The following article expresses my opinion. I am not a lawyer. I am the editor for MLM.com. I must also state that InfoTrax Systems sponsors MLM.com, that Vemma is a client of InfoTrax Systems, and that BK Boreyko is a personal friend of InfoTrax Founder and CEO, Mark Rawlins. In case you are unaware of Vemma, Vemma’s main product is an energy drink. The drink has been popular with young people; which is not surprising given the sales of energy drinks over the last decade.

Vemma uses a binary tree with a cycle bonus as the primary compensation type. A cycle bonus was one of the early forms of the binary commission. The idea in any binary is that you need a balance in both downline legs to get paid. For example, when you get to 120 points in one leg, and 240 points in the other leg of product sold, you get the monetary value of the points in your pay leg. A binary is just like any commission plan in that it cannot payout more than 50% of the product sales. In the case of a binary’s points system this means that the monetary value of a single point fluctuates from period to period based on that 50% of company-wide sales. Vemma also uses a fast start bonus, 1 time rank advancement bonus, matching bonus, group volume bonus and several pool bonuses. As far as I can see, the plan is typical. The compensation plan is fully disclosed on the Vemma website at Vemma.com.

The case against Vemma contains three main complaints (a) deceptive sales and marketing, (b) deceptive income claims, and (c) the compensation plan is a pyramid scheme. I will summarize each of the complaints and what the industry can learn from this case.

Sales and Marketing

The FTC’s issue with Vemma’s sales and marketing appears to be that there is more pressure to recruit people than to sell product. However, when you analyze the compensation plan, the bonuses are all based on the sale of product. The FTC’s complaint lists as an issue the recommendation for affiliates to go on autoship to ensure they are qualified. The statement that one should get on autoship and tell others to get on autoship is not a pressure to recruit. Autoship is used by many companies whether they are in the industry or out of the industry. Take Amazon’s Subscribe & Save program as an example. If I have a standing order at Amazon, I get free shipping and a discount. In the case of MLM companies, I can guarantee that I qualify for commissions by having my regular order set up on autoship. However, autoship is not just about being qualified. It is about having the product at your house when you need it. The attack on autoship could be a problem for the whole industry. Hopefully the FTC will see that this is an acceptable practice used by most companies. Most importantly, in all industries the consumer has the ability to stop an autoship at any time. It is not a long term agreement.

Another example the FTC gives of deceptive practices, is that marketing materials say that affiliates should give the product away. Giving away samples is by no means unique to the MLM industry. It is a staple of the sales process in many industries. I suppose if no one is ever buying the product for their own use, this could be construed as a problem. However, if the marketing pitch states that one way to get people to buy the product is to give away samples, then that seems like an acceptable and ordinary practice. Ultimately, the product that is being sold needs to be consumed by an end consumer.

In these types of cases the problem usually comes down to a balance between selling the opportunity and selling the product. You cannot have a good company without a good product. Vemma’s product appears to tap a legitimate market. In the industry, you will find companies that focus on product first and opportunity second. You will find some that seem to focus only on the opportunity. It is a problem if the company focuses solely on the opportunity. However, Vemma seems to be in the middle on this continuum which should not a problem.

Another part of the deceptive practices claim has to do with the purchase of packs. Packs are not new or unique to Vemma. Many companies have sold distributors packs of product for demonstration so potential buyers can try the product. One problem with packs is if the product is not one that end consumers will purchase, then a distributor is stuck with a lot of product in the garage. Typically, in the past, companies have dealt with any potential inability to sell the product by having a buy pack policy. Vemma has a buy back policy for product bought in the last 12 months. Having the buy back policy in place ensures that little harm could occur as a result of purchasing a pack.

In the deceptive practices portion of the complaint, the FTC suggests that Vemma has targeted college students and that $500 for a pack is a high cost, but many reputable companies have packs that are more expensive than the ones that Vemma sells. The sales pitch to the potential distributor downplays that you can join for free and work the business by purchasing a small amount and selling that and then buying more. Again, the problem appears to be a balance issue. Certainly if you are going to make money in sales, you need product. However, if the focus is on giving away the contents of the pack rather than selling them, and then signing people up as distributors rather than as customers, that could be a problem. Clearly, Vemma tapped into a niche market with college students, the success of which was driven by their entrepreneurial spirit. However, presenting this marketing approach as an issue or as illegal implies that college students do not have the capacity to know what is good or bad business. Once again, with a 100% buy back policy a student has the ability to return product at any time.

Income Claims

The FTC claims that Vemma intimates that people who become distributors will make a large income without adequately representing a realistic expectation of what the typical distributor will earn. On Vemma’s website you will find guidelines for income claims and income disclosure reports for the last few years (https://media.vemma.com/pdf/vemma-income-claims-policy.pdf).

The FTC’s claim states that Vemma marketing material uses conspicuous displays of wealth with fancy cars. Over the years, many companies have had a car bonus. The key here is transparency about how many can and do receive the car bonus. Claims about making $900,000 in one month are the kind of claims that have caused trouble for companies in the past. The examples from the complaint do contain language that suggests that this doesn’t happen to everyone and at the same time they continue with examples of people who have made a lot of money in a short amount of time. However, the company has clearly identified the amount earners make.

Over years of research on compensation plans, we know that about 70% of those who enroll never enroll anyone else. That means that most who sign up for any MLM company do not make money. The question is: did those 70% enroll with the intent to make money? If they are actually consumers, then the way Vemma represents income claims in the printed material is adequate. The problem for Vemma does not seem to be how they represent incomes in their published material; rather it is in their marketing practices that the FTC has the issue. In videos that are available from Vemma, Borekyo makes statements that are at issue. However, it does seem that the marketing materials and the website present the earning potential for earners.

Targeting college students seems to be a consistent theme throughout the complaint. The statement that this is the first chance that some of the young people have to be a millionaire is given as evidence of inflated income claims. Again, here the marketing material does seem to say that there is a range of possible earnings and a high end of the small percent of people who make a lot of money. The FTC claims that the marketing materials dilute “the results may vary” part of the presentation. Again, the balance needs to be addressed. Is the range of earnings identified? The answer seems to me to be “yes.” Just like any opportunity one might look at to make money, one should consider what they are capable of doing. Targeting young people is not inherently bad. Other companies in direct sales and in other industries have marketed to young adults. Again, the buy back policy should safeguard most people who make snap decisions whether they are young or old.

Pyramid Scheme

The third claim is that Vemma is a pyramid scheme. Past cases have shown that this is the result of the first two claims, if you use deceptive practices and make large income claims and focus on recruiting rather than selling product, the FTC makes the claim that you are a pyramid. The one claim that is puzzling in the pyramid portion of the complaint is the focus on autoship. Autoship is a staple of industry. If a product is consumable, then setting up to have your product shipped every month makes sense. Again here the focus seems to be that the marketing says to buy a pack, get on autoship and then get recruits to do the same. The FTC needs to look at the overall picture here.

In conclusion, the claim of deceptive practices on income claims and a focus on recruiting rather than selling product are the main issues. When the FTC sees those two issues, they make the third claim of pyramid scheme. When a company has a legitimate consumable product, it seems to me that it is difficult to make the case for a pyramid. Although Vemma may lean a bit toward the opportunity side, there are many companies that fall on that side of the continuum. Again, as long as there is a legitimate product at a reasonable price, a good buy back policy, and compensation is based on product sales, it seems to me that the case for a pyramid is not warranted.