FTC reply to Vemma’s preliminary injunction objections

In direct response to Vemma’s
raised objections
to a preliminary injunction being granted next Tuesday, the FTC filed an “omnibus reply” late Friday.

In their reply the FTC cover the reclassification of affiliates as customers, the focus of the Vemma business opportunity, pay to play concerns within the Vemma compensation plan, the failure of Vemma’s anti-pyramid compliance policies, deceptive income claims and “woefully inadequate” disclosures.

Below you’ll find each of the FTC’s responses, along with my own commentary.

Improper reclassification of affiliates as customers

Consistent with their misleading marketing materials, and in an attempt to disguise Vemma’s actual purchase patterns which are consistent with illegal pyramid activity, Defendants attempt to re-classify self-designated Affiliates as Customers.

The clearest example of this tactic comes from the declaration of Dr. E. Emre Carr.

While recognizing that participants self-designate as Affiliates or Customers on Vemma’s website, Dr. Carr decides that this classification is not “meaningful.”

He advocates defining Customers as buyers who never received a commission, never enrolled another individual, and did not purchase an affiliate pack, regardless of whether the participant self-designated as an Affiliate.

Vemma used a similar tactic in its 2013 U.S. Disclosure statement and reclassified 149,431 Affiliates as Customers, changing its Customer versus Affiliate ratio from 28% Customers and 72% Affiliates to 70% Customers and 30% Affiliates.

This tactic allows Vemma to categorize failed Affiliates as Customers and serves two purposes: 1) making it appear that Vemma’s marketing is product-oriented rather than recruitment-oriented; and 2) obscuring the natural consequences of Vemma’s pyramid scheme — large numbers of failed affiliates.

This point I thought was so important I did a separate writeup about it.

I won’t repeat my
entire thoughts on the matter
here, suffice to say that misleading MLM Income Disclosure Statements need to stop.

These statements need to encompass 
all
affiliates, rather than serve as a marketing tool of manipulated data to the n’th degree.

Vemma’s overwhelming focus is on the purported business opportunity

The FTC has presented overwhelming evidence, through Vemma’s marketing materials and the words of its CEO and other representatives, that Vemma was marketing a classic pyramid scheme by training Affiliates to make bonus-qualifying purchases and to recruit others to do the same.

Faced with this evidence, Vemma’s response essentially argues that the pyramid marketing was not effective in practice. It is true that to determine whether a business is a pyramid, a court must look at how the business operates in practice.

However, Defendants ignore the fact that a major factor of how the program operates in practice is how the program is promoted—i.e., whether the program has a recruitment bias.

Defendants’ attempts to minimize the inherent recruit

🤖 Quick Answer

What objections did Vemma raise against the FTC's preliminary injunction request?

What key issues did the FTC address in their omnibus reply?
The FTC responded to concerns regarding affiliate-customer reclassification, questionable business opportunity focus, pay-to-play compensation mechanisms, insufficient anti-pyramid compliance policies, misleading income claims, and deficient disclosure requirements in Vemma's marketing materials.

How did Vemma allegedly misclassify affiliates in its business operations?
Vemma attempted to reclassify self-purchasing affiliates as legitimate customers to obscure actual purchase patterns consistent with pyramid scheme characteristics, thereby

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