FTC labels Vemma Nutrition Company a pyramid scheme

Posted 20 December 2016

Arizona-based Vemma Nutrition Company, a multilevel marketer that sells nutritional drinks, will be prohibited under a federal court order from paying distributors unless their sales are to real customers rather than other distributors.
[Vemma agrees to ban on pyramid scheme practices to settle FTC charges: Health drinks marketer touted unlimited income potential, but most people lost money. FTC news release Dec 15, 2016]

The order also bars Vemma from making deceptive income claims and unsubstantiated health claims. Last year, the FTC brought a federal court action against the company, CEO Benson K. Boreyko, and top affiliate Tom Alkazin. The complaint charged that the defendants (a) encouraged participants to buy products to qualify for bonuses and to recruit others to do the same and (b) the result was a pyramid scheme because it compensated participants mainly for recruiting others rather than for retail sales based on legitimate consumer demand for the products. Vemma took in more than $200 million in both 2013 and 2014. The settlement order imposes a $238 million judgement that will be partially suspended upon payment of $470,136 and surrender of certain real estate and business assets. A separate order against Alkazin imposes a judgment of more than $6.7 million, which will be partially suspended upon payment of more than $1.2 million and surrender of certain real estate and business assets.

The case is additionally noteworthy because the FTC labeled Vemma’s operation a pyramid scheme, which it avoided doing in its recent settlement with Herbalife, even though Herbalife’s operation and compensation structure were similar.

Source: Consumer Health Digest #16-46

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