Saturday, September 19, 2015

Vemma Lost Injunction Fight. Now What?

If you haven't heard, Vemma lost its attempt to reverse the temporary restraining order put in by FTC when it was shut down. The judge found that the claims and evidence supporting such as put forth by FTC to have merit  and Vemma's counter-argument and evidence insufficient to counterbalance such evidence.

As a result, Vemma will have to change:
...prohibition of the sale of Affiliate Packs, and the linking or tying of an affiliate’s eligibility for bonuses or accumulation of qualifying points to their own purchases of Vemma product, whether through participation in the auto-delivery program or otherwise. 
The injunction will also encompass the “Two & Go” Program, which falls under the above prohibition.
In other words, buying drinks no longer counts as qualifying criteria.

What are the points to take away from this decision?

1. Affiliates are not customers

Affiliates' job are to FIND customers, and be compensated for doing so. They should not be customers themselves, who want product for product's value.

Yet there's no doubt that affiliates are making the purchases in Vemma. That leads us to the next item...

2. By reclassifying low-performing affiliates as customers, Vemma is a fraud

Judge Tuchi wrote:
(Vemma) have offered no evidence to support a finding that a Vemma participant who intended to be just a customer accidentally identified himself or herself as an Affiliate, or had any motivation to do so... 
...Indeed, the present data shows that, between January 2013 and August 2015, more than 73% of Affiliates who received commissions did not earn enough to recoup their investment in Vemma’s programs.
3. Vemma does not enforce its own compliance efforts

Amway, in 1979, in its settlement with FTC (and established modern MLM) created three rules, that came to be known as "Amway Safeguard Rules". Vemma did not follow ANY of them, and indeed, encouraged bending and breaking them.

a. 10 retail customer rule -- Amway requires each rep to sell to 10 different retail customers every month. Vemma only requires one to sell to oneself every month (120 PV)

b. 70% reorder rule -- Amway requires each rep to sell off at least 70% of inventory before ordering more. Vemma bypass this by encouraging self-consumption and self-certification. 15 affiliates every month (out of about 90000 affiliates) are called with a question "are you selling or consuming more than 70% of products before reordering?" and even for this simple step they are 5 months behind, and there's no audit at all.

c. Refund rule -- Amway allows up to 6 months to return inventory for 90% refund. Vemma encouraged self-consumption so there's nothing to refund, thus end-running their own rule.

4. Vemma made (and allowed) false and misleading representations

Vemma presentations, as given by affiliates including print, web, audio, video, and live presentations of affiliate earnings, many of them exorbitant, has NO disclaimer, or only flashed for a few seconds. FTC guidelines for prominent disclosure started in 2014 and clearly Vemma did not bother teaching its affiliates to comply.

Given how lax its compliance efforts are, it's not really a surprise.

Conclusion from Vemma decision

Vemma will be allowed to continue rather than a stranglehold that the receiver held in order to preserve operational data that will determine Vemma's guilt (or innocence). A somewhat looser "monitor" has been appointed and if Vemma can remove the pyramid-scheme aspects of its comp plan it will continue to live.

The real question is can the company actually make the pivot after being a pyramid scheme for so long.

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