FTC: Vemma’s new comp plan terrible for affiliates
Just shy of three months ago, Vemma introduced a new compensation plan. This was required in order for the company to restart it’s MLM business opportunity, with the previous plan deemed conducive to a pyramid scheme.
Following implementation of Vemma’s retail-centric compensation plan, only one hundred and nineteen Vemma affiliates qualified for commissions.
These affiliates were paid $30,969.
Claiming that ‘the vast majority of affiliates… will be unlikely to earn commissions under the company’s new compensation plan‘, Vemma submitted a second revised compensation to the FTC on December 8th.
As of the time of publication, the FTC have yet to issue a formal review of the plan.
On December 18th however, Vemma filed a quarterly report as required by the terms of the preliminary injunction currently in place.
The FTC claim this report went
beyond the requirements of the PI by advancing litigation arguments and making inflammatory mischaracterizations of the FTC and the Receiver’s conduct.
Part of the report mentioned Vemma’s new compensation plan, which the FTC accuse Vemma of disclosing ‘to the public and the Court before the FTC’s review of the plan was complete‘.
On the 7th of January the FTC filed a response to Vemma’s quarterly report, among other things, the regulator clarifies ‘its position concerning the new plan.‘
Initially, it sounded as if the FTC were likely to object to Vemma’s new plan;
The FTC is concerned that the plan:
1) still provides inadequate incentives for retail sales;
2) is possibly even more complex than previous iterations; and
3) is likely to provide little opportunity for Affiliates to earn any compensation
Despite these shortcomings, the FTC concede however that
because the plan helps prevent pyramidal conduct by prohibiting Affiliates from qualifying for rewards through their own purchases and prohibiting the payment of commissions unless at least 51% of sales are made to non-Affiliate customers, the FTC does not object to use of the plan on an interim basis.
Basically the FTC think the new plan is terrible for affiliates, but because it satisfied the condition that affiliates can’t self-fund commission qualification, don’t object.
The terms of the preliminary injunction see the FTC object to anything that encourages the operation of a pyramid scheme. It says nothing about a compensation plan that shafts affiliates.
Mind you, we have yet to go over Vemma’s second compensation plan revision – this is just going off what the FTC have said about it.
The FTC will examine the plan in practice to determine whether it affords Affiliates a realistic opportunity to earn compensation to warrant being marketed as a business opportunity.
Yeah, the plan is purportedly so bad that the FTC are questioning whether it’s implementation would, by definition, cease to qualify Vemma as a “business opportunity”.
Other points of interest raised in the FTC’s response include asserting the handling of the FTC’s investigation was “proper”, and that the YPR movement marketing campaign was not voluntarily retired by Spring 2015 (as claimed by Vemma in their filed report).
In the report, Vemma asserted
the FTC should have investigated Vemma’s sales and marketing tactics pursuant to authority granted by a 1999 administrative consent order with Vemma’s predecessor company, New Vision International, Inc.
The FTC claim this assertion is wrong for three reasons.
First, the New Vision order addressed only deceptive health claims. It included no provisions entitling the FTC to obtain records or information from (Vemma) to investigate the unlawful pyramid or deceptive income claims at issue in this case.
Second, the FTC did not need to obtain records or information directly from (Vemma) to demonstrate that Vemma was operating an unlawful pyramid and using deceptive income claims to promote its program.
(Vemma) had widely disseminated materials — including the company’s compensation plan, income disclosure statements, and a wide range of videos and marketing materials — to Affiliates and the general public that document (Vemma’s) deceptive conduct.
Third, and most importantly, the FTC’s objective in commencing this action was to immediately stop (Vemma’s) ongoing law violations and resulting consumer injury.
The FTC properly initiated its action ex parte to achieve that goal, as well as to prevent the dissipation of assets or destruction of records.
Had the FTC of incorrectly approached Vemma about their records under the scope of the New Vision order, who knows what might have happened.
Moreover, since ex parte relief was ordered only after the Court determined that the FTC was likely to succeed on the merits of its complaint and that a balancing of equities favored entry of the order, any suggestion that the FTC’s actions were improper must be rejected.
Vemma also appear to have second judged the timeline of the FTC’s investigation, which the regulator is none too happy about.
(Vemma) also contend that the FTC did not begin investigating whether (Vemma) made misleading health claims until after the Court entered a preliminary injunction that was less stringent than the FTC requested.
However, (Vemma) have no knowledge concerning when the FTC began investigating Corporate (Vemma’s) potential violation of the New Vision Order, and their contention is false.
Regarding Vemma’s claim that the Young People’s Revolution marketing was canned by Spring 2015;
Whatever the origins of YPR, (Vemma) adopted it as a promotional campaign, incorporated it into their core promotional materials, and were still promoting it in the spring of 2015.
In March 2015, FTC Investigator Matthew Thacker enrolled as an Affiliate and gained access to and imaged Vemma’s “back office” material.
The back office material—which was used to train and motivate Affiliates to promote the Vemma opportunity—still contained extensive references to YPR and the Young People’s Revolution.
In fact, one of the Affiliates prominently featured in Vemma’s back office material was Alex Morton, the lead Affiliate that (Vemma) claimed in their Quarterly Report had left Vemma.
In Vemma’s own back office videos, Morton spoke about earning $25,000 a month as a “normal, average 23-year old kid”, and promised to share “exactly what to do to take your [Vemma] business from zero to a thousand a month, zero to a quarter of a million dollars, very, very fast.”
The back office materials provided by Vemma also featured “YPR Radio” segments, which portrayed YPR as an active, burgeoning movement.
Regardless of any purported steps (Vemma) took to police social media use by its young Affiliates, (Vemma) maintained and promoted deceptive YPR material on their own website and in the back office materials that they provided to Affiliates.
To what extent the FTC’s reply to Vemma’s report has on the overall case remains to be seen.
At the risk of getting called out on more porky pies though, perhaps Vemma’s next quarterly report should stick to constraints of what was specifically ordered by the court.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of the FTC’s January 7th response.