MLM legal news in 2016 brought a new wrinkle in the legal maneuverings against ViSalus. ViSalus, once a thriving direct-selling company in Troy, Michigan (and in Los Angeles), saw soaring profits supposedly from sales of its line of nutrition supplements and shakes that promised weight-loss. The euphoria did not last long; four years later the ViSalus glory days are over.
A RICO Class Action Development
In 2014, the federal government filed a federal pyramid-scheme lawsuit against ViSalus. Former distributors now seek class action status for injured plaintiffs. They allege that ViSalus aggressively recruited distributors by using misleading tactics. They brought in professional marketers to pose as successful “rags-to-riches” distributors. The company’s critics claim that the business model depended more on recruiting new distributors than on selling products to customers.
The Sommers Schwartz, PCS law firm recently filed the class action RICO case on behalf of anyone who signed a ViSalus “individual promoter” agreement and who suffered financial loss from July 9, 2009 to the present. The case alleges that ViSalus and its executives and promoters violated federal securities laws by misrepresentation and by defrauding individuals to invest their money in a pyramid scheme. In addition, the complaint alleges that the company’s “promoters and professional recruiters” recruited hundreds of thousands of people to partake in the ViSalus opportunity. These actions amounted to racketeering activity under federal mail and securities statutes. As a result of such racketeering activity, most recruits lost their money.
An Auspicious Beginning
ViSalus started in 2005 with a direct-selling business model that, from all appearances, seemed similar to Amway, Herbalife and others. Distributors earned commissions on sales of the company’s products to customers and a second compensation stream from sales by their “down-line” distributors. By 2013, the company had 420 employees. The business world considered ViSalus second only to Amway in direct-selling outside of Grand Rapids, Michigan. The company hit its highest sales numbers in 2012 with $623 million and $69 million in profit. That was in the company’s heyday. Then, sales dropped 44% in 2013 to $351 million and have continued to fall. The company no longer reports sales figures since it went private in 2014.
The enticements to potential new distributors included big bonus checks, fancy vacations, and fancy cars that ViSalus encouraged distributors to believe they could earn by buying and selling to friends and family members. The larger-than-life bonus checks in equally large amounts paraded in front of distributors at meetings. The reality was that only the company insiders and people who were willing to recruit more distributors for the “down-line” would get these bonuses. In fact, the only way that a distributor could make meaningful money was to recruit new people.
Oh, and yes. The only way the company paid bonus checks to distributors was after 10 years, only if the distributor remained active for the 10 years, and — a very big if here — only if the company wanted to pay it.
Over 100,000 people signed up for ViSalus and paid up to $999 for a promoter enrollment package that included samples and the opportunity to prosper by selling for the company. Most of them lost their money.
That Was Then, This Is Now.
The company announced in January 2016 that it expected to lay off 87 employees beginning in March of 2016. The layoffs are a result of events that have taken place for the company in the last few years. In fact, it’s been a down hill race ever since a federal lawsuit accused the company of conducting a pyramid scheme (and its director of security stood accused of corporate espionage).
To read more about the ViSalus case, read TriStateUpdate.com‘s April 2016 article entitled “Sommers Schwartz, P.C. Seeks Class Action Status on Behalf of Plaintiffs Suing ViSalus, Inc. for Alleged RICO Violations.”
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