefully check each and every detail.
The correct words of paragraph 4 should probably have been …
“Not less than 50%” could also be correct.
No it couldn’t, since in that case the compensation could not be said to be ‘primarily’ derived from sales to non_participants.
The only way to ensure that is to insist that sales be greater than 50% which is what the judge ordered.
Excuse me but that is pure Horse sh%t. A majority is the greater part, there is no other “type.”
….and what did you find? Directions to the AG’s website?Very funny. You didn’t find any statutory definitions. you may as well admit it.
I believe you’re mixing up two ideas now. The court order did neither specify 50% nor 51%, and it didn’t offer any explanations in other parts of the order.
The only explanation you got was this one …
So the court has clearly not specified any interpretation. That’s why I added a hypothetical example with 2 cases (24 + 24 boxes) of Verve.
* The 51% rule will require 25 boxes sold to retail customer.
* The 50% rule will accept 24 boxes sold to retail customer
Kevin Thompson Vemma Analysis: Lessons Learned – Part 2:
I have tried to interpret that post, but I didn’t manage to understand the logical reasoning. I believe you have mixed up two ideas.
It CAN be made simple. You have two different elements …
P = commission derived from Participants
C = commission derived from Customers
W = the Whole = P + C = 100%
You have 3 different options …
1. If C == 50% then P == 50% (not a pyramid)
2. If C > 50% then P < 50% (not a pyramid)
3. If C < 50% then P > 50% (pyramid)
“Not a pyramid” will be true in 2 of those 3 scenarios.
“Pyramid” will only be true in one of those scenarios.
There are only two options for determining if a scheme is a pyramid. Its a yes or no proposition.
Conditions 2 and 3 are the Only states that can tell us whether compensation is primarily from customers or participants, and knowing that we can determine if the scheme is a pyramid.
Your Condition 1(equality) does not provide this information because it does not tip the balance one way or the other, and therefore it is of no use in making a determination.
It is illogical for you to say that 50/50 proves anything as it only present the court with a tie, yet you persist in saying it does in spite of ample evidence from both Babener and the judge that pyramid/not pyramid is determined by looking at where the income is PRIMARILY derived.
There is no primary source if there is a 50/50 split. Sorry, it must be either condition 1 or 2 …. and as the injunction stipulates it must be 2. (If C > 50% then P < 50% (not a pyramid))
Do you really mean that a court will be unable to determine 50/50 cases?
Here’s a 50/50 scenario:
24 boxes of Verve sold to customer = 50%
24 boxes of Verve sold to participant = 50%
= 48 boxes of Verve = 100%
That scenario is completely realistic. It will be much more common than most other scenarios.
* 51/49 will be very uncommon.
* 100/0 or 0/100 may be common
* 75/25 or 25/75 may be common
No, Only that the Preliminary Injunction made no provision for it.
Since the court has not ruled on Vemma’s proposed compensation plan, nor whether it expects the ratios to apply per capita, company wide, or both, we can only wait for further guidance.
Isn’t that the same as “will be unable to determine”? It’s just another way to describe the same thing.
Then the answer was unnecessary. It didn’t add anything meaningful, it only added “more vagueness”.
It is not.
I will finish this discussion like I started it …
The law doesn’t really require 51%, it will only require 50% or more of the commission to derive from the right sources.
“The law” in this context will be Arizona statutory definitions, the correct legal source when no case law can be found. If case law can be found, then it should normally reflect the statutory definitions.
Currently, “the right sources” has been defined to be “persons who are not members of the Marketing Program”. That may eventually change based on realities, e.g. people may come up with some new solutions currently not known.
A 51% rule can have a function as a “safety margin”, e.g. to make sure there’s a “clear majority of right sources” in some scenarios. In other scenarios that rule will only be frustrating and dysfunctional.
as usual, a great article by MLM attorney kevin thompson!
i cant believe it, but he’s saying exactly what i have been saying ie Do Away with monthly PV requirements.
and, if MLM companies Insist on having monthly PV requirements or autoship or whatever, then its only fair that they show 50% retail to avoid being a product based pyramid scheme.
it’s back to the amway model. no inventory loading across the whole board. companies that stay with the autoship model will either break, or will have to bend at some point.
Your post #42 had quite a lengthy section telling the opposite. You looked at your own idea — “there MUST BE a majority” — and you didn’t really check whether that idea would work or fail in reality.
The conditions for pyramid scheme will not be met in a 50/50 scenario. You won’t really need to prove that retail sale has a majority, it will be enough to prove that recruitment doesn’t have the required majority.
Since you understand the concept of ‘primarily derived’ as it applies to pyramid schemes you should also understand why the judge demanded that a majority of compensation must be derived from non-particpants in the marketing program.
Call it a safety margin if you like but the court must ensure that compensation is primarily derived from sales to non participants or it runs the risk of supervising and perpetuating a pyramid scheme.
I don’t expect court orders to be completely flawless. They may have some minor flaws, and we’re looking at one of them now. I have tried to correct that flaw in paragraph 4 — have tried to make paragraph 4 become more understandable and more consistent with what the law actually says.
I’m not a “follow order” type of person, e.g. I will question an order if it doesn’t make any sense rather than blindly try to follow it. And I have clearly questioned paragraph 4.
it is not…. that the court did not specifically address your hypothetical scenario does not imply the court is ‘unable’ to do so.
….the judge’s demand for a majority works just fine “in reality.”
Deriving compensation of a single penny MORE from retail than self consumption is all it takes to attain a majoriy and I can think of about a dozen ways to tease that penny out of the revenue stream and i am not even awake yet.
Based on the preliminary injunction, I predict that neither Vemma nor anyone else will argue that 50% equals a majority. Why? Because it doesn’t.
Since the 50/50 discussion could be ended, then I can focus on the more current issue.
FTC’s point of view:
I would have used a different argument, e.g. “the plan as a whole will be illegal” rather than “commissions will be illegal”.
Pyramid scheme rules are about the whole program, i.e. the illegality isn’t in the details but in how the business venture operates as a whole.
A pyramid scheme won’t save itself from prosecution simply by adding some random sales to end users “somewhere in the system”. The whole compensation structure will need to be changed, it can no longer focus on recruitmment based rewards as a primary component.
I would have used the argument that the injunction isn’t about minor changes to the compensation plan, but I would have added more substance to that argument.
Vemma’s point of view:
Vemma indicates that the compensation structure will not need to change, the affiliates will fix the problem by adding more retail sale. And if they don’t fully fix the problem then they will only be partly rewarded.
I would have referred to this part of the court order …
The injunction is tailored to be less drastic than a complete shutdown, based on that Vemma showed enough evidence to prove a significant retail activity.
Vemma has been allowed to contact affiliates and to ask them for reclassification to become customers. That may fix a part of the problem, e.g. the injunction doesn’t prohibit paying out commissions derived from customers.
If Vemma gets enough customers that way, there won’t be any problem with that other commission either — the whole organization will be focused on retail sale rather than on recruitment.
The revised compensation plan won’t really fix anything. The only thing it will do is to stop paying out some commissions, it won’t do anything with the pyramid scheme itself, e.g. with Vemma’s role as an organizer.
Another argument I would have used is …
“Someone must have misunderstood something here. FTC as a regulator does not regulate details in individual compensation plans or the commissions paid to individual distributors. It will be up to the companies themselves to regulate details like that”.
“FTC does not approve compensation plans and it does not object to them either. It will object to communication that most likely will violate the current court order, and that’s all. So if the communication happens to be about the compensation plan then the objection will necessarily need to involve it”.
“The law will not adjust itself to match specific compensation plans, i.e. it will neither allow nor deny specific types like ‘binary payplan’, ‘unilevel’, ‘stairstep breakaway’ or whatever they are called. It will only look at how they work in reality. So if someone can come up with a binary payplan that does not reward recruitment then there shouldn’t be any problems with the law”.
It’s based on posts #4, #5, #6 and #7, e.g.
In situations like that, it will be better for FTC to clarify its own functions as a regulator than to accept the role Vemma is trying to give it.
What the world don’t want to see here is a “court approved pyramid scheme, protected by a U.S. District Court”. So I would have clarified that the injunction is about the organization as a whole.
i agree, and so i have never understood how you could get so wrapped up over the details of your single participant sale of 25 boxes retail and 25 boxes to the participant.
I always doubted that 50/50 made any difference at all since the majority of sales concept is primarily and perhaps only applicable to the company as a whole. i said this about two weeks ago by the way.
As a regulator, I might have added Bob Proctor’s “Support Vemma” video in support of the argument that Vemma will need to fix the problem itself — that it will need to add real customers to the structure as a part of the process. It can’t simply reclassify affiliates and continue to pay people based on the old structure.
I would probably have referred to the whole article there as “necessary steps”.
Amazon Pay sounds like a temporary solution, but it sounds like a right solution. “Fax order form” sounds like a too complicated solution.
WHY ADD STUFF LIKE THAT?
Because it can work as a “contrast” to the disputed areas — a contrast to the “51% rule” and the lack of definitions for affiliates and customers.
There’s nothing wrong with encouraging people to buy products. It will generate some sales not motivated by the opportunity to earn an income. And that seems to be exactly what Vemma needs right now.
There’s nothing wrong with encouraging affiliates to reclassify themselves either. But doing it for them may be highly unethical (it may disguise a problem).
It can be used to illustrate that “FTC does not regulate details, it will be up to Vemma itself to come up with legitimate business solutions”.
Probably because I never intended to have any long discussion about it.
My initial post was plain and simple, I simply pointed out that I believed people had over-interpreted paragraph 4 when they came to the 51% conclusion. I also stated why I believed it.
Thanks for the explanation.
this is totally wow, because i was Right [yay!].
vemmas emergency motion filed in court to approve it’s revised compensation plan states:
here is vemma’s motion:
i’ll read the whole of it and get back with more wisdom, this is just a break to ‘show off’ 🙂
the standoff between the FTC and vemma with regards to the new compensation plan, will depend upon whether judge tuchi revises his own ruling in para 4 of the vemma injunction:
‘purchases by persons who are – not members of the Marketing Program’ is the pointy needle here.
we know that judge tuchi has tailored this injunction to be ‘vemma specific’ as a punishment for vemma’s past sins.
judge tuchi could take the position, that though burnlounge recognized self consumption by affiliates ‘under the right conditions’ as sales to ‘ultimate users’, vemma has to ‘strictly comply’ with the prohibitions of the injunction.
after all, standing MLM case law has no 50% retail rule, but vemma has been asked to follow this rule to ‘prove itself’.
similarly, judge tuchi could deny vemma the right to have a class of ‘discount ultimate users’, within it’s affiliate ranks, even though it is allowed by case law.
BTW, whats all the to and fro about vemma’s ‘binary plan’? i don’t know much about it, except that though legal, binary plans have always been suspect. it’s like- join, get two recruits, and you’re done.
Article updated with news of FTC response filed today.
Vemma’s revised compensation plan will still pay compensation for recruitment of participants, in violation of paragraph 1 of the injunction.
But it may be a dispute here about how to interprete the law, e.g. the term “pays compensation for recruiting new members”.
A separation between customers and affiliates is necessary to clearly be able to determine that product purchases are bona fide sales to end users, rather than part of a recruitment scheme.
Arizona is a part of the Ninth Cicuit Court of Appeals, i.e. there’s relevant case law here that has to be followed (local statutes will play a secondary role). Vemma can’t refer to “Here in Arizona, we see it quite differently”.
The revised compensation plan doesn’t really fix anything. It will only move the payment from “pay directly” to “recruit 2 people, and let them pay for your participation”.
I pointed out that compensation is tied to “acqusition of people” rather than to identifiable product sales to ultimate users, i.e. people will automatically qualify if they recruit enough people in a downline.
It may require more than two people, but affiliates can qualify solely from purchases made by other participants.
“As a regulator” …
I would carefully have avoided a focus on details in the compensation plan. FTC simply doesn’t have the authority to “approve” compensation plans or to regulate any details in them.
The court doesn’t have it either. It may “look into” the compensation plan as a part of something, but that’s all.
FTC does however have the authority to review marketing material and similar types of communication. A compensation plan may fit into that cathegory as “marketing material related to the income opportunity itself”.
“Have the authority” is about having the right to say both yes and no, about being the decision maker or the one approving decisions made by others.
VEMMA’S REPLY, OCTOBER 13TH
FTC doesn’t have the authority to regulate specific parts of a compensation plan. It can object to that the plan as a whole doesn’t offer enough information to adequately address the main aspects (or specific parts) of the injunction.
That’s what FTC already has done.
And FTC should probably leave it there — “it will be up to Vemma to clearly demonstrate that the current plan will work in reality, that it will stimulate retail sale to non-participants rather than recruitment of affiliates, that it will prevent pyramid scheme operations”.
“As a regulator …”
I would have played the card “FTC does not have the authority to regulate details like that”, i.e. I would have continued to object to partial information that doesn’t really tell anything about how the plan as a whole will work in reality — from day one.
Vemma will need to fix the problem from day one. Hypothetical solutions where affiliates eventually will bring in more retail customers — motivated by reduced commissions if they don’t do it — simply isn’t an adequate solution to the problem.
“The revised plan”
In the revised plan, the reduced commission will only affect newly recruited affiliates. I didn’t manage to identify any reduction in commissions or bonuses to people near the top.
Article updated with outcome of hearing on the 21st.
here’s one of the tricks …
They have simply reclassified new affiliates to customers. Every new person who joins Vemma will be classified as “a customer with the right to recruit a downline (of 2 people)”.
It will make the program become even more deceptive, e.g. it will disguise the number of failed affiliates.
in an email to the FTC, before the case hearing yesterday, vemma had eliminated the requirement for affiliates to start as customers.
however vemma new comp plan which requires customers to purchase a certain PV every month is a very bad idea, and i don’t see the judge accepting it. it’s the same old idea of ‘recruitment and autoship’ under a new garb.
the basic idea of vemma creating a retail margin and that it is trying to create a class of discount buying affiliates, is ‘good’ in itself, but vemma is doing it ‘wrong’.
1] forcing ‘customers’ to buy PV every month is inventory loading and will lead to the same old recruitment based plan vemma had initially.
2] affiliates reselling product to fresh affiliates is not ‘logical’ because vemma has not created any ‘wholesaling’ element in it’s new plan, which makes such reselling profitable. [the FTC has mentioned this point in its reply]
IMO, vemma is misusing the finding of burnlounge, and giving its own twisted interpretation of ‘affiliates’ as ‘ultimate users’.
i dont understand why vemma is trying to blow the chance they have been given.
Reclassification of affiliates to customers have already been covered in the factual findings — “not based in facts”.
That type of reclassification may, in itself, be a deceptive trade practice.
That wasn’t visible in the documents I had a quick look at.
I didn’t really look at any details in the plan itself. I have looked at the review, e.g. in posts #4, #5, #6 and #7.
I was simply looking for “tricks” when I looked at the attached evidence, but I didn’t carefully examine the plan.
From my understanding of it, neither the FTC nor the court have the authority to “approve” compensation plans in details, or to “regulate” details.
The court can look at it as part of the evidence. It doesn’t mean that the court will examine each and every detail in the plan.
The current legal issue isn’t about the plan itself, it’s about FTC’s right to review marketing material and its right to object to it. So findings of fact should normally focus on some major aspects rather than on details.
this is the heading of vemma’s motion before the court:
this is how the motion ends:
so, the court will check if vemma’s new compensation plan is in accordance with the prohibitions set out in the injunction.
the court will either approve it or disapprove it, giving reasons for the same. in case the court disapproves the plan or parts of it, vemma will have to make changes, and present the comp plan to the FTC again for agreement.
vemma is not arguing whether the FTC or the court, has the authority to approve compensation plans or review marketing materials, at all.
the current legal issue is for the court to resolve the standoff between vemma and the FTC over it’s new compensation plan. the FTC has refused to approve it, so vemma is asking the court to approve it.
your understanding is wrong.
this is the email from vemma attorney quigley to FTC attorney jason moon, which states that affiliates are no longer required to start out at customers:
Eveidence? Vammas is submitting a revised comp plan. The plan is evidence that the plan has been submitted. What other evidence are you suggesting the comp plan will provide?
I aver that the court has the authority to approve any plan or any detail of a plan so long as Vemma remains under the preliminary injunction. The FTC may object to any plan or any detail of a plan that Vemma submits, and Vemma would be blundering if they unilaterally submitted a plan without consulting with the moniror and the FTC first.
Vemma is not going to be able to write its own ticket here. We have already seen eveidence of this,
i think vemma is running afoul of the above clause in the court injunction, in it’s new compensation plan.
new recruits will be ‘encouraged’ to go on 25PV autoship for self consumption or resale.
this will help the ‘upline’ or the recruiter to ‘maintain eligibility for bonuses, rewards, or commissions’.
section 1.A.2 does not specify WHOSE eligibility for bonuses, rewards, or commissions needs to be maintained. ie it does not say: maintain [THEIR] eligibility for bonuses, rewards, or commissions
so the downline is ‘encouraged’ to purchase goods, so that the upline can ‘maintain eligibility for commissions’.
all affiliates get the product at the same discount from vemma, so the resale from upline affiliates to downline affiliates is for earning commissions on recruitment. a better system would have been to have various discount levels for affiliates which would make resale to new affiliates for personal use a viable idea, with acceptable intent.
“Exhibit 1” and “Exhibit 2”. I didn’t have time (or interest enough) to read each and every detail.
I’m not sure about the second part of your question — “What other evidence are you suggesting the comp plan will provide?”. I have interpreted the compensation plan to be a vital part of “disputed material”, and that the court will need to look at some details in it.
The current legal issue is related to paragraph 1.E:
So it won’t be the compensation plan itself that will be reviewed (in detail), only its function as marketing or sales material.
It will be up to Vemma itself to make sure that the plan can work in reality, e.g. that it won’t violate the injunction.
I’m not sure we’re talking about the same thing here.
The court should normally only look at “disputed areas” of the plan. FTC should normally only object “on general basis”, “to major aspects of the plan rather than to details”.
That’s easy. Vemma knows they will cease to exist if they follow the law and terms laid out. They might as well throw it all out there with the hope of sneaking something by.
“Legal MLM” is an oxymoron. The paradox? A legitimate legal plan on paper that can’t function in real life – without breaking the law.
The comp plan is subject to objection and court approval. There may a dispute over the plan, but a dispute even if reduced to writing is only evidence of the dispute itself. A plan is prospective. Evidence is retrospective.
i rather doubt you can separate the comp plan from the marketing and sales material, both of which necessarily layout the incentives for affiliates to sell some product.
not according to the courts or the SEC or the FTC.
apparently you dislike MLM, and that’s okay with the world.
I referred to a specific paragraph of the injunction.
That’s exactly what the hearing was about.
It will be up to BK Boreyko to make the plan work in reality.
yes, and the compensation plan is a part of how vemma will be marketed and how its products will be sold.
so, this hearing is about whether vemma’s compensation plan is in line with the prohibitions of the injunction, and this falls under the ‘general head’ of the para you have mentioned.
I believe we’re talking about two different things here.
The comp plan will have one function as marketing material, e.g. to illustrate for prospective income opportunity seekers how they can profit from the system.
It will have a different function for the company itself, as a plan to regulate payouts of commissions and bonuses. The court can’t “approve” that part.
Those two functions should be seen as separate ones.
Article updated with news of Judge Tuchi’s decision being published.