FTC criticize Vemma for reclassifying affiliates as customers
Income Disclosure Statements have become somewhat of a joke these last few years.
Rather than present the general public with an accurate snapshot of the business, MLM companies instead seek to manipulate the data such that they exclude as many affiliates as possible.
So why are MLM companies manipulating the data to exclude affiliates?
The reason is to downplay affiliate losses and artificially bump up retail sales revenue. At the most egregious end of the manipulation scale, companies like Vemma even go so far as to reclassify affiliates who haven’t recruited affiliates as retail customers.
This despite said affiliates signing an affiliate agreement that makes them part of the income opportunity.
Enter the FTC, who are looking to put an end to MLM Income Disclosure Statement deception.
As part of their pyramid scheme case against Vemma, the FTC have moved to object to Vemma filing “irrelevant evidence”.
Not surprisingly, this evidence is related to Vemma incorrectly defining who their customers are.
Consistent with their misleading marketing materials, and in an attempt to disguise Vemma’s actual purchase patterns which are consistent with illegal pyramid activity, (Vemma) attempt to re-classify self-designated Affiliates as Customers.
Citing a declaration by Dr. E. Emre Carr, a former Senior financial economist with the SEC, the FTC quote “this classification is not
(Carr) advocates defining Customers as buyers who never received a commission, never enrolled another individual, and did not
purchase an affiliate pack, regardless of whether the participant self-designated as an Affiliate.
To the extent that a distinction is made between retail customers and customers in general, I agree.
Signing up and purchasing a $600 Vemma affiliate pack which qualifies an affiliate to earn commissions is not typical consumer behavior.
As the FTC note, this sort of grey-area manipulation then leads to inaccurate disclosure statements, which are then held up by affiliates promoting Vemma:
Vemma used a similar tactic in its 2013 U.S. Disclosure statement and reclassified 149,431 Affiliates as Customers, changing its Customer versus Affiliate ratio from 28% Customers and 72% Affiliates to 70% Customers and 30% Affiliates.
This tactic allows Vemma to categorize failed Affiliates as Customers and serves two purposes: 1) making it appear that Vemma’s marketing is product-oriented rather than recruitment-oriented; and 2) obscuring the natural consequences of Vemma’s
pyramid scheme—large numbers of failed affiliates.
I mean really, what is the point of having disclosure statements if they’re not a true representation of the business?
Furthermore if every MLM company is able to incorrectly classify failed affiliates as retail customers, regulation of product-based pyramid schemes becomes impossible.
Every pyramid scheme will just claim people who lost money are infact retail customers, and that’ll be that.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of the FTC’s September 11th “Omnibus Reply To Defendant’s Responses Regarding the September 15 Preliminary Injunction Hearing” filing.