FTC: Vemma is a $200 million “illegal pyramid” scheme
Thought we’d have to wait for Friday for this, but the FTC complaint against Vemma has now been made public.
Here’s the details…
The FTC complaint against Vemma was filed on the 17th of August in an Arizona District Court.
The complaint names Vemma Nutrition Company, Vemma International Holdings, Benson K. Boreyko (B.K. Boreyko) and Tom Alkazin as defendants.
Tom Alkazin’s wife, Bethany Alkazin is named as a relief defendant.
B.K. Boreyko (right) is the CEO of Vemma while Tom and Bethany Alkazin are the top affiliates (income wise) with the company.
Alex Morton, a former top earner in Vemma, is not named in the lawsuit.
At the heart of the FTC complaint is the allegation that Vemma has engaged in “deceptive and unlawful acts”.
Specifically, Vemma’s business model depending
on recruiting individuals to participate in Vemma as affiliates and encouraging them to purchase Vemma products in connection with such participation, rather than selling products to ultimate-user consumers.
“Ultimate-user consumers” can be either retail customers (a regulatory preference) or recruited affiliates (within reason and not in place of a strong retail customerbase).
(Vemma’s) sales and marketing activities and their compensation plan place little emphasis on sales to consumers outside of the Vemma organization.
This non-retail sales oriented business model the FTC allege, saw Vemma generate ‘more than $200 million in annual revenues in 2013 and 2014‘.
(Vemma) opportunity events are meetings designed to motivate and train affiliates and to recruit new affiliates.
High-level affiliates, including Defendant Alkazin, typically host these events in hotel ballrooms, conference rooms, or convention centers around the country, and defendants Boreyko and Alkazin often speak at these events.
Home events are smaller recruitment meetings at an affiliate’s residence, dorm room, park, or other location.
Through each of these channels, Defendants pressure consumers to become Vemma affiliates and to recruit others, including friends and family members, to do the same.
This one is all about retail folks, specifically the lack of it going on inside of Vemma.
(Vemma) emphasize (affiliate) recruitment over product sales and stress the importance of recruiting new participants into the Vemma program.
Defendants direct new and prospective affiliates to follow a simple “system” in order to be successful, which greatly consists of the following four steps.
First, the individual should become an affiliate by purchasing an “Affiliate Pack”, which costs approximately $500 or $600.
Defendants frequently describe the Affiliate Pack as the Affiliate’s initial investment or start-up cost.
Second the affiliate should sign up for monthly “auto-deliver (autoship) in an amount sufficient to maintain eligibility for bonuses, which is approximately $150 per month.
Since the FTC action against Vemma was announced, I’ve been reading a lot of talk from the MLM world about how ridiculous it is to target Vemma’s use of autoship.
A lot of non-MLM examples have been tossed around, in an attempt to confuse the issue.
If I can clarify, the problem here is income in Vemma was being made by signing up new recruits and placing them on autoship. Little to no retail sales were taking place.
This is the hallmark of a product-driven pyramid scheme.
Things like your phone provider, “dollar shave club”, utilities etc. are not MLM business opportunities and their monthly fees are not comparable to that of an MLM company.
Third, the affiliate should find others who “see what they see”and enroll them as affiliates.
“See what they see” of course being “sign up as a Vemma affiliate with monthly autoship, ignore retail and focus on recruiting others who do the same”.
Evidence of all of the above taking place are in the FTC complaint, often directly quoting B.K. Boreyko and official Vemma marketing material.
Fourth, the affiliate should teach those recruits to “duplicate” the process (ie., purchase an affiliate pack, get on a qualifying monthly auto-delivery order, recruit others, and teach them to repeat).
I’ve been banging this drum for years on BehindMLM, with the FTC’s quote in brackets above pretty much on par with my sentiments regarding affiliate autoship in place of retail sales.
While slight variations of the recommended system exist, the focus is consistently on recruitment.
Conversely, (Vemma) provide no guidance on where to market or sell Vemma products.
Instead, (Vemma) teach affiliates to give away the products as samples and to concentrate their efforts on recruiting new participants (affiliates).
And so retail sales activity within Vemma is non-existent.
(Vemma) affiliates do not primarily earn bonuses for actual sales of Vemma products.
Instead, Vemma rewards affiliates for personally purchasing Vemma products to maintain bonus eligibility, and for recruiting others who likewise purchase Vemma products to maintain bonus eligibility (qualifying for commissions).
Overall, the key determinate of an affiliate’s income, and thus activity incentivized by the compensation plan, is the recruitment of affiliates into the affiliate’s downline teams.
In fact, the likelihood of affiliates earning profits on retail sales is minimal.
Vemma income claims also come under fire, with the FTC calling out Boreyko’s specific claims of a “game plan” able to generate up to $50,000 a month.
Defendant Alkazin also directs his downlines to make income claims.
In addition, during company events and conventions, Vemma presents the select few top earners with large checks representing their yearly or lifetime earnings.
While Defendants sometimes attempt to provide disclaimers when making these and other income claims, their attempts are inadequate.
A staple in the MLM industry these past few years has been outrageous income claims, with a disclaimer, if one is presented at all, given with a strong *wink, wink, nudge nudge* vibe.
“Yo, I made eleventy billion dollars in company X, results not typical check out our income disclaimer. If you join company X and aren’t typical, you too can earn the same!”
The all too common practice of MLM company’s providing misleading Income Disclosure Statements is also criticized, with the FTC specifically pointing out:
While the figures contained in (Vemma’s) disclosure statements are somewhat revealing, they nonetheless do not show the whole picture and are misleading.
Among other things, the disclosure statements only take into account “active” affiliates who have met certain minimum purchase thresholds and omit participants who fared worse.
In contrast to (Vemma’s) numerous claims regarding profitability and the unlimited income potential associated with Vemma, the vast majority of affiliates make no money.
Vemma’s compensation plan and its corresponding marketing activities dictate that at any particular time, the majority of affiliates lose money.
The FTC conclude that
unlike legitimate multilevel marketing businesses, (Vemma) reward affiliates for recruiting and for purchasing products to maintain bonus eligibility rather than for selling products to ultimate-user consumers.
The complaint goes on to file five counts of violations of Section 5 of the FTC Act:
Section 5(a) of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting commerce”.
Misrepresentations or deceptive omissions of material fact constitute deceptive acts or practices prohibited by Section 5(a) of the FTC Act.
The specific counts the FTC allege Vemma has violated include
Count 1 – Vemma is an “illegal pyramid” scheme
Defendants promote participation in Vemma, which has a compensation program based primarily on providing payments to participants for the recruitment of new participants, not on the retail sale of products or services.
Defendants’ promotion of this type of scheme, often referred to as a pyramid scheme, constitutes a deceptive act or practice.
Count 2 – Income Claims
In numerous instances in connection with the advertising, marketing, promotion, offering for sale, or sale of the right to participate in the Vemma program, Defendants have represented … that consumers who become Vemma affiliates are likely to earn substantial income.
In truth and fact … consumers who become Vemma affiliates are not likely to earn substantial income.
Count 3 – Failure to Disclose
In numerous instances … defendants have represented … that individuals have earned substantial income from participation in the Vemma program, and that any consumer who becomes a Vemma affiliate has the ability to earn substantial income.
In numerous instances … Defendants have failed to disclose, or disclose adequately, that Vemma’s structure ensures that most consumers who become Vemma affiliates will not earn substantial income.
This additional information would be material to consumers in deciding whether to participate in the Vemma program.
Count 4 – Means and Instrumentalities
By furnishing Vemma affiliates with promotional materials to be used in recruiting new participants that contain false and misleading representations, (Vemma) have provided the means and instrumentalities for the commission of deceptive acts and practices.
Count 5 – Relief Defendant
Relief Defendant Bethany Alkazin, has received … funds or other assets from (Vemma) that are traceable to funds obtained from (Vemma’s) customers through the deceptive acts or practices described herein.
Relief Defendant will be unjustly enriched if she is not required to disgorge the funds or the value of the benefit she received as a result of (Vemma’s) deceptive acts or practices.
The FTC also cite Consumer Injury in their complaint, arguing that
Consumer have suffered and will continue to suffer substantial injury as a result of (Vemma’s) violations of the FTC Act.
In addition, defendants have been unjustly enriched as a result of their unlawful acts or practices.
Absent injunction relief by this Court, Defendants are likely to continue to injure consumers, reap unjust enrichment and harm the public interest.
To that end the FTC have requested
- a preliminary injunction be granted against Vemma (freezing all known and unknown assets and the appointment of a Receiver)
- a permanent injunction against Vemma, B.K. Boreyko and Tom Alkazin, which will prohibit them committing future violations of the FTC Act
- award such relief to redress injury to consumers as a result of the defendant’s violations of the FTC Act
- the court order the defendants disgorge all funds and assets which are traceable to defendant’s deceptive acts or practices (return all the revenue Vemma generated) and
- legal costs
At the time of publication I have not seen a response from Vemma or B.K. Boreyko, public or otherwise. The company’s business operations have been suspended until further notice.
Stay tuned…
Update 27th August 2015 – The FTC have now issued a press-release on the matter:
At the Federal Trade Commission’s request, a federal court has temporarily halted an alleged pyramid scheme, Vemma Nutrition Company, that lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job.
The FTC seeks to stop the operation, which earned more than $200 million annually in 2013 and 2014 and has affected consumers throughout the United States and in more than 50 other countries, from continuing as an unlawful pyramid.
“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “We are also alleging that Vemma is an illegal pyramid scheme.”
On August 21, 2015, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the business pending a trial.
The Commission vote authorizing the staff to file the complaint for permanent injunction was 5-0. The order was entered by the U.S. District Court for the District of Arizona on August 21, 2015.
The FTC appreciates the assistance of the Attorney General Offices of Arizona, South Carolina, and Michigan, the Tempe Police Department, and the nonprofit organization Truth in Advertising in bringing this case.
A copy of the FTC’s Vemma complaint is available from the FTC website.
As per Truth in Advertising, a hearing on the granting of a preliminary injunction has been scheduled for September 3rd.
To date I have not seen a response from B.K. Boreyko or Vemma corporate.
whoops, i was thinking the FTC would be handling this complaint internally, and settling the issue with some fines and agreements.
but, but, this is GoodBye Vemma!
this has such earth shattering implications for all MLM which have autoship requirements, which may be the large majority.
big big change on the anvil, and the DSA should comment on this issue already!
yesterday there was a post about vemma on troy dooly’s FB page in which he said :
there was a long discussion under this post wih most MLMers rooting for autoship.
this post is no longer available on troy dooly’s FB page [??!!]
Dunno why it’s not showing up. The link to it still works so it wasn’t removed.
Only if they have no retail sales.
right. the FTC/courts are very particular about whether commissions are paid on sale of products, or on recruitment.
autoship companies like vemma, clearly encourage recruitment over retail to ultimate users.
an article yesterday on TINA reports that:
I don’t see the FTC losing this one.
Either Vemma have the retail sales or they don’t.
If they did, none of this would have happened.
(this is how the eventual Herbalife complaint is going to go down too)
right.
wrong.
Had I of written a review of Vemma and declared it a product-based pyramid scheme (based on probability over hard-evidence as that’s all secret, just like Herbalife), I’m sure there would have been a long line of people who’d have thought me wrong about that too.
there is no FTC complaint against herbalife, only a CID request.
if you had written a review about vemma, i dont know about a long line of others, but i would not have supported the autoship based compensation plan.
Well what do you think Herbalife is?
Sign up, order product each month and get paid by recruiting affiliates who do the same.
Retail is non-existent or they’d be crowing from the rooftops about it.
But uh yeah sure, I’m sure the FTC will ignore the blatant similarity between Vemma and Herbalife on the backend funds wise (close to 100% of revenue generated from recruited affiliates).
for starters it has no mandatory autoship.
Well, neither did Vemma at the time this complaint went down. Infact the FTC complaint doesn’t even mention mandatory autoship.
It looks at what was functionally happening, that being revenue was primarily generated on affiliates with standing monthly orders (with no retail).
the FTC may not use the ‘term’ mandatory autoship, but that is pretty much what they mean when they say in their complaint:
They mean precisely what they mean. If you have to interpret plain English you’re doing it wrong.
The core issue in FTC complaint against Vemma alleges no retail activity, with affiliates instead getting paid to recruit new affiliates who make monthly product orders (just like Herbalife).
“It’s a bump in the road”, according to some Vemma supporters.
the core issue in the FTC complaint against vemma is the forced selling of products to affiliates and paying commissions on such sales, without any indication of Real Demand for these products.
the herbalife decision should be coming soon, lets not jump the gun.
Like I said, the words “forced autoship” do not appear anywhere in the FTC complaint.
They instead look at what is effectively happening, which is of course the majority of revenue in Vemma is/was sourced from monthly affiliate orders instead of retail sales.
hmm, this ‘bump’ has silenced the online prattle that was going on yesterday.
meanwhile vultures are openly circling the official vemma FB fanclub page, pushing other MLM companies on shell shocked vemma reps.
no time for mourning the death of vemma!
Exactly, which should NEVER happen if Vemma is really “affiliate marketing” like BK claimed. In affiliate marketing, affiliates should only market the product (as an affiliate), and rarely if ever buy any themselves as products should be drop-shipped directly from company.
When MAJORITY of the orders came from the affiliates themselves, AND there’s virtually mandatory autoship to qualify for cycle, it’s clear that Vemma has minimal “retail”.
And if Vemma goes down, expect a lot of collateral damage. Bob Proctor, pretty darn famous self-help speaker, has wife AND daughter in Vemma, pretty darn high level too, raking in at least 15K a month in commissions each. Bob himself appeared at many Vemma events.
Expect Vemma to mount same sort of defense Herbalife pulled: showing off some bright-eyed and bushy-tailed brain-washed kids and their branded cars, surveys, while blaming all its troubles on critics such as Revanchist (whom they silenced last year), Morton (who defected, wonder if he had advanced warning?) and us.
Except there’s no Bill Ackman for them to pin the blame on this time.
message on BK boreyko’s FB page 5 hrs ago:
is it just me, or is boreyko hinting that vemma is over and at some point he’ll be starting afresh?
It’s merely intentionally vague so people can read whatever they want into it.
But Vemma “as we know it” is over. It will likely reach some sort of a deal like Amway did back in 1979 and agree to a comp plan change, and linger on for a few years and die with a whimper.
Hi all,..
So if i understand correctly…
As long as I only order products for personal consumption as a consumer it’s considered retail sales and everything is O.K..
But the moment I ALSO sign up as an affiliate, the products I order and personally use are no longer considered retail sales ??
^^ Pretty much.
What you do with the products after you’ve purchased them as an affiliate is irrelevant, you need to be selling and taking orders from retail customers. And they have to show up in your backoffice and be provable.
@Oz.
🙂 You do agree that that’s a bit ironic or hilarious.?
“Please consume the products you purchased from me, but whatever you do please DO NOT sign up as an affiliate!!”
Or, “Yes, you can become an affiliate as long as you promise NOT to use our products”
What’s that in English? A Catch 22 ?
when you purchase product as a non affiliate, your motive is clear, you are buying the product for self consumption, no strings attached.
when you purchase product as an affiliate for self consumption, that’s valid too, as long as you can clearly demonstrate your ‘motive’.
in MLM which are constructed along the lines of amway, herbalife etc, affiliates can become members just to enjoy discounts on the products with no autoship requirements.
on the other hand, MLM companies like vemma, encourage all affiliates to go on autoship, making them a product based recruitment scheme. you will most probably find that over 90% of vemma affiliates will be on autoship in order to earn commissions.
these autoship requirements can be covered by ‘personal consumption’. such personal consumption is obviously motivated by commissions and hence are suspect.
the motive is all important – why are you buying the product?
@EmJay
Why would a retail customer need to sign up as an affiliate?
Provided you have adequate and demonstrable retail sales, there’s absolutely nothing wrong with affiliates purchasing and using products.
There’s no *need* for a retail customer to sign up, but as mentioned before, the moment he/she does, my sales are no longer counted as retail sales but are considered internal sales.
So there should be some kind of standard, dividing what’s considered reasonable for personal use, – making it non-commissionable? – and everything above that that’s retail sales.
As Anjali says above: Why are you buying ?
for the benefit of other readers here, the FTC filed an exparte memorandum for a Temporary Restraining Order [TRO], and a Complaint for a Permanent Injunction against vemma on 17th august 2015.
on or around the 21st, august, 2015, the court granted the TRO under seal, to prevent the defendants [vemma& named defendants]from dissipating the assets.
on the 24th august 2015, the FTC shut down vemma under the TRO, and seized all assets.
this TRO is valid for a period of 14 days.
a hearing on the Permanent Injunction is scheduled for september 3rd, 2015, and vemma will state its case then.
memorandum for TRO:
truthinadvertising.org/wp-content/uploads/2015/08/VEMMAMemoinSupportofExParteAppl.pdf
complaint for permanent injunction:
truthinadvertising.org/wp-content/uploads/2015/08/VEMMAComplaintforPermanentInjunction.pdf
court order granting TRO:
truthinadvertising.org/wp-content/uploads/2015/08/VEMMACourtOrder.pdf
No buts, that’s that.
yes, WHY are you buying in vemma?
to Satisfy Autoship Requirements And Earn Commissions.
that’s not honest self consumption, that’s motivated self consumption.
emjay, the arguments that decide whether an MLM is paying commissions on sale of product or recruitment, or what kind of self consumption is acceptable are very delicate decisions, which are arrived at after studying the compensation plan of an MLM and how it functions in reality.
The core issue in a complaint should normally be “count 1”, if they follow a normal logical order?
Vemma is a DSA member in good standing and does not seem to be doing much of anything different than almost any the major MLM companies. This action can almost be viewed as the FTC v. the status quo of the industry in general.
Unless there is some critical flaw in the FTC’s complaint or their understanding of facts supporting it I would expect other company owners to help Vemma fund a “dream team” style defense. If Vemma goes down on these charges ~almost~ none of the other companies will be safe.
This will be a watershed decision, no matter which way it turns out.
Based on all I just read here, the best candidate for the next compliant is Melaleuca.
The company’s auto-ship is mandatory for everyone who is preferred customer (and this is about 97% of participants), even more, if you did not make an order in the current month, you will receive the backup order from the company anyway.
Also, company always discourages customers from re-selling their products and this is one of the cornerstones of their approach – you have to buy only for yourself.
I don’t want to say that Melaleuca is bad in any way, in my opinion, this is one of the best companies in the direct selling field, but in accordance to the current FTC compliant many good companies could be set on fire.
There is a difference, in that Boreyko / Alkazin / Vemma itself actively provided the misleading material. They can’t blame it on “rogue individuals” like most other MLM companies will try to do.
The FTC Act is probably organized like this:
* Main rule (that deceptive trade practices are illegal)
* general rules (misleading actions and omissions)
* specific sub-rules (pyramid scheme, misleading marketing, etc.)
So you can’t use the argument “since company B has a relatively similar business model, company B must be illegal too”, or extend it to “since all the other MLM companies use a relatively similar business model, they must be illegal too”.
no the core issue is to understand what the FTC is really complaining about, which is evident from the FTC conclusion that:
the lack of visible retail, the lack of emphasis on retail are very much the problem.
but the problem is also that the FTC is refusing to regard the self consumption of vemma affiliates as bonafide sales to ultimate user consumers.
there is no Real Demand for the vemma product either inside or outside the compensation plan with no genuine ultimate-users.
there is no motive for anyone to purchase vemma products except for the recruitment commissions.
troy dooly is convinced after reading the FTC vemma complaint and the supporting documents that vemma is not a pyramid scheme:
very brave and loyal of dooly, but if the FTC did not truly believe that vemma is a pyramid scheme why would they take them to court? to embarrass themselves??
over the last couple of years there has been so much focus on MLM, and the FTC is hardly going to drop the ball in full public view.
unfortunately dooly has not explained WHY he thinks vemma is not a product based recruiting pyramid scheme.
industry ‘experts’ should not just ‘declare’ things without backing them up with a convincing argument!
lets hear your arguments dooly, thompson et all! this affects the whole industry and let us not be shy with our views.
i’m latching on to the FTC’s skirts on this one. i see their point.
troydooly.com/blog/2015/08/26/when-does-agreesive-sales-team-recruitment-in-mlm-become-enticement-into-an-illegal-recruitment-pyramid/
Explaining how Vemma isn’t a pyramid scheme is easy.
Boreyko just needs to provide the SEC with a detailed revene breakdown showing retail sales are higher than that of affiliate revenue.
He can’t, so we all know how this is going to end. The FTC already have a TRO granted and on the 3rd they’re going to get a preliminary injunction.
A Receiver will then be appointed and that’ll be that.
i think boreyko’s arguments will be to try to convince the court that his affiliates are bonafide ultimate users.
he will fail, due to the prevalence of autoship.
Good luck with that. They’re obviously not retail customers and therein lies the problem.
The bulk of the MLM industry has been ignoring retail for far too long and now it’s too late.
You’re most likely looking at a symptom there, one of many?
When I described it in a Norwegian pyramid scheme forum, I used this thread title: “Vemma shutdown, a $200 million pyramid scheme”
It would have been rather meaningles to describe it as “Vemma shutdown, a $200 million lack of retail sale scheme”. 🙂
i think i wrote that lack of [outside] retail is a problem, but lack of ANY ultimate users is also the problem.
i have always refused to measure the legality of an MLM through the narrow prism of [outside] retail alone.
i agree that lack of [outside] retail is ONE symptom, and not the end all for distinguishing pyramid schemes.
@anjali
If companies want to avoid the constantly returning discussions about non-retail/actual retail sales to end users they should implement a sort of “Why are you buying” system in place to prevent unrealistic self consumption/internal sales by their affiliates and allegations of unlawful practices.
It would also benefit them if -as with Vemma- FTC knocks on the door, so they can show X% = self consumption and Y% is actual retail sales.
Nothing wrong with autoship as a choice, forced/mandatory is always a No no.
(B.t.w. I used “my customer” in an earlier post as a figure of speech, I’m not in Vemma)
The industry writ large has been riding on a drunken wave of “affiliates are customers too” for a good while now, believing that just because genuine retail is theoretically possible it doesn’t need to be statistically relevant.
I’ve listened to more MLM conference calls than I care to admit and an in no way scientific estimate, for every hour spent training affiliates to find and recruit prospects they’ll get about 30 seconds of coaching on how to sell products.
That’s probably is an exaggeration, it’s likely less than that.
This is not a Vemma only issue, it’s ubiquitous. The problem with just about all customers also being affiliates is that it guaranties that just about all affiliates will lose money.
This also means that any income disclosure that doesn’t say “just about everyone will lose money” is inaccurate and deceptive.
Again, the above is true of any MLM company where almost all of their customers are also affiliates which I am sad to say, is a whole hell of a lot of them.
If the FTC is successful in prosecuting Vemma (and that is a big if) there are going to be tectonic shifts and several tsunamis crashing through the industry.
Hell, it might get so bad they’ll actually have to start selling products to people outside of the comp plan.
If we compare Herbalife and Vemma …
Herbalife:
Less than 25% of the distributors will ever upgrade to become Sales Leaders, “the right to receive recruitment based rewards”.
Vemma:
Vemma didn’t have any distinction between Sales Leaders and Non Sales Leaders. All distributors had the right to receive recruitment based rewards. They only had to pay for $150 worth of products each month.
There’s a major difference there, relevant for pyramid scheme cases. So you can’t directly apply the same logical reasoning to both companies.
and news of the vemma FTC plug out hits broader media:
further, looking at the conviction [pay attention troy dooly] of the FTC in voting for a complaint to be filed in a federal court:
the FTC is dead serious. what does kevin thompson have to say about this. i’m begging his view.
One thing to consider is many people join a company like Vemma as a marketer, but the main reason is they do is to buy the products they want at a discount vs. being a retail consumer.
Capitalism at it’s best but the law may be on the other side. I think we can agree we don’t want people having a garage full of stuff but the problem here is most of their consumers are also marketers… so much consumption from within possibly violating the law.
They are both deceptive and harmful to consumers, but you will need a different strategy to shut down Herbalife.
Herbalife can or could be divided up into multiple, stand alone pyramid schemes organized by different “leaders”, e.g. Anthony Powell and Shawn Dahl. There’s probably multiple others, but those two dominated the complaints.
Those stand alone pyramid schemes could easily have been shut down if Bill Ackman had directed his attacks against them rather than against Herbalife.
Herbalife itself is much more difficult to shut down. It’s too vague to be clearly identified as a pyramid scheme.
This is absolutely mental…Vemma don’t deserve to be shut down and they have been running for over a decade compliant with the DSA, BBB etc. and this case is a year late, to do with the YPR hype which has been and gone.
I sure hope the FTC drop the case or Vemma find more evidence that they are compliant. thanks for sharing
this is not about capitalism, but fraudulent pyramid schemes. capitalism is not a vote for fraud.
the law is on the Right Side by demanding MLM commissions to be paid on sale of product to ultimate users, and not recruitment.
if people join an MLM to enjoy products at a discount, so be it. where is the need for autoship requirements?
real self consumption will never fall afoul of the FTC or the courts.
“Capitalism at its best” should normally not include being shut down as a pyramid scheme. 🙂
And it shouldn’t include “the law may be on the other side” either = vague ideas about how things really work.
I agree.
In Norway, “core” has a rather traditional meaning, e.g. “core of the Earth” will normally be seen as something close to the center of the earth. 🙂
This could be Jeunesse. They operate very similar. Strange that they would go after Vemma and not Jeunesse. Who will be next?
Markie – if you talk with anyone who is successful in MLM about the SECRET TO SUCCESS, they will tell you this:
SELL THE DREAM, NOT THE PRODUCTS.
Why? Because most people don’t see themselves as sales-types. So, instead of selling an overpriced product (we can discuss this point later) at retail, bring them to a meeting (local or online) and let one of our best PROMOTERS do their “hope and opportunity” thing and your prospect will make the proper EMOTIONAL DECISION.
We now know the FTC has had enough and is going after companies (even established companies like Vemma) who are not in compliance with the Retail Sales Rules already in place.
The FTC doesn’t have the resources (people and money) needed to go after ALL of them at once. Plus, there are so many companies that are non-product pyramids/ponzis (Zeek, Achieve for example) that the product-driven pyramid deals have had a pass.
It looks like that PASS might turn out to be a FUMBLE for many MLM companies and their money-game promoting distributors.
Thanks to OZ and others for providing a forum so this information can be made available to those who actually care about doing the right thing.
It is the well known 3 month rule. Seel Hopes and Dreams wrapped around some product or service. Hype and pitch the new recruit to suck them dry, get skin in the game, pitch for the first 3 months. Thereby getting access to that persons sphere of influence.
After 3 months they get dropped like a hot potato and the same process is done again on the new fresh recruits that came in.
I am disgusted in it. Most entrepreneurs are. It has made the industry cynical and sick.
Time for an MLM to step up to the game and build an Amazon style “Customer Centric” model. Where customers make up the commissions, not selling Hopes and Dreams.
@Markie
That’s why the preferred customer class exists, they get a discount in exchange for a monthly retail order.
@Seb
Which has nothing to do with a lack of retail and the operation of a product-based pyramid scheme.
YPR is mentioned but the FTC’s case isn’t built around it. It’s built around a lack of retail, which is a problem with or without Morton’s YPR.
Article updated with FTC press-release and link to their complaint.
And now, this:
Ken Stewart (Ambassador with Vemma) said this just 22 hours ago – NOTE – this is only part of his post:
10 hours ago Ken added made this post:
So, apparently, the Leaders were in the dark too as Ken goes from calling this action a “complaint” to calling it a “lawsuit” in a matter of 12 hours.
And, if the FTC has already appointed a “receiver” is there any doubt of the outcome of this lawsuit?
Any “legal minds” care to weigh in on this topic?
Clairvoyance?
DSA is not a regulatory agency. DSA is a lobby group for the MLM industry that tries to head off any attempt to further regulate MLM with lobbying efforts.
Sounds like Team Zeek Rewards and TelexFree.
Anyone who thinks the FTC haven’t meticulously collected evidence (including data from Vemma themselves) is kidding themselves.
Business operations are currently suspended as per a TRO the FTC requested and were granted. Temporarily shutdown for now, but shut down nonetheless.
Claiming orders are being taken and processed is a flat out lie. To do so would put Vemma in direct violation of the court-ordered temporary restraining order in place.
There’s nothing funny about not having retail sales and operating a product-based pyramid scheme.
That video is awesome!
Wow! The VULTURES are out already:
Tom McMurrain said:
The phrase “Going from the pot to the frying pan” comes to mind here. 🙂
I saw a bunch of Kyani reps kick things off (I think it was on the Vemma Facebook page to begin with). Pretty pisspoor form.
do you expect any other?
Ken Stewart is just mouthing off.
He’s not qualified to comment on ANY lawsuit and should leave it to the professionals, i.e. lawyers. Any comment he makes will come back as eggs on his own face. And it will be followed by rocks if he puts foot further in mouth.
The FTC filed a Complaint (which is a lawsuit) and simultaneously requested a Temporary Restraining Order (TRO,) a Preliminary Injunction and a Permanent Injunction.
A Court can grant a TRO, upon a showing of reasonable cause and WITHOUT any notice to the defendants and that is probably what has happened, the TRO being a fait accompli before the defendants knew about or were served the Complaint and Summons.
The defendants can not undo the TRO but they will have an opportunity to contest its conversion into a Preliminary Injunction (which stays in effect until the case is dismissed, or their is a ruling which results in a Final Injunction.
If my memory serves, the Complaint requested an asset freeze, so if the TRO was granted, which it almost certainly was, then Vemma’s assets are frozen and will remain so unless the defendants can convince the judge that the FTC’s allegations are completely without merit and the case should be dismissed. That is not likely to happen.
What is likely to happen is that the TRO will be replaced by a Preliminary Injunction that restricts or freezes the company assets until there is a ruling on FTC’s Complaint, at which time a Final or Permanent Injunction may be imposed.
I do not believe a Receiver has been appointed here. its too early in the process and there is no indication that the owners have voluntarily relinquished control in favor of a Receiver. There has not even been a hearing on the Preliminary Injunction yet.
A TRO restrains certain activities, and may freeze assets but it does not permit the FTC or the Court to impose a Receivership. The defendant/company must have an opportunity to tell their side of the story before such action can be permitted.
i don’t know what that is, but its funny as hell.
@Hoss – from the FTC website
Temporary Receiver in this case.
ftc.gov/news-events/press-releases/2015/08/ftc-acts-halt-vemma-alleged-pyramid-scheme
i suppose the temporary receiver will continue after the preliminary injunction is granted on the 3rd september.
once the receiver starts swinging his bat, alex morton will feel the pain.
the reasons given by the court in granting the TRO:
“Because the FTC is likely to succeed on the merits of its Complaint”!!
kevin thompson has posted a video sharing his views on the vemma shocker, in which he takes swipes at the DSA and the FTC, no holds barred.
he is pretty sure that vemma can get the TRO reversed, and be allowed by the court to continue it’s business while the lawsuit gets sorted out. he believes if the TRO is reversed it will give vemma a strong footing to negotiate a settlement with the FTC.
he says the DSA has been asleep at the wheel letting the industry slip into bad behavior and no self regulation which has caused the FTC to step in.
he says the FTC likes drama [!!], and stepped in to take the credit, as the YPR movement of alex morton was fading out.
he says the FTC complaint does not say that autoship is illegal, but mainly complains about emphasis on autoship which leads to bad distributor behavior, ie recruiting.
he says the FTC lawsuit does not mention the price, efficacy or science of vemma products which are excellent. further the lawsuit does not mention the consumer protection offered by the vemma buy back policy.
he says autoship is not mandatory in vemma.
good job, kevin thompson, lets see what the court says on the 3rd september.
i think the question of mandatory/non mandatory autoship is merely wordsmithing for psuedo compliance. the real test is to see how many vemma affiliates are on autoship.
facebook.com/mlmlegal/videos/916907578380121/?pnref=story
Press Release from the DSA:
dsa.org/news/press-releases/individual-press-release/statement-of-joseph-n.-mariano-on-today-s-federal-trade-commission-action
on may 14, 2015 ,vemma reported that it had received BBB accreditation with the highest ratings:
a check at the BBB site today shows:
so, when did BBB change its mind? or is it a sharp reaction to the FTC case, in order to maintain its own public image?
whoa, the DSA has shafted vemma, and is on hands off mode:
really DSA, aren’t you guys supposed to be enforcing your ‘code of ethics’ BEFORE the FTC steps in?
and then you throw your own to the pack to be eaten?
mariano should resign.
I can’t explain that. Maybe it has something to do with the Plaintiff being a Federal agency and acting for the “good of the public.”
I had not seen this information. I had only read the Complaint.
Well, the faithful are crying the “evil” government is over-stepping its bounds, and the usual complaints and conspiracy theories en masse.
I think Dubli and Lyoness/Lyconet are next up on the chopping block. Just my opinion.
Right after ASD, Zeek, Profitable Sunrise, Telexfree, and a whole host of other companies/programs that got shut down by the feds had the vultures circling trying to get the members into their Ponzi de Jour or quasi-MLM program. Happens every time.
There are so many lies told by the promoters of these MLM programs that they should have civil charges filed against them. If they did and got convicted, this would clean up the MLM industry in a heartbeat or end MLM.
TINA [truth in advertising] has a article out explaining the long and short of the FTC case against vemma and the characters involved.
truthinadvertising.org/ftcs-legal-action-against-vemma/
Have some questions. With everything frozen.
What about the employees? Shipping clerks, secretaries, whoever else. Are they on unpaid leave or do they still show up and get paid.
If now out of work can they file for unemployment?
Are management even allowed to show up – what about any business decisions that need to be made. Does the receiver now make them?
What if the TRO , as Keven Thompson suggests, is overturned?
Will the company still be liable for any fees and penalties for late payments to banks and vendors?
Can the receiver, now in charge, make deals and agreements that are binding on the company?
Employee wages will be dealt with if a Receiver is put in place. On the 3rd they will know if they’re out of a job or not.
As I understand it the Receiver is now running the show. If a preliminary injunction is granted on the 3rd, expect Vemma to pretty much go into liquidation mode.
My guess is not until the third, when the appointment will either become permanent or revoked.
Thanks for the answers. I can see a real mess if the TRO is reversed.
A 1 week unplanned shutdown combined with the ill will created by having your company seized by the government can be quite damaging – and expensive to a company.
Of course if college students are still being recruited they may love it and flock to the Vemma banner. Spin doctors will have a field day.
Think the FTC is betting big on being right.
this a Big Move by the FTC. they must have planned really well and must be sure of the outcome, to file this case.
i don’t think the TRO will be revoked.
it is possible that the hearing scheduled for september 3rd be postponed, if vemma asks for more time to prepare.
this FTC move came out of thin air and vemma may need time to prepare its defense. after all, its ‘do or die’ at the preliminary injunction hearing.
the vemma website now carries a prominent message on its homepage about the FTC complaint and the temporary suspension of the companies activities by the temporary receiver.
Here’s a Youtube link to that video. Same video, alternative source, “easier to share or embed”.
youtube.com/watch?v=pxuPCFOHP0U
KT is a bit over-optimistic in his predictions, but Anjali has already covered the details.
… and the lawsuit does not mention how many millionaires Vemma has created either. 🙂
ted nuyten and probably kevin thompson too will attend the vemma preliminary injunction hearing and maybe give everybody a live report!!
better keep your word ted nuyten.
question: is kevin thompson on vemma’s defense team??
We had live feeds into the TelexFree bankruptcy hearing, until the Judge put a stop to it. They can’t legally broadcast the hearing.
What they can do is liveblog it, if Thompson requests the same lawyer privilege Jordan Maglich requested in the TelexFree case (costs $$$).
Kevin Thompson stated that he’s “officially been retained to serve in a limited capacity in this case. Lead counsel is based out of Arizona.”
That hearing was a marathon hearing.
It worked because you had many readers who had followed the case closely, and the hearing was a major event with many important decisions to be made.
* transfer to Massachusetts
* violation of stay order (TelexFree’s main defense)
* U.S. Trustee’s intervention
The Vemma case doesn’t have similar elements (e.g. multiple agencies against multiple reorganizing experts).
* TelexFree’s bankruptcy hearing was a “major battle”, i.e. when TelexFree lost there it literally lost the whole case.
Another reason for why it worked was because Jordan Maglich already had planned to cover it live on ponzitracker.com. He was looking for a solution too, i.e. he needed more readers “to make it worth the efforts of covering it live”.
With Thompson now representing Vemma I doubt he’s going to spend time liveblogging it.
Nyuten isn’t going to be able to periscope the proceedings, he’ll have the same issues the guys trying to stream the TelexFree proceedings did.
I suspect we’ll get an announcement about the injunction pretty soon after proceedings, but will have to wait for docs to be published for finer details about the decision.
Not lead, but they need his MLM name recognition out there.
yeah, i think thompsons inclusion in the vemma team is to comfort the vemma affilates and keep them together.
People are saying that Darik Alexander, another Vemma high level, joined Morton over at Jeunesse a while back.
What convenient timing…
There appears to be a whole lot of comforting of Vemma affiliates going on coming from Troy Dooly, Eric Worre, Ray Higdon, Kevin Thompson, etc.
What part of the TRO don’t they understand? “Because the FTC is likely to succeed on the merits of its Complaint” pretty much says it all.
I don’t think he’s interested in liveblogging either. Kevin Thompson prefer video reports after the hearing, but only in certain cases of high interest (e.g. BurnLounge).
Jordan Maglich was probably interested in trying the solution “to see if it was worth it / to have that method available for later use / other reasons”. I don’t think he plans to make a career out of liveblogging court hearings 8 hours per day. 🙂
Jordan Maglich also offered access to audio recordings. That may be a better solution than liveblogging — less work intensive than live solutions.
I’m rather new to this discussion, but here’s one thing interesting I found, straight out of their website:
That, to me, is a big siren alert going off.
Hi all. Hope everyone is well. Hate to burst Vemma’s bubble, but they can’t live-broadcast the hearing.
The District of Arizona (along with most other federal courthouses) prohibits communication or transmitting devices in its courtrooms.
For TelexFree, I was able to use a service called Court Call, and specifically indicated I was covering the hearing in a journalistic capacity.
Use and availability of Court Call varies from jurisdiction to jurisdiction, I’m sure. But it was not cheap – I believe it was $20-$30 an hour, if not more.
The bankruptcy court later posted audio recordings on its website due to the extreme interest.
Thanks for the clarification Jordan.
I maintain that Ted Nyuten won’t be broadcasting (can private citizens get access to “court call”?). Thompson is a lawyer representing the defendants and I doubt he’ll be covering the case via Court Call either.
The solution worked great, but it will require a “high interest case” like TelexFree to be worth it — from my point of view.
Vemma is a high interest case of a different type. I’m pretty sure THEY can cover it. I don’t know exactly who THEY are, but I’m pretty sure they can cover it. 🙂
They have to.
Dooly is a “Johnny Come Lately” type condemner
Kevin Thompson tried to be proactive a while back, when he sponsored legislation (2009ish?) at state level for more transparency to head off this sort of FTC inquiry and almost got blacklisted by the DSA. He’d learned his lesson.
The rest are MLM high flyers who is worried about the entire industry without understanding the implications, on how badly Vemma reflects on the entire MLM industry, esp. because Vemma is a part of DSA.
With FHTM they just rolled FHTM under the bus and pretend “we had nothing to do with that”. They can’t do it with Vemma, so they HAVE to go with platitudes and soothsayings instead.
@K Chang
I agree.
It’s hard to respect the motivational speakers (cheerleaders) knowing they are or were involved in illegal pyramid schemes themselves.
guess who’s not on the ‘comforters’ list? guess who’s promptly jumped ship Again the moment trouble hit?
anthony powell.
powell who ran a lead selling business in herbalife, and was one of the top distributors of herbalife, jumped ship to vemma when trouble hit herbalife.
on the 26th august, 2015, when vemmas temporary shut down was being announced by the FTC, powell had launched his new project already:
question: if powell is so ruthlessly selfish and has zero loyalty to the companies where he makes his bazillion dollars, how can he be expected to stand with the people who join him? how can he be trusted? why will people put their livelihoods in his hands?
powell looks and behaves like the oily shyster that he is!
in a fresh article published today, troy dooly [the epic adventurer] has taken offence to the arguments of the FTC lead attorney Angeleque P. Linville.
dooly feels linville is misguiding the court, by mentioning that italy found vemma to be a pyramid, and stopped it’s operations there. his objection is based on his view that european laws are different from US laws.
what he has forgotten to mention in his article is that linville’s vemma declaration, in support of the TRO, clearly points out that italy found vemma sales to be tied to joining packages and autoship sales, with no emphasis on sale of products to consumers.
this is the chief grouse of the US FTC too, and makes the mention of the vemma, italian court finding completely relevant.
mr dooly should know that product based pyramid schemes are illegal in the USA as much as europe.
linville declaration:
scribd.com/doc/277617643/Linville-Declaration-FTC-vs-Vemma-TRO
message from vemma chief benson keith boreyko:
the legal team will have to show that the majority of vemma affiliates were NOT on autoship.
the legal team will have to show that vemma had healthy retail.
it’s over to the 15th september, with a Day Long Hearing [wow!]
A quote from Boreyko on: businessforhome.org/2014/08/vemma-ceo-responds-to-accusations-in-the-media/
While it doesn’t shock me, it saddens me to see someone like Boreyko, or any CEO, stoop so low as to reveal what should be private information, a la, what an affiliate invested and made, publicly, and likely without Mr. Carlucci’s permission.
that story doesn’t even make sense.
How does this compare to or affect Kyani’s current growth?
Are the majority of commissions paid out in Kyani paid out on affiliate autoship orders?
If so… you know what’s coming next.
Not sure where to put this but it seems Bob Proctor has passed away, and it was really quiet.
Thanks. I noted Proctor’s passing.
Seeing as I didn’t have any personal interaction or ever cover anything he did on here, didn’t think to cover it.