Vemma FTC Action and Affiliate Marketing

vemma-affiliate-marketingThe FTC announced today that the United States District Court for the District of Arizona granted a temporary restraining order against Vemma for allegedly operating an unlawful pyramid scheme. Those of us in the affiliate marketing industry were understandably concerned given that Vemma announced in 2014 that it was moving from a multilevel marketing (MLM) business model to an affiliate marketing business model.

In fact, Vemma launched an aggressive rebranding of sorts to associate themselves with affiliate marketing, including attending Affiliate Summit and even joining the Performance Marketing Association.

However, what Vemma did was mainly a change in terminology and not in actual business practices. The changes that they made didn’t take them out of the MLM business. They wanted to be “less like Amway and more like Amazon.” And yet the focus of the business was still on recruiting new sellers, not on selling the product.

The Difference Between Vemma and Performance Based Marketing

When we talk about “affiliate marketing” at Affiliate Summit or the PMA or ABestWeb, we are talking about performance based marketing. I, as an affiliate, put up a link on my blog or Facebook page or Twitter. I only get paid if someone buys something through that link. I don’t buy anything myself to join the program. I don’t recruit other people to sell anything. It’s a simple referral transaction in which I am paid for referring a product.

Conversely, the Vemma business model first required “affiliates” to buy an “affiliate pack” at around $500. They were then told to sign up for an “auto-delivery” every month of around $150 to ensure that they always met their monthly minimum of sales. After that, the “affiliates” would then start recruiting other people to duplicate the exact same system. “Affiliates” were incentivized with bonuses to bring other people in under them as quickly as possible and were encouraged to give out free samples to get people to sign up under them rather than buy the products from them.

Vemma didn’t care if any products actually got sold and “affiliates” didn’t make money based on product sales. They made money based on 1) buying products themselves whether they wanted them or not, and 2) convincing other people to sign up under them and also buy products whether they wanted them or not. Internal documents showed that the majority of “affiliates” were actually losing money based on what they were investing each month compared to what they were making in compensation for sales.

Vemma Took Advantage of “Affiliate Marketing”

In my opinion, Vemma understood that it was losing out on potential customers by being dubbed an “MLM” and decided that because Affiliate Marketing is a growing, lucrative business, they should change what they call their business model. They ingratiated themselves into the affiliate industry in attempt to see how they could take all of the GREAT things about what we do (unlimited earning potential, growing number of participants, increasing reputation among big brands, etc) and twist it around for their own needs.

They attempted to use our terminology to avoid being classified as an “illegal pyramid” under Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). But the FTC wasn’t buying it. Because the compensation was based on “recruitment of new participants, not on the retail sale of products or services,” Vemma was indeed an illegal pyramid.

This whole situation is unfortunate in many ways. First, a lot of people invested a lot of money in the hopes of living “the dream” of this great Vemma business. Second, once again affiliate marketing is getting a bad rap for something that isn’t really even affiliate marketing. And third, Vemma missed an opportunity to run a true affiliate program that would have allowed people to make honest money introducing their product to the public. If they truly believed that they had a great product that people would want to buy, they wouldn’t need to run their business the way that they did to make it profitable.

Which Companies Are Next?

Reading the documents in this case, I have to wonder who the FTC might target next. While companies like Tupperware and Mary Kay have been around for a long time and have survived because of the way that they are structured to encourage product sales, what will become of all of the newer companies selling essential oils, mascara, and diet shakes? What about affiliate marketing “gurus” who are selling their 10 step plans that guarantee you will earn passive income by investing in their courses? Hopefully we can continue to educate the public about how to do affiliate marketing the right way and continue to distance ourselves from the companies and practices that are deceptive to the public and focused more on people at the top making money than people at the bottom being treated fairly.

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Affiliate Summit Drops Price of VIP Pass


I just heard that Affiliate Summit has lowered the price of their VIP passes for Affiliate Summit West by $300 through October 23. I didn’t even believe it until I went to the site myself and checked out all of the pass types and read the fine print. You can now get a VIP pass for $579 if you get the newly discounted Early Bird price.

I have only ever attended one Affiliate Summit where I didn’t have a VIP pass–my first. And it was essentially because I didn’t know any better and the conference was so different back then. Yes, I often get a free pass for being a speaker or being on the Advisory Board. But even when I take employees with me, I always buy them the VIP pass. Why?

First: To me, some of the best networking opportunities take place over the casual meals, drinks, and snack breaks. You will meet a certain number of people in the Exhibit Hall and Meet Market. You’ll exchange business cards and maybe follow up later. But it’s in those more casual, laid-back meals that you really talk to people and understand their business and get to know each other. The VIP pass includes the Sunday Snack Break (which people never take advantage of enough but should!), plus breakfast and lunch on Monday and Tuesday.

Second: I want to be able to attend any sessions that look good to me and take advantage of the different one-on-one and small group opportunities that are usually available only for VIP pass holders. You never know from one conference to the next if these opportunities will be the ones where you learn the most the fastest, but they usually are. You will get access to every single session plus the videos afterward.

Third: If you are a first time attendee, the Newcomer Program is like getting asked to the Homecoming Dance. It’s your chance to be paired up with someone who can introduce you to other people and help you learn the ropes so that you will make the most of the conference. I hear so many people say that the conference is “overwhelming,” and it is. But if you don’t take advantage of the Newcomer Program, you are missing out on your best chance to not only meet an industry veteran but have someone give you all of the small details you need to know both before and during the conference.

I don’t think I have ever written a blog post so blatantly “advertising” Affiliate Summit before, but I couldn’t help it when I saw this price break. I don’t know if they will ever do this again (I’m sure it depends how it works out this time), so I’m just going to tell you this:

If you have always wanted to attend Affiliate Summit and have a way of getting there in January in Las Vegas, this is the pass you need to get and the time that you need to get it.

If you do a search on my blog, you will see me talking about Affiliate Summit ALL THE TIME. What I learned, what I taught others, what I hope to get out of the next one, who I met, how my business changed. Even when I’m not “selling it,” I’m selling it. I feel strongly in always attending myself and recommending it to new people.

So there it is…this crazy price break. Head over to the Affiliate Summit site and see if it’s something you want to do in January. And if you end up deciding to go, let me know and I will see you there!

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New Guidance on “Contractors” Impacts Affiliate Marketers


Lately there has been a lot of talk regarding the distinction between employees and independent contractors when it comes to services like Uber and Lyft. However, the guidance being handed down could very well impact the way that many affiliates and OPMs are managing their businesses.

New Guidance on Employees Versus Contractors

On July 15, 2015, Administrator David Weil issued a Department of Labor’s (DOL) Administrator’s Interpretation of the Fair Labor Standards Act (FLSA). The 15 page document speaks specifically to the misclassification of employees as independent contractors. The main concern of the DOL is that “some employees may be intentionally misclassified as a means to cut costs and avoid compliance with labor laws.”

The DOL has historically defined “employ” as “to suffer or permit to work” and uses a more recently adopted “economic realities test.” That test uses the following factors, which are analyzed against each other with no single one being determinative.

(A) the extent to which the work performed is an integral part of the employer’s business;
(B) the worker’s opportunity for profit or loss depending on his or her managerial skill;
(C) the extent of the relative investments of the employer and the worker;
(D) whether the work performed requires special skills and initiative;
(E) the permanency of the relationship; and
(F) the degree of control exercised or retained by the employer.

One of the most important paragraphs in the document explains that the label that the employer uses or the agreement between the employer and the worker are NOT determinative. It’s not enough for the employer and the employee to just agree as part of their contract or negotiation that the worker is an independent contractor. The factors in the economic realities test will still prevail.

Another paragraph that is particularly important in our industry describes the element of “degree of control.” Simply having workers who are free to work from home and set their own hours with little supervision does NOT make them independent contractors. The control factor has to be weighed against the other factors.

The document concludes by blatantly summarizing that “most workers are employees under the FLSA’s broad definitions.”

How It Impacts Affiliate Marketing

It’s no secret that the many people in our industry work in a consulting or contract capacity quite frequently. There are quite a few instances that would actually fall under the “independent contractor” status such as guest writers, graphic designers, programmers, and social media or SEO experts.

However, those lines might very easily be crossed if the person doing the work is either working exclusively for one company, is performing work that is integral to the company, or the company is relationship has the signs of permanency (perhaps the giving of executive titles or listing the workers on the employer website).

What’s the difference how you classify workers if both of you are fine with it? Apparently quite a bit. There are major differences in the assessment and collection of taxes, unemployment, overtime policies, and minimum wages.

Right now it does not look like online marketing is being closely scrutinized for labor violations of this type, but as our industry continues to grow, it’s likely that we will become a bigger part of the discussion.

If you are employing people in any way, it’s a good idea to evaluate your relationships and determine whether people you consider to be contractors might actually be employees. 

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Fiverr Fail That Turned Out Perfectly


A few months ago I decided to send out some treats to members and friends of Sunshine Rewards. My plan was to put together a small packet of summer-themed goodies and include a handwritten note for each person. I wanted a card that truly represented Sunshine Rewards (and me), so I didn’t want something straight out of Hallmark. Instead I decided to try Fiverr.

My plan was to give the exact same instructions to 3 different designers and then use whichever design I ended up liking best. Ashleigh spent quite awhile pre-screening designers to narrow it down and we felt pretty confident about the 3 we ended up with. I knew I wouldn’t love them all, but I was not at all prepared for what I received.  Here are the EXACT instructions I gave:

Greeting card graphic with the following message

Wishing You a Summer Filled with Sunshine

somewhere on it as well as


Would like something like a person smiling and holding our logo (hand drawn person or graphic-based). I like the “bursts” at the top and bottom of this card:

And this is the first result that I got:

My Fiverr FailNow you might have to look at it twice to catch it. I’ll sit here while you go look at the image again….

Find it? Yep. “Somewhere On It As Well As.”

Looking back at my instructions, I guess I should have been more clear. On the flip side, I ended up with a result from another designer that I loved so much I almost cried. So apparently SOMEONE understood me. And the 3rd designer sent me something passable but not nearly as perfect as the 2nd.

In all fairness, the first designer asked if I wanted changes or corrections made. I could have pushed back. But it made a better story to keep it this way, and I was already starting production of the cards from the 2nd design. So I just let it go. I ended up paying the 2nd designer an extra $15 for a few tweaks and a .psd copy of the image so I can modify and use it in the future. In the end, it cost me $30 for a custom designed card that I really loved, which isn’t too bad. I would still recommend Fiverr for things like this, but with the caveat to be VERY careful how you phrase your request!

Want to see the final card? If you know me, you know it couldn’t get more perfect that this.


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Blogger Involved in FTC Lawsuit for Failure to Disclose

FTC Amberen LawsuitI was really excited about turning 40 because I kept hearing commercials on XM Radio about this terrific product specially made to help women 40 and over lose weight through balancing their hormones. Sadly, a little over a week before my 40th birthday, my bubble was burst when I saw that the FTC had filed a lawsuit against the company who markets the product, Amberen, for misleading claims. But it’s a good thing that I was paying attention to the product because it turns out that the suit actually may have an impact on performance based marketing because a blogger was involved.

Basics of the Case

Amberen is a dietary supplement. The FTC alleges that Lunada Biomedical (who markets and sells Amberen) engaged in “unfair or deceptive acts or practices” in the way that it marketed the product in the U.S. Specifically, they claimed that Lunada made unsubstantiated claims about weight loss and other health benefits of Amberen and misrepresented the findings of medical studies. In addition the “risk free trial” claims were false.

Carol’s Blog

One of the places that Amberen was marketed was through various websites including “Carol’s Blog” ( Carol was actually the president of “International Marketing Company” (presumably an agency) and not only agreed to write a blog that would promote them but would also appear in some of their other advertising. Carol was paid a flat rate of $2,000 per month plus various other fees and reimbursement costs.

According to the suit, the blog “appeared to be a personal account of [Carol’s] experiences with menopause, written in the first person and featuring [Carol’s] name and photo.” There was no disclosure on the site that Carol was being paid to promote Amberen on the blog.

The FTC claims that Lunada “failed to disclose, or disclose adequately, that certain of the consumer endorsers…had paid relationships with Lunada or were compensated in connection with their endorsement” and that the relationship would be “material to consumers in deciding whether to purchase Amberen.”

What Does This Mean for Affiliate Marketing?

Although Affiliate Marketing is not directly implicated in this case because Carol was paid a flat rate rather than on a performance basis, there are definitely some interesting things we can pull out of this case.

Note: These are all my opinions! Although I am a lawyer, none of them should be used as legal advice. They are merely my observations based on my studies of the law and my knowledge of blogging and affiliate marketing.

  • Merchant is once again held liable. In this case, even though the blogger is mentioned throughout the case and plays a part in the majority of the “deceptive practices,” the company producing and marketing the company is the one being sued by the FTC. I have not seen anything to indicate that Carol is being sued.
  • The blogger’s name is now associated with deceptive practices. Even though the blogger was not named in the suit, her name and her company are now showing up in search results related to FTC lawsuits. As bloggers, all we have are our reputations. Once you are associated with something like this, it’s almost impossible to make it disappear online.
  • Disclosure standards reiterated. The court specifically referred to “failed to disclose” and “material relationship.” These are the words that we are consistently seeing in the Guidelines from the FTC and any similar suits. They should be the basis of your own disclosure standards whether you are a merchant, an OPM, or a blogger.
  • Material to consumers. In this case, the FTC believes that Carol’s personal style of blogging (and perhaps her status as a nurse?) were enough to convince people to buy the Amberen. This is important when it comes to determining when something would be considered an endorsement that would convince someone to make a purchase based on your recommendation.
  • Agencies are likely liable. Lunada acted as both the distributor AND the marketing company in this case. In our lingo, that means they were both the merchant and the affiliate manager. They started the relationship with Carol. They gave her content ideas and reviewed the posts on her site. It’s the obligation of the merchant (or their agent) to monitor the content AND the disclosure for compliance.

Resources: For more information about the case, you can read the FTC release that summarizes it or the full complaint including exhibits. Although the blog is no longer online, you can see it using the Wayback Machine. Read more of my analysis of the .com Disclosures and how they apply to affiliates.

Have you as a blogger, merchant, or OPM taken steps to make sure that you are complying with the FTC Guidelines? Or are you weighing the risks and deciding that it is not likely you would be sued anyway?

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