Are Vemma and BK Boreyko broke?
Back in November we covered BK Boreyko wanting to inject $500,000 into Vemma.
The money was to be raised via the selling off of a 25% stake in AZPACK Properties, LLC, a real-estate investment company.
As part of the preliminary injunction currently in place, Boreyko is prohibited from selling off any real-estate assets.
Boreyko wasn’t selling real-estate per-say, but his stake in AZPACK Properties, LLC was tied to investment in real-estate properties.
Citing an “abundance of caution” and anticipation of an objection by the FTC, who refused to ‘stipulate to the transaction’, Boreyko filed a motion seeking approval from the court.
We’ve now learnt that the FTC does indeed oppose Boreyko’s proposal, with the finer details of their objection suggesting a potentially dire financial situation.
Should the FTC win their case against Vemma, they claim to be concerned about Vemma and Boreyko’s ‘ability to satisfy a judgment for equitable monetary relief‘.
This concern is rooted in ‘the financial condition of Boreyko, Vemma International Holdings, Inc., and Vemma Nutrition Company‘.
As part of their filed opposition to Boreyko’s sale proposal, the FTC has included
statements about Defendants’ financial condition refers to the contents of the disclosure statements and (has) attached portions of the financial disclosures as exhibits.
Vemma and Boreyko’s attorney’s objected to this information being made public, on the grounds they ‘they revealed personal and confidential financial information‘.
Specifically, the issue appears to be with Exhibits B & C of the FTC’s opposition, which purportedly contain ‘excerpts of the confidential financial disclosures statements‘.
Consequently, the FTC have requested their opposition be filed under seal.
The potential abuse of confidential personal and business information presents both a compelling reason and good cause to seal the financial records obtained by the FTC from Defendants.
The FTC has filed in the public record contemporaneously with this Motion a version of the Response that redacts the discussion of confidential and sensitive personal and business financial information.
The public has little interest in obtaining the specific financial information in light of the public redacted filing, and any such interest is outweighed by Defendants’ asserted interest in protecting such information, which is not otherwise publicly available and which could be damaging if revealed in the public record.
The two conflicting statements for me are the information as being of little public interest, weighed against the acknowledged potentially damaging nature of it.
We already know Vemma’s finances are in the toilet, so my guess would be the disclosures relate primarily to Boreyko.
The revelation that Boreyko was rolling in money certainly wouldn’t be “damaging”, but at the same time would beg the question as to why he wants to sell assets off to raise funds for Vemma.
What otherwise is so damaging about Vemma and Boreyko’s financial disclosures that their attorney’s don’t want the public to know about?
As to all of this being a lack of interest to the public itself, a reminder that Vemma’s affiliates are members of that same public.
If Boreyko and Vemma’s financial status is such that they could pack it in any moment, don’t those still actively promoting the business and marketing Vemma’s products have a right to know?
The FTC’s opposition to Boreyko’s proposed sale of assets was filed on December 11th, pending a decision on whether it should be sealed or not.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of the FTC’s December 11th “Motion to Seal Document” filing.
Update 15th December 2015 – Truth in Advertising have made public a copy of the FTC’s opposition, which lays out the FTC’s objection in detail.
The Court entered a much more limited asset freeze as to Defendant Benson K. Boreyko, prohibiting only transfers of “any real estate asset that is owned or controlled by, or held for the benefit of, Defendant Boreyko, directly or indirectly.”
Defendant Boreyko now seeks approval from the Court to liquidate one of his most valuable assets.
The filing also provides insight into why Vemma and Boreyko’s attorneys don’t want the public reading their financial disclosures.
The FTC is seeking equitable monetary relief equal to the losses sustained by all Vemma Affiliates since 2012. According to the Receiver’s calculations, Vemma generated $ 618 million dollars in revenue between 2012 and 2015.
Approximately 86% of sales in 2013 and 71% of sales in 2014 are estimated to have come from consumers who expressed an interest in Vemma’s money-making opportunity (“Affiliates”).
The vast majority of U.S. affiliates did not earn sufficient commissions to offset their purchases.
Accordingly, equitable monetary relief is likely to reach into the tens of millions or even hundreds of millions of dollars.
Now contrast that potential liability of hundreds of millions of dollars with this:
Despite obtaining more than $19 million in income from Vemma’s operations since 2010, Defendant Boreyko has disclosed net assets of less than $2 million dollars, not including the interests in AZPACK Properties and Vemma.
Where the other seventeen million dollars plus went over the last five years, or what it was spent on, who knows.
It also appears that Mr. Boreyko may have already liquidated one of his most valuable assets: his interest in AP&P.
As noted above, his membership in AP&P was withdrawn on November 12, 2015. The reasons or terms for his withdrawal are
unknown, but it is likely that he sold or transferred his interest.
AP&P is Arizona Packaging and Production, ‘the bottling company that receives, packs, and ships Vemma’s products‘.
AP&P’s website claims that the company is “one of the fastest-growing beverage manufacturing companies in the United States.”
It also claims that the company is about to increase its capacity by adding a second canning line.
The Receiver determined that AP&P had total assets of $22,611,939 and net equity of $14,673,653 in 2013.
If AP&P is truly the highly successful, rapidly expanding business it claims to be, Mr. Boreyko’s interest had significant value.
Unless Mr. Boreyko obtained fair market compensation for his shares and is preserving those funds, his ability to satisfy a judgment may already be greatly diminished.
Basically it sounds as if they’re worried Boreyko might have already “fire saled” his stake in AP&P, so as to preserve assets:
AP&P is owned by Vemma’s in-house counsel Peter Reilly, Vemma’s Chief Science Officer Yibing Wang, Defendant Boreyko’s sisters Lauren and Karen, other Vemma executives, and Canning Solutions USA, LP.
This naturally has raised concerns about the details behind Boreyko’s proposed AZPACK Properties, LLC stake sale:
The terms of the transaction are also troubling. Defendant Boreyko proposes to sell his 25% interest in AZPACK Properties to two of his employees and a third person.
The tax appraisals for the two properties total $12,535,300. Mr. Boreyko has not provided the Court with any information about the value of AZPACK Properties or its real estate holdings (such as information about liens or other liabilities), so it is difficult to determine whether the sales price represents fair market value.
If Mr. Boreyko is being paid substantially less than his interest is worth, it raises a concern that he is intentionally transferring value to his employees in lieu of preserving it for consumers or is receiving some kind of consideration or benefit now or in the future that is not being disclosed.
In either case, the transfer of a major asset for significantly less than market value would greatly impede the Court’s ability to grant effective monetary relief.
I think it’s pretty suss Boreyko abruptly dumped his stake in AP&P, with whatever is going on with AZPACK likely to be equally as shifty.
With respect to Vemma’s current financials:
Vemma International Holdings, Inc. disclosed approximately $21.6 million in worldwide assets (including Vemma Nutrition Company’s total assets of approximately $19 million) in its July 2015 financial disclosure to the FTC.
The company’s current financial condition is unknown, given the effects of the TRO and PI on its operations.
The Court noted in its Order that Vemma was experiencing serious operating losses prior to entry of the TRO (see Order, at footnote 4).
Vemma even requested permission to file bankruptcy as part of its objections to the TRO.
However, even if Vemma were able to maintain or improve its financial condition, its ability to satisfy a monetary judgment of the magnitude the FTC will likely seek is in serious doubt.
And so the FTC have requested the court deny Boreyko’s proposal.
With potential liabilities of hundreds of millions of dollars and only $42.6 million dollars currently between Vemma and Boreyko, why the FTC are trying to preserve whatever they can, with respect to Vemma being permitted to hemorrhage funds by staying open, is understandable.
Whether they succeed or not is another matter.
Update 16th January 2016 – Equating the sale of Boreyko’s share in AZPACK to the selling of real-estate, today Judge Tuchi denied Boreyko’s proposed sale.