Vemma False Ad Class Action Moved to AZ Federal Court

[Doc Bunkum]

Vemma Verve False Ad Class Action Moved to AZ Federal Court
March 6, 2015

A class action lawsuit accusing beverage company Vemma Nutrition of misleadingly marketing its Vemma Verve energy drinks as “doctor formulated” was moved by a federal judge to the a federal court in the company’s home state of Arizona....

Wonder if this case has any legs?

[wserra]

Whether or not the case does, Vemma doesn't. Not any more. On application of the FTC, a federal judge shut it down yesterday as a pyramid scheme.

Which of these rip-offs are shut down almost seems random. They're all like this.

[GlimDropper]

Which of these rip-offs are shut down almost seems random. They're all like this.

Not quite random perhaps but this has a lot of MLM companies nervous because they are all like Vemma.

Don Ryan has some of the current documents on his files site.

For years the focus of MLM has been recruiting new affiliates, having them buy a product package, go on autoship and then find more people to do exactly the same. It's the "affiliates are customers" business model and almost everyone is doing it. Which is why, if the FTC prevails it will send shock waves through the industry. Quite simply, if Vemma is shut down permanently almost all the other could be as well unless they change their business model in a big darn hurry.

September the 3rd Vemma has their day in court regarding the TRO, if it isn't overturned or significantly altered Vemma USA is out of business. The reps in the field can't sit on their hands not makings money through a protracted legal battle. It's already open season on Vemma's downlines with vultures from other companies trying to poach as many affiliates as they can.

The FTC's actions here are impressively forceful, the ex parte TRO and appointing a receiver all before Vemma has a chance to respond. I am in no way a fan of MLM but a government agency is basically ending a company with the barest minimum of due process and i find that a little disquieting. If they have their ducks in a row and all the facts to prove their arguments they are of course doing the right thing but they are taking a lot on themselves. I'm starting to see the first signs of a circular firing squad inside the industry, Vemma is (was?) a member in good standing of the DSA and at least one industry commentator is questioning if the DSA was somehow partly to blame for not enforcing their code of ethics on a member company prior to the FTC stepping in. But if the industry is smart they'll stop finger pointing and circle the wagons, the FTC is not just going after one company, they're going after a business practice that almost all of them are using. They need to throw as much money and support as they can behind Vemma, if the FTC can be beat they'll lose a lot of credibility for what will be painted as "wrongly" destroying a company.

If the TRO is not overturned the name Vemma is going to join the names Kascot, Omnitrition and Burnlounge.

A late edit to add that it looks like Vemma's legal team will be asking for an additional week to prepair for the TRO hearing. Not a bad idea given the stakes involved.

And what realistically does Vemma's team need to do to over turn the TRO? Don't they pretty much need to prove the FTC's charges of them being a pyramid scheme are drastically flawed? It's not like they can post a surety against what ever assets that are being impounded and ask to restart the business while they prove they aren't operating illegally, they pretty much need to do that before they would be allowed to open their doors again.

By the sound of it the FTC believe themselves to be sitting on a mountain of evidence, I'm having a hard time imagining the type of Hail Mary, pull a rabbit out of the hat, Perry Mason courtroom surprise that will overturn the TRO.

[GlimDropper]

OK, I like to give myself a little credit for reading comprehension but now and again I feel like I need a fact check. Filed last Friday and brought to you courtesy of Don Ryan we have some additional evidence for consideration at the preliminary injunction hearing. Here's a hint, I don't think it's good news for Vemma.

For one thing, page 22 has an email from Vemma owner B.K. Boreyko to some of his staff who were preparing income disclosures. From which I quote:

Here' s what I'd like to see for 2013 totals:
Total customer count disclosed based on our new definitions. (BPs that didn't enroll anyone
would be converted to the new customer term)

BPs being Brand Partners, Vemma's name for affiliates. So someone who signed up as an affiliates, perhaps even purchasing a product pack and going on autoship but who failed to sign up other affiliates is in Vemma's nomenclature, a customer.

It does seem to get worse from there. I'm posting two photos because I totaly lose formatting when copy/pasting from this PDF. The first pic explains the category codes on the second:





Here's where the fact check comes in. Do those numbers mean what I think they mean? That in 2014 Vemma had 51,369 US based Reps and, by their own count, 136 US based customers? I've had a long day and am not cognitating at full efficiency but no matter how I try to look at that data I can't see it as being a good thing for Vemma. To say the least.

[webhick]

Here's where the fact check comes in. Do those numbers mean what I think they mean? That in 2014 Vemma had 51,369 US based Reps and, by their own count, 136 US based customers? I've had a long day and am not cognitating at full efficiency but no matter how I try to look at that data I can't see it as being a good thing for Vemma. To say the least.

That's what I'm seeing, too. They also have 164 Suspended...customers?

[GlimDropper]

Interesting day in Vemmaville, their preliminary injunction was upheld in part and denied in part. [Link courtesy of Don Ryan]

While the FTC did succeed on the merits in demonstrating that Vemma was acting as a pyramid scheme and that (Vemma) was "making material misrepresentations and omissions, as well as furnishing Vemma Affiliates with the means and instrumentalities to make material misrepresentations and omissions, in violation of the FTC Act". However the order held that:

Viewing all the evidence in light of this case law, the Court concludes that
measures less drastic than some of the relief the FTC seeks are available to remedy the
harms shown. The Court’s finding that some significant amount of Defendants’ product
is sold to persons not pursuing the business opportunity persuades it that, while the FTC
has shown that aspects of Defendants’ marketing program likely constitute unlawful
activity as discussed above, not all aspects of the business are necessarily pyramidal or
otherwise illegal. Thus, the Court will tailor injunctive relief to preclude components and
practices of the Defendants’ marketing program that would promote pyramid activity and
misleading statements, but will not prohibit all business activity.

So Vemma is not being closed down and frozen while the larger trial takes place but what is going to happen seems almost that severe. The receivership is being dissolved and replaced by an appointed monitor which will most likely be the same firm that had been the receiver. And there are a list of conditions that must be met which quite frankly will make it almost impossible for Vemma to remain viable in the MLM space.

A. Engaging in, participating in, or assisting others in engaging in or
participating in, any Marketing Program that:

1. Pays compensation for recruiting new members;

2. Encourages or incentivizes members to purchase goods or services
to maintain eligibility for bonuses, rewards, or commissions rather than for resale
or personal use;

3. Induces others to encourage or incentivize members to purchase
goods or services to maintain eligibility for bonuses,rewards, or commissions
rather than for resale or personal use;

4. Pays 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;

5. Constitutes a pyramid scheme; or

6. With specific reference to Corporate Defendants’ existing Marketing
Program:
a. sells Affiliate Packets;
b. links or ties an Affiliate’s eligibility for bonuses, or the
Affiliate’s accumulation of bonus qualifying points, to that Affiliate’s purchase of the Corporate Defendants’product, such as through auto delivery or Two & Go;

B. Misrepresenting, or assisting others in misrepresenting, directly or
indirectly, expressly or by implication, any material fact, including, but not limited to,
that consumers who participate in a Marketing Program will or are likely to receive
substantial income;

C. Failing to disclose, clearly and conspicuously, to any prospective member
in any Marketing Program to whom any earnings, profits, or sales volume claims have
been made:

1. The number and percentage of Marketing Program members who
have made a profit through their participation in the Marketing Program;
2. The beginning and ending dates when the represented earnings,
profits, or sales volume were achieved; and
3. The average and median amount of profit made by each Marketing
Program member;
D. Furnishing materials to be used in recruiting new members in a Marketing
Program that contain false or misleading representations; and
E. Publishing or disseminating any new marketing or sales materials without
prior delivery to the FTC and a five (5) day period for the FTC to review the materials. If
the FTC objects to any such materials, Defendants will not use such materials absent
approval of the Court, which Defendants shall seek through motion.

Now after reading that several indusrty commentators have come away mistaking that for just more of the usual MLM complacence speak and therefore nothing to be worried about. However, these rules are going to be actively enforced for one thing, Vemma isn't under a microscope, they're in cross hairs and still being sued by the FTC. Anything short of enthusiastic and full compliance will not help them in trial. #4 above, no commissions being paid "unless the majority of such compensation is derived from sales to or purchases by persons who are not members of the Marketing Program" is probably going to get this ruling appealed. It's hard to imagine any MLM functioning under such common sense guidelines.

At a bare minimum attempting to comply with this order will place Vemma at a critical competitive disadvantage to all other MLMs in the country that are not yet attempting to live up to this standard that anyone who can swing a downline will leave Vemma and go somewhere the affiliate fueled cardboard checks are larger and greener. The footnote on page 18 seems in part to acknowledge this:

4
Such a failure may occur for any or all of the following reasons. First, Vemma’s
financial statements indicated they were already losing money during the past 18 months.
The companies’ 2014 Consolidated Financial Report showed a loss before depreciation
of approximately $2.2 million, and the income statement for the first six months of 2015
showed an additional loss of about $1.4 million. (Doc. 50, Temporary Receiver’s Report
at 1.) During this period, the companies also lost substantial numbers of Affiliates.
Second, going forward, the injunction’s prohibition against incentives for recruiting over
product sales and misleading promotional statements may result in a critical decrease in
persons interested in the business opportunity without its pyramidal aspects. This of
course would present some proof of the FTC’s allegations that persons participated in the
Affiliate venture only to obtain bonuses tied primarily to recruitment. Third, the
provisions of the expiring TRO may have caused the loss of substantial income and
numbers of Affiliates. While all parties will have their narratives in the event of a failure,
the precise contribution of these factors to any failure would be unknowable.

My emphasis