The Federal Trade Commission has moved to exclude evidence from Vemma, arguing that customer satisfaction and product value are irrelevant to its pyramid scheme allegations. The agency's case against Vemma centers on the company's alleged lack of significant retail sales activity and its deceptive income claims. These elements form the foundation of the FTC's assertion that Vemma operates an illegal pyramid scheme, violating Section 5 of the FTC Act, 15 U.S.C. § 45(a).

Vemma's legal team initially responded to the FTC's action by soliciting affidavits from the general public. These affidavits aimed to demonstrate that Vemma had satisfied customers. The company suggested that the presence of happy consumers should preclude a finding that it violated federal law.

Federal courts have consistently ruled against this defense. Several prior cases establish that the existence of satisfied customers does not constitute a valid defense under the FTC Act. The agency maintains that customer contentment with a product does not address the fundamental question of whether the business structure itself is an illegal pyramid scheme.

In its filings, the FTC directly addressed Vemma's objection to a preliminary injunction. The agency stated that Vemma's argument about the "actual value" of its drinks holds no sway. Product value, the FTC asserted, is clearly irrelevant when determining if defendants made deceptive earnings claims, promoted an illegal pyramid operation, or provided others with the means to do so.

More than 25 years of legal precedent support the FTC's position. This jurisprudence makes clear that the alleged value of a product is not a relevant factor in pyramid scheme analysis. The benchmark case, In re Koscot Interplanetary, Inc., 86 F.T.C. 1106 (1975), is invoked by the FTC. Koscot, a multilevel marketing company that purportedly sold cosmetics and toiletries, established the key criteria.

The Koscot administrative court held that a pyramid scheme is "characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of product to ultimate users." Even though Koscot recognized that product sales had occurred and the product thus possessed some market value, the court pointedly ignored this value in its analysis. It focused instead on whether the scheme promised "rewards unrelated to the sale of the product" to ultimate users.

Vemma's compensation structure requires participants to pay approximately $600 to qualify for commissions, sign up for an autoship program, and then earn payments by recruiting others who do the same. This model mirrors the concerns raised in the Koscot ruling. The FTC has indicated that Vemma has limited visibility into what happens to the product after an affiliate purchases it, beyond occasional calls to 15 affiliates per month to check for inventory loading.

This lack of oversight on retail sales to ultimate users is critical. The FTC argues that even if rewards are technically tied to consumer sales, a scheme that indiscriminately tells all consumers they can recoup their investments through the product sales of their recruits will inevitably disappoint those who cannot find recruits capable of making retail sales. The agency’s focus remains on the primary driver of income and the ultimate destination of the product, not merely its existence or perceived worth. The preliminary injunction sought by the FTC aims to halt these practices while the broader case proceeds.