Why Vemma hasn’t restarted business operations yet
Despite BK Boreyko posting the following to Facebook on September 26th:
Look for Vemma’s Customer Thank You Sale launching next week!!
the Vemma website has been dead for over a week now, leaving many affiliates wondering just is going on.
Roger Mayling: Can somebody from Vemma Corporate tell me whether Vemma Europe is reopening and a approx time scale please.
Jerzy Grzelak: Vemma is died in Europe………. we are not able to purchase Vemma more than a month !!!!!
Nobody answers with support for email , paid Vemma has not arrived from 26.08.2015 !!!! or a serious treatment of people who believe?????
Following a series of recent court filings, a battle between the FTC and Vemma over what they can and can’t communicate with affiliates has emerged.
As part of the preliminary injunction granted against Vemma on September 28th, the FTC were required to approve of any marketing material Vemma wished to publish.
Vemma contend that
based on recently received objections from the FTC, it is clear that the FTC’s interpretation of what constitutes “new marketing or sales materials” and the scope of its authority to dictate the content of communications by (Vemma) under the Order extends far beyond (its) intended scope.
This, Vemma claims, is ‘preventing Vemma from restarting operations’ and causing the business “irreparable harm”.
At the center of the dispute is Vemma’s wish to contact affiliates
(i) never purchased an affiliate pack, (ii) never enrolled a customer or affiliate, or (iii) never earned a commission, regarding Vemma’s intention to reclassify them as Customers.
The first response Vemma received was on September 24th, via an email from the court-appointed Vemma Monitor, Robb Evans & Associates.
proposed additional language that included the following statement:
“The new and revised plan will generate commissions for sales made to customers, but will not generate any commissions for sales made to other Affiliates enrolled in the company’s Marketing Plan.”
Vemma objected to this, claiming ‘the Monitor’s proposed description of the new Marketing Plan was not consistent with the Order.‘
The Order precludes qualification for bonuses based on purchases by that affiliate, and it precludes the payment of commissions to an Affiliate “unless the majority of such compensation is derived from sales to or purchases by” customers.
But the Order does not preclude the payment of commissions based on any sales made to other Affiliates.
An FTC attorney weighed in later that day, telling Vemma’s lawyer:
“I think you are probably correct about the order” and invited (Vemma staff onto) a call.
During that call, the FTC raised concerns about the spoliation of data, which Vemma responded to with assurances that steps had been and would be taken to preserve an archive of all customer/affiliate transaction data, including pre-Order affiliate and customer classifications, for litigation purposes.
Interestingly, the FTC also suggested
the communication should be revised to require the recipient to “opt-in” to being reclassified as a Customer, rather than requiring the recipient to notify Vemma of his or her desire to “opt-out” from Vemma’s planned reclassification of status.
The concern here was that Vemma would then assert that those who didn’t respond (for whatever reason), had revealed themselves to be retail customers all along.
Given that they were emailing any account in their affiliate-database that matched the aforementioned criteria, which would by definition include affiliates who failed at the business (of which there are no doubt thousands), I can see where the FTC were coming from.
Vemma didn’t, or chose not to, and instead sought to reassure the FTC that
the purpose of the communication was on the operations of the company going forward in compliance with the Order.
Modifying the opt-out to an opt-in would best preserve the current status of Vemma’s affiliate-base, as opposed to Vemma being permitted to reclassify a potentially large number of affiliates who didn’t respond, and then inferring (in their legal favor) why these affiliates signed up (without actually gathering this information from the affiliates themselves).
Vemma believed their reassurances would win over the FTC, but the agency refused to take any chances.
The FTC delivered its letter dated September 25, 2015, in which it advised Vemma that “the language raises concerns that may need to be brought to the Court’s attention if not resolved.”
Rather than permit Vemma to run their opt-out model and reclassify a potentially large and non-responsive section of their affiliate-base, the FTC instead suggested they
contact participants to determine their appropriate classification as Customers versus Affiliates going forward.
Despite this being an obvious reiteration of the FTC’s earlier “opt-in” proposal, Vemma played dumb.
The FTC did not state any specific objection.
However, the FTC continued to recommend changing the letter from an “opt-out” procedure to an “opt-in” procedure in order to resolve its perceived evidentiary objections.
Vemma’s response to the FTC letter saw them refuse to drop the opt-out model, and instead push it through with the following stipulations:
In addition, and to further alleviate the FTC’s evidentiary objection over an “opt out” procedure, Vemma also revised the draft communication to advise purchasers who were being reclassified as Customers to electronically confirm that the reclassification was accurate when they purchased products from the Vemma website on a going forward basis.
Vemma also advised the FTC that it would include a statement with each shipment reminding these purchasers that if they believed their reclassification to Customer status was inappropriate, that they should contact Vemma’s customer service department to have their classification changed back to Affiliate.
That’s all very well, but Vemma’s response failed to address non-respondents – who under Vemma’s opt-out model would be automatically (and therefore in some instances incorrectly) classified as retail customers.
Not surprisingly, the FTC maintained their objection.
The FTC’s response was yet another series of objections.
In its September 29, 2015 letter, the FTC now criticized the salutation contained on the draft communication (“Product Fan”) as “argumentative language … implying that the Affiliates’ true intent in the past was simply to purchase products for personal consumption.”
The FTC also objected to any mention of a product sale because, according to the FTC, that “could be read as an inducement to Affiliates to allow their status to be changed to Customers.”
I’m by no means a lawyer, but even to me the issue the FTC have with the opt-out model is painfully obvious.
Vemma’s refusal to drop the opt-out model was a pretty strong indication that they were looking to manipulate their affiliate-data base for future legal gain.
Whether they are playing dumb or not I have no idea, but Vemma’s legal team are trying to frame the FTC’s straight-forward objection as a desire to control Vemma’s pricing.
In fact, the FTC is now seemingly taking the position that basic product pricing information has to be reviewed and approved by the FTC under the Order before it can be disseminated.
Seemingly hell-bent on pegging a future defense on continued miss-classification of their affiliates, Vemma refused to budge on the opt-out model (providing no specific reason why).
And with their affiliate’s left wondering why Vemma weren’t doing everything in their power to restart business operations (such as making the simple switch of their automated opt-out reclassification proposal to that of a manually reviewed opt-in model), that lead to this:
What the FTC’s most recent series of objections really reflects is its evolving and expanding interpretation of what communications Vemma can disseminate without FTC review, and the communications that will require FTC review.
Based on the latest statement from the FTC, its opinion is that they are entitled to review, sit on, and then object to (even on grounds that are not contained anywhere in the Order) every communication that Vemma may want to have with its Affiliates or Customers.
That surely could not be the Court’s intent, and the Corporate Defendants respectfully request that the Court overrule the FTC’s objection(s).
The second point of contention between Vemma and the FTC was an email Vemma sent out on September 28th.
The September 28 Communication describes aspects of the Order, advises Affiliates what compliance with the Order will require going forward once Vemma finalizes its new compensation plan, and discloses new product prices.
The FTC opined that this was “marketing material provided to Affiliates without prior FTC approval”.
And indeed, marketing is pretty much what the email was used for.
Within twenty-four hours of Vemma sending out the email, it was circulated on Facebook by Vemma affiliates, who attached to it their own prefaces:
VEMMA Re-Launch Announcement! Wow! I think we’re about to make a major comeback!
VEMMA has significantly reduced the price of its products, has doubled the auto-ship discount from 10% to 20%, and reduced the QV needed to qualify from 120 QV down to just 50 QV! (See price list below!).
Getting a lot of new customers as well as old customers re-ordering was just made extremely easy, as is qualifying for commissions and bonuses!
The price reductions and lowering of the QV for all commissions and bonuses from 120 QV to 50 QV is going to be HUGE for affiliates in Africa!
In fact, you can either offer your customers the new, lower price, OR you can sell them the product at the original price and put the difference between the original price and the new price in your pocket as a retail profit! (I suggest opening up a customer account for all your customers and ordering in their name!)
IMPORTANT! Please read Bk’s message below as it contains important information for affiliates, including new guidelines that affiliates MUST follow!
Be sure to forward this information on to those on your team and make sure they follow the guidelines contained in the message below!
With the email attached directly under prefaces such as the example above, it certainly sounds an awful lot like affiliate marketing material to me.
Counter Vemma however;
The September 28, 2015 Communication is not a marketing or sales material – it is a communication that describes changes to the compensation plan that will be made and various rules that must be complied with on a going forward basis to comply with the Order.
So why was it plastered all over Facebook with marketing “comeback” hype then?
Rather than implement the opt-in model, Vemma instead filed an emergency motion requesting an accelerated hearing on the matter.
The motion was denied, with Judge Tuchi instead opting to give the Vemma Monitor and FTC time to respond.
As per an order made on the 2nd of October, the Vemma Monitor and FTC are required to submit responses by 5pm on October 6th.
At the time of publication, the FTC have yet to file a response – but they did file a separate motion yesterday.
The FTC’s motion, which probably contains much of the same arguments the FTC will present in their response, seeks to prohibit Vemma from ‘reclassifying their affiliates without their affirmative consent‘.
Or in other words, the FTC are looking for an order to force Vemma to use the opt-in model.
Explain the FTC in their motion;
(Vemma) have proposed a communication to certain Affiliates that places the burden on those Affiliates to affirmatively object to re-classification as Customers.
This procedure is likely to misclassify some Affiliates as Customers, resulting in future problems with Defendants’ compliance with the Court’s September 18, 2015 preliminary injunction.
The FTC objects to this procedure and the argumentative language in Defendants’ proposed communication.
Further to Vemma’s dramatics about regulatory overreach, the FTC are have also asked the court to clarify that
communications with participants or prospective participants about Defendants’ compensation plan or proposed compensation plan constitutes “marketing or sales material” for purposes of the Order, (or) prohibit (Vemma) from making such communications until the FTC and the Monitor have had an opportunity to review the proposed compensation plan and to state any objections.
The FTC argue this is necessary because
on an unknown date before September 29, 2015, Defendant Boreyko circulated a message to Affiliates that described elements of a proposed compensation plan that had not been provided to or reviewed by the FTC or the Monitor.
Disclosing proposed compensation plans before they are approved is likely to cause confusion among Affiliates and interfere with an orderly restructuring of Defendants’ operations.
And said confusion among Vemma affiliates is very much where we’re currently at.
The rest of the FTC’s motion pretty much lays out the arguments expected in their response to Vemma’s “let us use the opt-out model”.
The FTC objected that: 1) Vemma’s proposed letter as written implied that participants’ silence would confirm that they had been incorrectly designated as Affiliates in the past; and
2) given that Affiliates had affirmatively designated themselves as Affiliates when they signed up with Vemma, it was more appropriate to require Affiliates to act affirmatively to be reclassified as Customers.
Again, I’m going to state I totally see where the FTC is coming on this.
Those people signed up as affiliates, so leaving them as that and having those who don’t wish to be “opt-out” as customers, makes far more sense than reclassifying everybody (who fits the qualification criteria) as retail customers.
I mean seriously, you signed up as an affiliate two years ago, bought your pack and a bunch of product and then got hit by a car the next day?
No chance you’re going to reply to Vemma’s email, so congratulations – you’re now a Vemma retail customer and that’s totally the reason you signed up.
Yes it’s an extreme example, but it perfectly highlights the glaring problem with Vemma’s opt-out approach.
And here, this explains precisely why Vemma won’t give up their opt-out model and are dragging this all out in court:
Vemma’s counsel characterizes Vemma’s proposed communication as an attempt to properly categorize Affiliates and customers going forward.
However, counsel’s email also confirms that the effort to reclassify Affiliates is also intended to show that certain Affiliates should have been characterized as Customers in the past.
In response to the FTC’s concerns, Vemma’s counsel specifically reserved the right to make this argument based on the results of the procedure
Vemma want to create totally fictitious reasons for people signing up (by way of non-response automatically classifying an affiliate as a retail customer), and then in the future create legal arguments based on the equally fictitious statistical data these reasons produce.
This assertion — that Affiliates who have not 1) purchased an Affiliate pack; 2) enrolled another participant in the marketing program; or 3) earned commissions are actually Customers who are only interested in purchasing Vemma products for their own consumption — has been a contentious issue in this litigation.
(Vemma) have advocated this argument to address the fact that the overwhelming majority of Vemma’s sales volume consisted of purchases by Affiliates.
The Court specifically considered this argument and rejected it, finding that the proposed reclassification “is not based in fact” and serves to “misrepresent how many Affiliates there likely are.”
The letter seeks to draw an inference of consumers’ intent based on their silence or inaction.
Vemma intends to re-classify recipients as Customers unless they reply to the letter or otherwise inform Vemma that they should retain their classification as Affiliates.
By using this procedure, (Vemma) no doubt hope that a large number of Affiliates, many of whom may not have had recent activities or purchases with Vemma, will not respond and will be re-classified by default.
(Vemma) intend to argue that these Affiliates should have been properly classified as Customers all along.
The re-classification procedure proposed by Vemma will likely cause Affiliates to be re-classified as Customers regardless of their actual intent.
Since Vemma Affiliates took affirmative actions to identify themselves as Affiliates when they signed up with Vemma, a procedure likewise requiring Affiliates to take affirmative steps to re-classify themselves as Customers is more likely to correctly identify Customers for purposes of future compliance with the Order.
Fudging retail customer numbers is not how you prove to the world you aren’t a pyramid scheme…
As to the email Boreyko sent out being “marketing materials” – surprise surprise, the FTC have included as exhibits
two Facebook postings by self-proclaimed Vemma Affiliates that include a message from Defendant Boreyko outlining details about Vemma’s new compensation plan.
The postings assert that Vemma has doubled its Auto-delivery discount from 10% to 20% and will be having a “Customer Thank You Sale,” and attaches a revised price list of Vemma products.
As I mentioned earlier, these type of posting were widespread – and not just on Facebook. At least one version was copied to BehindMLM mere hours after it was published on Facebook (as quoted earlier in this article).
Contend the FTC:
None of the information contained in the messages had been disclosed to the Monitor or the FTC before being disseminated.
Subsequently, the FTC are asking the court for an
order prohibiting (Vemma) from reclassifying Affiliates as Customers without their express consent, and requiring that any attempt to reclassify Affiliates as Customers be subject to approval by the FTC and the Court-ordered Monitor.
Given the potential for confusion and mischaracterization of Affiliates as Customers, and the minimal additional burden placed on (Vemma), the equities weigh heavily in favor of entry of such an order.
And because BK Boreyko’s email ‘should have been provided to the FTC for pre-approval‘, the FTC also assert it ‘violates the Court’s Order‘.
while the FTC is troubled that Defendants Vemma Nutrition Company and Boreyko violated the Order a mere eleven days or less after it was entered, the FTC is not seeking sanctions at this time.
Instead, the FTC is seeking an order from the Court clarifying that “sales or marketing material” for purposes of Section I.E of the Order includes descriptions of the compensation plan provided to participants or prospective participants, even if the material does not otherwise promote Vemma products or the business opportunity.
Alternatively, the FTC seeks an order prohibiting dissemination of any materials describing the terms of Vemma’s compensation plan or proposed compensation plan to participants or prospective participants until the Monitor and FTC have received a copy of the proposed materials and a five day time period to review it and state objections.
Given the filing was only made yesterday, Vemma has yet to reply to it.
But if you were wondering why Vemma hasn’t restarted business operations – there it is.
They currently don’t want to do so, unless given permission to potentially incorrectly reclassify their affiliates as retail customers, based on non-communication and a subsequent assumed intent as to why they signed up as affiliates.
Meanwhile, at the whim of Vemma’s legal team wishing to cultivate manufactured statistical data, the flailing businesses of Vemma’s affiliates worldwide remain hostage.
We’ll have more on this matter as subsequent filing and orders are made next week.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of Vemma’s “Emergency Motion to Approve Affiliate Communications” (filed October 1st), and the FTC’s “Motion to prohibit reclassification of Affiliates Without Their Affirmative Consent and to Prevent Dissemination of Materials Describing Proposed Compensation Plan Before Approval” (filed October 2nd).
Update 4th October 2015 – As per an order made on Saturday, Vemma have been ordered to respond to the FTC’s Motion to Prohibit Reclassification of Affiliates by ‘no later than close of business on Tuesday, 10/6/2015‘.
We’re probably going to see a hearing on the matter by the end of the week.
If Vemma are permitted to fudge their retail customer numbers by automatically reclassifying non-responsive affiliates, I imagine they’ll rush to reopen business as soon as they can.
If the FTC prevail in stopping them, I’m not sure what Vemma’s game-plan is. Either they’re going to have to tell their affiliates something sooner or later.
We’ll keep you posted.
Update 8th October 2015 – Citing a need to “facilitate discussions”, on the 6th of October Vemma asked for a 24 hour extension to reply to the FTC’s “you don’t get to reclassify affiliates” motion.
The Corporate Defendants and the FTC are discussing a possible resolution to the Communication Motions.
While no resolution has been reached, both parties submit that a 24-hour extension of the Deadline will facilitate discussions.
For these reasons, the Corporate Defendants and the FTC respectfully request that the Court enter an Order extending the Deadline for 24 hours.
As per the case docket at the time of publication, the order was later granted on the 6th.
An extension was granted till “the close of business on Wednesday, October 7, 2015”, but as at the time of publication neither a reply from Vemma or news of a proposed resolution has surfaced.
Update 8th October 2015 #2 – Vemma and the FTC have reached a settlement.
As per the terms of the settlement, Vemma will drop the opt-out model in favor of the FTC’s proposed opt-in model.