Back in August of 2015, the Federal Trade Commission (FTC) acted against the Vemma Nutrition Company, alleging that it was luring college students and other young people with promises of high compensation. In reality, the agency said the operation was a pyramid scheme.
“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization. We are also alleging that Vemma is an illegal pyramid scheme,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, at the time.
Now, over a year later, the FTC is closing the book on the case with a settlement that will bar Vemma from operating any venture involving a pyramid, Ponzi, or chain marketing scheme, including the use of misleading statements to entice prospective “affiliates.”
“Unfortunately, extravagant income claims and compensation plans that reward recruiting over sales continue to plague the [multi-level marketing] industry,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “MLM companies must ensure that their promotional materials aren’t misleading, and that their compensation programs focus on selling goods or services to customers who really want them, not on recruiting more distributors.”
Pervasive pyramid scheme
According to the FTC’s original complaint, Vemma encouraged consumers to buy and sell its health drink products. Those who chose to buy more product from the company, or could recruit others to sell the product, were eligible for bonuses.
Unfortunately, those who fell into the trap quickly found that they were rewarded much more for recruiting others rather than selling products themselves. This pyramid scheme eventually ramped up and expanded throughout the U.S. and to several other countries, making Vemma a cool $200 million in annual revenue in 2013 and 2014.
Under the FTC agreement, Vemma companies and CEO Benson K. Boreyko are banned from operating any business that:
- Pays any compensation for recruiting new participants;
- Ties a participant’s compensation or an ability to be compensated to that participant’s purchases; or
- Pays a participant compensation related to sales in a pay period unless the majority of the revenue generated during that period, by the participant and others the participant has recruited, comes from sales to non-participants.
Additionally, the injunction order stipulates that Vemma pay $238 million, which will be partially suspended after payment of $470,136 and the forfeiture of certain real estate and business assets. The company will also have to produce compliance reports that will be submitted to an independent auditor.
Two company affiliates, Tom Alkazin and Bethany Alkazin, will also be forced to pay $6.7 million, which will be partially suspended if they pay $1.2 million and surrender specific real estate and business assets.