Vemma Nutrition shut down for running pyramid scheme

Admin   |   27 August, 2015   |   720   |   3980

Federal Trade Commission says nutritional beverage company engaged in ‘deceptive and unlawful acts and practices’

The Federal Trade Commission (FTC) on Wednesday announced that Vemma Nutrition — a multilevel marketing firm that relies on independent salespeople, called affiliates, to buy and sell its energy drinks, diet shakes and supplements — has been shut down for engaging in “deceptive and unlawful acts and practices.” The announcement followed an Aug. 17 suit filed against the company, in which the FTC accused it of operating as an illegal pyramid scheme.

In October, Al Jazeera exposed the company’s predatory practices and the lucrative lifestyle it afforded CEO Benson Keith Boreyko in a series about multilevel marketing firms. In the stories about Vemma, Al Jazeera detailed how the company rebranded itself to appeal to unsuspecting teens with its Young People Revolution, or YPR, movement. The stories unearthed information about his former company New Vision, which was also shut down by the FTC because of its claims that its supplements could cure attention deficit disorder. In 2011 he changed the name of New Vision International Holdings Inc. to Vemma International Holdings Inc.

“[The Al Jazeera report] was the only in-depth, extensive coverage of Vemma by mainstream media, which lent weight and force to the FTC’s investigation,” said Robert Fitzpatrick, who runs the watchdog website Pyramid Scheme Alert and was quoted in another story in the series about the psychology behind multilevel marketing firms. 

Vemma was closed down for, among other things, using “interrelated companies that commingle funds and have common ownership, officers, directors and office locations,” according to the FTC lawsuit. This interconnecting company structure was initially documented by Al Jazeera in the 2014 exposé, which showed that Boreyko and his family incorporated dozens of interlocking companies that share addresses and list only Boreyko and his siblings as the principal shareholders, directors and officers.

Al Jazeera America found that CEO Benson Keith Boreyko made roughly$12 million in 2013 – 7,500 times more than three-quarters ofVemma affiliates.

The FTC investigation was aided by the offices of the attorney general in Arizona, South Carolina and Michigan as well the police department in Tempe, Arizona, where Vemma is headquartered.

The company’s business model relied on recruiting affiliates, the FTC found, instead of selling merchandise to consumers. Rather than help affiliates sell their products, Vemma encouraged them “to give away the products as samples and to concentrate their efforts on recruiting new participants,” the commission said.

In 2013 and 2014, Vemma had more than $200 million in revenue. Meanwhile, 93 percent of the company’s affiliates earned less than $6,200, despite company boasts to young recruits that they could earn that much in a matter of months. “The majority of affiliates lose money,” states the lawsuit. “Vemma's compensation plan includes many confusing and convoluted rules and requirements.” Al Jazeera America found that Boreyko earned roughly $12 million in 2013 — 7,500 times more than three-quarters of Vemma affiliates.

That the lawsuit names some of Vemma’s top recruiters as defendants is a huge warning sign to others, said Fitzpatrick. “You won’t just lose your money,” he said. “You might get prosecuted.”

Pending trial, the assets of the company’s CEO and top distributors have been frozen. “The temporary restraining order prohibits the defendants and those in concert with them from, among other things, engaging in any marketing program that pays compensation for recruiting new members, encourages or incentivizes members to purchase goods or services to be eligible for bonuses or commissions, is a pyramid scheme,” said FTC Director Dana Brown.

However, a former YPR affiliate pointed out that some of Vemma’s top recruiters, like Alex Morton, have migrated to new multilevel marketing companies such as Jeunesse Global, taking their faithful former recruits with them. “That was more or less the writing on the wall,” said the former affiliate.

There are 1,400 multilevel marketing companies operating in the United States, according to Fitzpatrick. He warned that Vemma’s fate is an omen for the industry “that any business of this type can be put under scrutiny and shut down.”