Frustrated with the
FTC’s “all or nothing” interpretation
of the court-ordered
preliminary injunction
, Vemma sought to bypass regulatory approval through a court filing.

Whereas the FTC maintained that no commissions should be paid out unless 51% of affiliate sales are to retail customers, Vemma instead wanted to adopt a pro-rata model.

This would see affiliates who failed to generate 51% retail sales volume paid pro-rata based on whatever percentage their retail volume was.

The problem as I saw it with this model was that it technically would permit Vemma to continue running a product-based pyramid scheme, based on revenue flowing into the company.

If on average say only 40% of affiliate sales revenue was retail, Vemma as a company would still be sourcing the majority of company revenue from affiliates as opposed to retail customers.

And this is pretty much the same way the FTC saw it:

The FTC objects to Vemma’s proposed compensation plan on the grounds that it still incentivizes recruitment of Affiliates over retail sales in violation of the Preliminary Injunction and the FTC Act.

Specifically, the FTC argues that the 51% Rule is an insufficient anti-pyramiding safeguard because it provides an Affiliate significant compensation even if most of the Affiliate’s sales are to downstream Affiliates, not Customers.

A broader issue is also that Vemma’s revised compensation plan potentially sees the company operate against the spirit of the preliminary injunction, which sought to eliminate recruitment revenue beating out retail.

The matter went to court on October 21st, with Judge Tuchi reserving his judgment.

That judgement was published earlier today, with Tuchi ruling in favor of the FTC.

In making his decision, Judge Tuchi acknowledged Vemma’s position

that if the economic behavior of Affiliates is rational, they will purchase products only because they want to consume them, not because they want to allow upstream Affiliates to earn bonuses.

Vemma placed emphasis on the motivation behind affiliate purchases, believing that such motivations would override the explicit terms set out in the preliminary injunction.

Problem is though their emphasis was based on the assumption that Vemma affiliates would follow logical “economic behavior”.

In assessing the foreseeability that Affiliates will continue to engage in inventory loading under the proposed compensation plan, the Court must consider that Vemma is a ten year-old company with an existing culture and history and that its thousands of

existing Affiliates developed their businesses in an environment in which they were encouraged to purchase product not for personal consumption, but rather to give away as samples to potential new Affiliates, among other things.

In this context, it is foreseeable that Affiliates will perceive that the proposed compensation structure continues to hinge bonuses on Affiliate consumption, not sales to Customers, and they will behave accordingly

Basica

🤖 Quick Answer

What compensation model did Vemma propose to the court?
Vemma proposed a pro-rata compensation model allowing affiliates who failed to meet the 51% retail sales requirement to receive commissions proportional to their actual retail sales percentage, rather than the FTC's all-or-nothing approach requiring complete cessation of payments below the threshold.

Why did the FTC object to Vemma's revised plan?
The FTC maintained that Vemma's pro-rata model would enable continued operation of a product-based pyramid scheme, as the company would still derive majority revenue from affiliate purchases rather than genuine retail customers, regardless of individual affiliate performance levels.

What was the FTC's original requirement for Vemma?
The FTC required that no commissions be paid to affiliates unless 51% of their sales were generated from retail customers, establishing a strict threshold for distinguishing legitimate retail operations from

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