ViSalus Sued For Operating A Pyramid Scheme And An Amazon Storefront
Michael Gehart a ViSalus distributor has sued ViSalus for operating an illegal pyramid scheme. He also alleges they allowed him to run an Amazon storefront that sold ViSalus products at wholesale prices. There are some very powerful claims in this lawsuit.
Started in 2005, ViSalus sells nutritional shakes and supplements through multi-level marketing. They had $623 million in sales and $69 million in profit in 2012. They then experienced a giant pop and drop and the company’s sales fell 44% in 2013 to $351 million. They no longer report sales figures. – Source Freep.com
ViSalus claims to be a “healthy lifestyle” multi-level marketing company, which sells its meal replacement shakes, snacks, and vitamin supplements through a network of independent distributors.
Here are the details of the lawsuit:
When Michael Gehart became a distributor he was told that he could purchase ViSalus products at a so-called “wholesale” price for an opportunity to re-sell to others at a “retail” price. That turned out not to be true. Michael Gehart built a “downline” of distributors who could find few real customers, but instead ended up purchasing product themselves. What Michael Gehart found out is that ViSalus provides little opportunity for a distributor to actually earn any sort of income off of product sales alone. Worse, ViSalus prevented distributors from actually effectively selling the product they were required to buy, by, among other things requiring the distributors to not sell the product they need to buy except at a high mark-up.
Here is an example of how ViSalus is sold to people:
Nonetheless, ViSalus wanted to move product some way. In late 2011, Michael Gehart made an agreement with the top management at ViSalus to sell its product through the Internet seller Amazon. While management and the top promoter, Nick Sarnicola, were telling other distributors about the company’s noninvolvement and discouragement of anyone selling through an Amazon storefront, they supplied Michael Gehart with millions of dollars worth of product, often calling him and asking if he would buy more, so he could sell it at wholesale rather than retail pricing and outside the multi-level marketing channel that ViSalus insisted its distributors must use.
For years with top management’s encouragement, Michael Gehart purchased large quantities of ViSalus product at below-wholesale price and re-sold it on Amazon at a wholesale price, a practice that effectively made ViSalus products available throughout the United States at distributor prices to everyone. The program was so successful that after Michael Gehart established his storefront, ViSalus installed several other distributors with the same arrangement to sell on Amazon, all while telling its other distributors that selling on Amazon was not encouraged and hiding its involvement with the practice from its several hundred thousand distributors. The sales of these Amazon distributors were significant, estimated at $4 million per month. The sales had another side benefit to ViSalus. The Amazon distributors generated reams of “customers” who were assigned to people within the multi-level marketing system whose “sales” could be claimed to be as a result of the multi-level operation. Those sales generated commission profits to Nick Sarnicola and others even though they were the result of straight retailing outside the system. And ViSalus gained several hundred thousand “customer” entries in its sales records to claim to participants and others that the ViSalus product can be profitably sold by distributors who pay for the right to distribute.
In early January, 2017, ViSalus decided to take over the Amazon business for themselves, that Michael Gehart had carefully built, and cut out Michael Gehart and the other distributors who had established Amazon stores. It lodged a bogus trademark complaint with Amazon, claiming that the sale of ViSalus product by its own distributors constitutes trademark infringement. It made an agreement with a captive distributor to sell the product on Amazon on its behalf, and effectively shut down Michael Gehart’s Amazon store. Michael Gehart has become yet another victim of the scheme that has been operated by ViSalus and others for years.
At the time his Amazon account was removed, Gehart was earning a profit of $10,000-$15,000 per month on the sales of ViSalus product through his Amazon account. Gehart has earned approximately $365,000 in profit from his Amazon sales and an additional $1,579,942 through the ViSalus compensation system on commissions from his Amazon sales.
Here is some interesting information on how ViSalus manipulated their representatives downlines:
Six months after Michael Gehart joined, Sarnicola had a contest to move people at the end of the month. Gehart also learned that Sarnicola and other ViSalus operatives would move whole teams of recruited downlines from one distributor to another in order to reward certain distributors and “punish” others. The effect of such movement was to artificially increase or take away commissions and bonuses from one distributor to another, or to increase Sarnicola’s own commissions.
– Source Gehart v. ViSalus, Inc. et al