We’re expecting the court’s decision today in the Vemma action on whether the Federal Trade Commission’s temporary restraining order will be lifted, modified, or remain in place in the form of an injunction. There are MANY lessons to be learned from the FTC’s action, and we will be addressing them one-by-one in the coming weeks, so stay tuned. (Note: The order from the hearing is here.)
But as we wait for the immediate outcome, one thing of which we can be certain is that if the court completely lifts the TRO (highly unlikely), Vemma as we know it is done. The FTC’s favorite receiver did such a hatchet-job on the company that he killed it long before Vemma saw the light of the court room. Employees were dismissed within days after the raid, and while Vemma certainly had a cadre of loyal distributors, many more have departed given the specter of the FTC’s action.
The FTC’s playbook in pyramid cases is to freeze the corporate and personal assets of the owners, get an ex parte TRO, and have a receiver liquidate the company. The receiver in the Vemma case, Robb Evans and Associates, is the FTC’s go-to receiver in numerous actions, including the Trek Alliance and Burnlounge cases. Interestingly, a motion has been filed in a pending lawsuit in Utah to sue Robb Evans and Associates alleging that Evans is the FTC’s lackey, doing the FTC’s bidding because the Commission stamps his meal ticket, and in doing the FTC’s bidding he overstepped the bounds of the court’s order in the case. A recent article in the Salt Lake Tribune reports on this motion at http://www.sltrib.com/home/2953787-155/utah-companies-want-to-sue-court-appointed.
While I am certainly in favor of stopping pyramid schemes dead in their tracks, the FTC’s brazen disregard for Constitutional due process is appalling, and the direct selling distribution channel is at the receiving end of the FTC’s spear. I regret to say that in my opinion the industry itself is partially to blame because we have not been sufficiently proactive at the federal level. Let’s face it, although the FTC is charged with prosecuting pyramid schemes, the Commission is incapable of providing a comprehensible definition of a pyramid scheme. Rather, the Commission’s position on what constitutes a pyramid is at best a fuzzy and ever-changing. The industry itself has not done a good enough job at: (a) shaping a federal law or regulatory rule that clearly establishes the parameters of what constitutes a legal multilevel marketing program as opposed to what constitutes an illegal pyramid scheme; and (b) educating the FTC on how the industry actually operates.
Unless the industry can resolve this issue with the government, we will continue to be forced to deal with the FTC’s playbook and the denial of Constitutional Due Process and watch as one company after the next is buried. In coming months we will be addressing these topics, so stay tuned. In the meantime, we will report back on the outcome and the import of the Vemma decision as soon as it is published.