Filed earlier this week, the FTC allege that through mandatory autoship, Vemma is nothing more than a $200 million illegal pyramid scheme.

 

Retail sales are believed to be non-existent, with the company’s affiliates instead trained to sign up for autoship themselves and then recruit other affiliates who do the same.

As we wait for a September 3rd hearing to decide the fate of Vemma, now a warning from the FTC to other MLM company’s operating in a similar manner.

Published on August 26th, the FTC’s warning was written by Lesley Flair, a senior attorney with the FTC.

Flair explains the finer points of the Vemma complaint, before going on to issue a direct warning to other MLM companies:

Count I of the complaint charges that Vemma’s compensation program is based primarily on recruiting new participants, not on the retail sale of the drinks.

Count II challenges as false the defendants’ claim that participants are likely to make substantial income.

According to Count III, they failed to disclose – or failed to adequately disclose – that Vemma’s structure pretty much ensures that most people who sign up won’t earn big bucks.

Count IV focuses on the promotional materials the defendants gave their affiliates to recruit more affiliates. Because they included claims the FTC says are false and misleading, the complaint charges that the defendants provided others with the “means and instrumentalities” to violate the law.

The case was just filed, but if your clients sell business opportunities, the allegations offer insights into the kind of tactics likely to draw law enforcement attention.

"Clients" in this case I believe are either that of a lawyer's clients (the MLM companies themselves), or affiliates in those companies (from a company perspective, the FTC are referring to affiliates as “clients”).

Either way, if you’re in an MLM opportunity and your commission check is mostly paid out of recruited affiliates making product orders (on autoship or otherwise), according to the FTC you need to immediately change the focus of your business.

Two prominent examples that are currently heavy on affiliate recruitment and autoship are Total Life Changes and Jeunesse. But they are by no means isolated cases. This problem is currently widespread throughout the MLM industry.

As a long time proponent of retail in MLM, all I can say is the sooner the focus is back on retail customers the better.

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I have been an advocate for a real "Customer Centric" modeled MLM hybrid. Now the FTC and SEC are adding the pressure to push this industry that way. This is a good thing! What is a "Customer Centric" MLM going to look like? Good question and I have addressed that with this blog here:

https://markethive.com/marketing/blog/the-customer-centric-model#.VeiX9JdSkd0