Vemma and the BurnLounge Case

As I said in my previous article about the current Vemma case, 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. This article expresses my opinion.

About a year ago, we published an article on the BurnLounge 9th Court Ruling. MLM lawyer, Spencer Reese (mlmlaw.com) took some time out of his schedule to help explain how he saw the pyramid accusation raised against BurnLounge. I thought it would be useful to compare a recent case where the 9th Circuit ruled against a company and the current Vemma case.

One of the key elements that Spencer talked about is “front” loading. Front loading is when the company has you purchase a large amount of product that you cannot turn around and resell because it is too costly or not really a product that people want. Typically the way that companies get away from the front loading issue is to have a robust buy back plan. You can find a copy of  Vemma’s policies and procedures on the bottom of their website. Vemma has a 100% refund minus shipping and handling on their products. This means that distributors and customers should be protected from financial harm even if they buy a large pack.

In the case of BurnLounge, the problem was that in order to get paid in the compensation plan, you had to regularly buy product. Distributors needed personal volume to qualify for commissions. Purchases made by BurnLounge customers didn’t contribute to their distributors’ personal volume. So distributors had to personally buy product to qualify, and received no benefit from signing up customers who weren’t themselves distributors. This is what Spencer calls a “Pay to Play” plan. Vemma is not a pay to play plan. In Vemma’s compensation plan, you receive ½ of the points from a customer purchase toward your personal volume. So you can meet your minimum qualifications by signing up customers, even if you don’t personally buy product every month. Many companies use a similar system where customer sales (either through autoship or through the distributor’s website) count toward distributor qualifications. I like it when companies give credit to the distributor for the customer purchase.

Another key difference between the BurnLounge case and Vemma is that there needs to be a demand for the product. The BurnLounge case states that how the company operated in practice differed from how the literature described the company’s operations. They found BurnLounge to be a pyramid because in practice the only way to get paid was to recruit new distributors. It does not appear to me that as a Vemma distributor you have to recruit. It may be that Vemma encouraged people to sign up others as distributors; however, it seems to me that the product has a high market value and that the sale of the product, not just recruiting, paid off.

Certainly every case has to be addressed individually. However, in my opinion this is not a case where the pyramid statute applies.