FTC Vemma

Hi, everyone out there. Kevin Thompson here, mlm, attorney and co founder of Thompson Burton. Big news, obviously, Vemma got sued by the Federal Trade Commission on August 17. It was under seal, so nobody really knew about it. The lawsuit was unsealed last night. So keep in mind, I haven't had a tremendous amount of time to really process all the information. I've read the lawsuit, read the FTC's memo supporting their reasons for an injunction, and I've also read the FTC expert report written by Stacey Bosley. She's new to the scene, so this is a learning experience for everybody because she has a lot of assumptions that back up her conclusions as to why Vemma is a pyramid scheme. So where do I start? Real quick, the conclusion. I actually think Vemma can get the injunction lifted. I really do. There's a hearing set on on September 3rd. If that injunction gets removed, VMA can conduct business. There will likely be another hearing later over the injunction issue. If they can keep the injunction off, they can conduct business during litigation, which gives ZIMA a superior position to negotiate a favorable resolution with the ftc. First of all, what is an injunction? You might not know. Well, in some cases, in the event of egregious fraud, where there's a risk of assets being manipulated, defendants disappearing, courts can give what's called. They can grant an ex parte tro, which means basically without a hearing, a temporary restraining order, meaning the facts are so bad that there's. There's so much egregious fraud. We need this thing shut down today so we can sort through these issues in an environment that's not chaotic. And in most cases, when the FTC requests that kind of an injunction, they get it. So there was no hearing, there was a lawsuit, and then there's an injunction. What is an injunction? An injunction means the company can't operate, that the sales have to stop. Everything is frozen in an effort to, number one, stop bad behavior, number two, protect the assets. So usually when there's an injunction, you're out of business. Now, the ultimate goal of the Federal Trade Commission. And again, I haven't processed all this, but I'm assuming it's a permanent injunction. And a permanent injunction happens at the conclusion of litigation, where the judge renders an opinion or order. That happens one year later, two years later, after all the discovery and all the facts are known, there's a permanent injunction. Usually what happens with the Federal Trade Commission is that they request an injunction during litigation. So, meaning they say, your Honor, this thing's a mess. We're likely going to win anyways. Let's shut it down now on a preliminary basis and then we'll shut it down permanently later. The judge can grant that kind of relief. So right now it's a temporary injunction. There's a hearing on the third on that issue. I think Vemma can win, I really do. Now that being said, everybody is calling, hey, what's the DSA going to do? What can we do to back these guys up? Here's the reality. This lawsuit is the byproduct of a lack of leadership. I'm not blaming the dsa, but this is what happens when you push for an environment of no standards, no regulation. We don't need regulation. We're self regulated. Well, when there's no clear regulation, the regulators can sue anybody. They can have a basis and they can construct arguments that seem persuasive and literally sue anybody. And so I have been pushing for more standards that lead to more predictable, a more predictable marketplace in network marketing. So this idea that people been pushing for where they want to be left alone and they don't want formalized standards, this is what you get, understand because I do think we need more oversight in the space, but not against companies like Vemma. Vemma, they're not perfect but they don't deserve to be shut down. So when you have an absence of standards, you're going to have sloppy results, you're going to have errors. And the reality is regulators, it's an organization of people and people make mistakes. I think this lawsuit is a mistake. I think the injunction is going to be lifted. But the damage has been tremendous and it's going to take Vemma a long time to overcome that damage even if they can get the injunction lifted. Okay, so the merits of the lawsuit, when I first read it actually my blood pressure came down. It wasn't as bad as I thought it would be. The, there was all kinds of rumors out there. Oh, it's going to be really bad. There's some things that you don't know about Vemma. Look, I've been critical of Vemma. I wrote an article where BK did the whole, hey, we're more like Amazon, we're an affiliate company, we're not network marketing. I was very critical of that article. So I'm not writing this to protect a friend. I like BK personally, we can hang out together. This is a serious issue and it does have an impact over all of network marketing. So these arguments being used by the Federal Trade Commission, it would be bad if these arguments are effective. Now when the FTC goes after the low hanging fruit, the burn lounge, fortune, high tech marketing, it's really easy for the industry to say, well yeah, well, they suck. Yeah, of course they had it coming here. This lawsuit hits really close to home because a lot of the facts referenced by the Federal Trade Commission, a lot of companies in the industry, they make income claims, they're not that disciplined when it comes to income disclosures. They have auto ships, they have starter bundles. And so a lot of the behaviors being condemned here, that mold fits a lot of companies. And so this is a pretty serious lawsuit. That being said, I can't resist it. When I'm right, I'm right. I proposed a long time ago one of the things that regulators have a problem with is this idea of monthly volume requirements that you have a quota of volume that needs to be met to qualify for commissions. Now it's not illegal. The Federal Trade Commission is not saying auto ships are illegal. What they're saying is the resulting behaviors, it leads to an emphasis, a focus on recruitment, meaning forget selling. Forget selling, you can't make any money selling. Let's recruit an affiliate who pays $600. Teach them to advise them to be on auto ship, teach them how to enroll more people who buy the affiliate pack and who also get on auto ship themselves. And that emphasis is proof, according to the ftc, of a pyramid scheme. I don't think that's entirely accurate and that's why I think the injunction will be dissolved. My opinion, I could be wrong. It's hard to prevail over the federal government. Now this lawsuit, nowhere is it mentioned Vemma's prices and whether the prices are fair. It doesn't mention the science, it doesn't mention the consumer testimonials about the benefits of the product. Doesn't mention anything about product efficacy because Vemma has a really, really strong product story. This lawsuit is completely about behavior in the field. Now another question, what prompted it? I think it's the YPR thing that the young people's revolution, and this is just an instinct and it's crazy, but I'm going to share it with you. I think when this Alex Morton character, who is the leader of this YPR thing, when he left, went to Jeunesse that that YPR thing was starting to bleed out and leave Vemma, which is a good thing long term. And I think the FTC saw that activity and they want to get credit for curing the cancer. That's my instinct. Why do I have that instinct? Because I've seen It happen in another state. I had a client, they were selling unregistered securities. It was bad. They hired me late. I said, you got to refund all the money. The client starts refunding the money 100%. And two days into the refund process, they get shut down by a state for selling unregistered securities. Why? Because the state wants credit for the remedy. My opinion now. So I do think this is definitely intertwined to the ypr thing. And what we've learned about the federal trade commission is that they are drawn to drama. So senator markey sends a letter requesting an investigation into herbalife. Ftc, they're investigating herbalife. And there's been a lot of negative media about vemma, Particularly with what's happening on college campuses. Ftc, they investigated vemma. Apparently this is all rumors, but they did an inquiry, I don't know, a while back. And the ftc's expert, Stacy bosley, she's written some articles about pyramid schemes on college campuses. So she doesn't like that kind of activity. She's concerned about it. So this gives the ftc an opportunity to sharpen its blade against a company. They send a signal to the entire industry, we don't care if you're a member of the DSA or not. If you can't keep your people in check, we're gonna sue. Okay. All in all, you know, there are multiple factors that prove if a company is a pyramid scheme. If a company sells a product that has legitimate value that is being consumed for the right reasons. What we've learned in burn lounge is that's not a pyramid scheme. So how do we know if a product has value? Well, if we're selling a thousand dollar pencil, clearly it's not about the product. It's a token. What are some factors regulators look at? They look at purchase patterns. How much are customers buying versus how much are distributors buying? They look at the value of the product. They actually dig deep and say, is this thing worth the price point? Vemma's got an incredible product value story. They always have. Number three, the emphasis. This is the main reason referenced by the ftc. The emphasis of the program. For example, the four steps to building the business. Number one, buy a bundle of inventory. Number two, get on auto ship. Number three, find others and recruit them. Number four, teach duplication. The emphasis is on recruit, recruit, recruit. Get on autoship, don't worry about it. Recruit, recruit. And according to the ftc, which I think is faulty logic in a network marketing concept, when the emphasis is on recruitment, the majority of participants, if you take a snapshot, they're losing money. Well, what they're not accounting for is that there's growth, there's progress. Just because they're losing money day one doesn't mean they're losing money a year from now. And so anyway, that's a point. Emphasis is the main reason. It's the culture. What are the other factors? I've talked about purchase patterns, I've talked about product value emphasis, consumer safeguards. What is in place that protects consumers? Vemma, my understanding, has a 12 month refund policy. 12 months, you know, can consumers be made whole if they want to quit the business? And the other one, I've got it written down, are there any requirements to buy? Like what are the requirements? Are people buying because they have to or are they buying because they want the benefit of the product? I can't answer that question because I'm not intimately familiar with Vemma's inner workings. But my understanding was there, there are no requirements. So this is going to be an important case. What can we learn from it? It's still too early to say, but I will say this, if you're a company in network marketing, wake up. It can happen to anybody. Wake up. The days of let's push it as hard and fast as we can and hope to God we don't get caught. Those days are over. Which means revenues are going to start dropping a little bit and that's okay. The marketing message needs to focus intensely on product value, at least until we get some more guidance from this case. So I think Vemma is going to be okay. The individual defendant, Tom Alcazin, he was barely mentioned in the materials. I think long term, who knows. But regarding the injunction, I think it'll get lifted. So it's a big deal. Guys, I'm not going to type a very long thesis on this thing. I hope you found this helpful and if you did, share it and one ways where you can support Vemma, don't raid from their group, don't be a dirtbag. And there might be a point in time when people need to get political and send their House Rep or a senator a letter expressing frustration with this particular action. The FTC needs to get involved in this industry, but they need to be very selective about their targets. This was a bad one. This was a bad one. There are candidates, candidates even in the DSA that are better targets for regulatory action that would send a stronger message than this one. And we need cleaner standards. Just wake up. We do. We need clean standards. You can pretend like this is an isolated deal. No. So it's time. Take care.