Friday, October 16th, 2015, the Vemma legal team filed an emergency motion in the UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA, to move the Court for an order approving the revised compensation plan attached hereto as Exhibit “1” (the “Revised Compensation Plan”).
If this is not a misunderstanding on the side of the Vemma legal team, then it will be the first time since the Binary was crafted in the mid-90s, that any regulator has called the structure in and of itself into question.
There is much legal precedence that binary plans have never, not once, in the 26 years it has existed, been legally challenged even when the company employing such a plan was. Early on in its existence (early to mid-90s) there were a lot of shaky quasi-MLM deals who adopted binary plans, so there was a guilt-by-association. However, after many of these deals were hit with FTC or AG lawsuits it became clear that it wasn’t the binary plan itself that was the problem, it was what these companies were doing with the binary plan – which were all the same things any company, with any type of plan gets hit for (front loading, emphasis on recruiting, etc.). Several had TROs that were eventually lifted (or even denied by the court) with injunctions in place, and when the smoke cleared, they were all still using binary plans. For example, TravelMax and Jewelway. The former was one where the KY AG failed in getting a TRO, and the latter, which was sued by the FTC, reopened under an injunction that contained similar restrictions to Vemma’s, and with their binary plan still in place. Note that in both Orders the word “binary” (which has been the title of this type of plan since its invention in 1989), or any recognition of the specific plan type or category, never appears.
Clements on his website, Inside Network Marketing, published an extensive review of the binary Comp plan, titled Guilty By Association, where he shares more of his insights.
MLM Attorney and partner at Reese, Poyfair & Richards, writes the following in his article titled Double Trouble (written in the late 90s.)
Amid the confusion and concern over the legality of binary plans, many people have
lost sight of the fact that binary plans operate under the same laws that govern other
multilevel compensation plans. There is no law stating that operation of a binary
compensation plan constitutes a consumer fraud, or a company using a binary plan is a
pyramid. Thus, so long as the implementation of a binary plan complies with the laws
governing the operation of multilevel business, it will be legal. However, because of their
structure, binary plans have unique challenges to implementing their programs within that
So, although we are not entirely sure if the statement used by the FTC in their conversations and correspondence with the Vemma legal team is a direct attack against the Binary compensation plan, it should raise concerns with other network marketing companies utilizing the Binary structure.
In further study and research, MLM attorneys Kevin Thompson wrote the following in his article titled Vemma Analysis: Lessons Learned – Part 2:
From a macro perspective, the consequences arising out of the Vemma action directly implicate the COMMON PRACTICE of production requirements (i.e. requiring 100 pv each month to remain eligible for bonuses).
In my opinion, the action by the FTC against Vemma leaves companies with three choices in the future. While the first choice is simple and for many will be the most likely, the second and third would be modifications that would greatly benefit companies in the eyes of regulators.
- Stand Pat
- Eliminate PV Altogether
It is a binary compensation plan that provides no new incentive for sales to ultimate users; as such, it will likely incentivize continual enrollment of affiliates in an endless chain of recruitment, at the expense of retail sales.
Whether you are a critic or advocate of the direct sales business model, this current situation could change the landscape forever if, in fact, the Federal Trade Commission is targeting the binary compensation structure, and not just the way it is at times marketed.
I believe that compensation plans can at times become too convoluted, or “sophisticated” for those who want a marketing spin. As a matter of fact, I have heard top rated comp plan crafters state “the more complex, the more money the company will make.” But is this the best way to create any comp plan?
If the average independent rep joining the company can’t explain it, or understand it, in and there is an issue. If the investigator doing research for the regulators can’t understand it, in and there is another issue. If the legal team building their case, can’t get it, once again there is an issue. And last but not least, if the judge hearing the case can’t understand what either side is saying about the comp plan then here comes a pyramid/Ponzi scheme conclusion!
I believe, it’s not the binary, matrix, stair-step, breakaway, unilevel, hybrid, or any combination. At the end of the day, it still comes down to a prevailing culture found in some segments of direct sales, which preaches, that the most important part of building a network marketing channel is creating a “MONEY STORY!”
When I was making my bones in the field, I wasn’t given books written by big time recruiters who promote their success by using fancy websites and SEO. I was given books, cassettes, VHS tapes and coaching on prospecting, presenting, closing and training! By authors like Zig Ziglar, Tom Hopkins, Guy Kawasaki, Tony Robbins, Fran Tarkenton, Harvey Mackay and others.
When the focus is more on creating a money story, than it is at developing a substantial marketing and distribution organization that includes both sales reps and raving fans of the products, then companies are bound to fail. And regulators will continue to hunt for the low hanging fruit in the network marketing community to pick off until they can cut down the whole tree.
Whether it’s Vemma, Jeunesse, FG Express, Amway, Herbalife, or any of the other couple hundred DSA members, or 1700 to 2500 direct selling companies purported to be operating in the USA. If they do not focus on developing a culture where making a real difference in the world through their products and culture is the #1 priority; then we will continue to see regulators, the critics, media and general public question the very existence and need for the direct selling industry!