Recently, the Federal Trade Commission announced it settled with the nutritional network marketing company Vemma, its CEO Benson K. Boreyko and top distributors Tom Alkazin and his wife Bethany Alkazin. The FTC did not release details, but the subjects agreed to a permanent injunction and a monetary settlement.
Vemma remains in business, and the terms are subject to approval by the FTC Commission.
The FTC Investigates Vemma
The case began in August 2015 when the FTC used a court order to effectively close down the company. They acted on a complaint made by Truth in Advertising (TINA) that Vemma operated an illegal pyramid scheme because its business model used deceptive advertising to promise wealth through recruiting rather than focusing on the retail sales of Vemma products. This was particularly true of its Young People Revolution (YPR) program which targeted college students with energy drink products.
Since then, it has operated as supervised by a court-appointed monitor, using a different compensation structure that reward distributors for making retail sales. Reportedly that has resulted in heavy net profit losses, discontinued product lines and other signs of financial problems. They even sold off furniture from the company’s headquarters. They were operating in 50 countries, but they shut down their operations outside the United States.
Many of Vemma’s previous distributors have moved on to other companies, taking their downlines with them.
FTC Complaints About Vemma Similar to HerbaLife
The FTC’s allegations against Vemma closely mirror its charges against HerbaLife in that recent settlement, though HerbaLife is a much older and larger company.
The federal agency is focusing on the issue of retail sales. Ostensibly, the goal of a direct sales company is to sell as many of its products to as many people as possible. The role of direct sales representatives is, first and foremost, to sell the company’s products. However, in at least some alleged cases, the main buyers of the products are distributors who buy only to qualify for payments earned by their downlines.
Nobody in the industry yet knows just how the Vemma and HerbaLife settlements will affect them.
According to the FTC, Income Claims are Deceptive
The FTC alleges illegal pyramid schemes recruit distributors with unrealistic promises about how much money they will make. These recruits also realize they will not get the promised wealth through selling products to retail customers. They may do that, but the high levels of income come from recruiting a large downline.
The CEO Has Been Selling Off Assets
Boreyko has been selling off a lot of his assets, including various business interests, real estate and his home. The FTC put some of Vemma’s cash into an escrow account to repay consumers harmed by Vemma’s business activities. They estimate the amount for consumer could reach from tens to hundreds of millions of dollars.
The End of a Class Action Lawsuit is Good News for Vemma
Also in September, the plaintiff agreed to drop their class action lawsuit against Vemma and its Chief Scientific Officer Yibing Wang for unknown reasons. Horanzy filed the suit alleging the company incorrectly claimed its products were “doctor formulated” and alleged health benefits not supported by scientific research.
Barred from the Industry?
After leaving Vemma, Tom Alkazin joined Xango, another network marketing company. The FTC sought an injunction against this, alleging his involvement in a “Vemma-like” company poses economic harm to the consumer. Can they bar someone from acting as a distributor in any network marketing company? That’s an interesting question. Is that part of the terms of the injunction Alkazin just agreed to? Will the FTC also target Xango?
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