Tempe-based multi-level marketing company Vemma Nutrition duped impressionable college-aged salespeople out of millions of dollars by paying them little or nothing, according to a Federal Trade Commission lawsuit that has led to severe restrictions on the business.
The FTC filed suit against Vemma after receiving complaints that the company recruited heavily on college campuses with promises of hefty paychecks and lavish lifestyles. And this month, a temporary injunction was issued by a U.S. District Court judge who said it is likely that the firm will be found at trial to have operated an illegal pyramid scheme.
Under the court order, Vemma is prohibited from paying commissions, recruiting new members, offering rewards for purchases, and tying sales to multi-level marketing.
“The evidence before the court leaves little doubt that the FTC will ultimately succeed on the merits in demonstrating that Vemma [was] operating a pyramid scheme,” U.S. District Court Judge John Tuchi
wrote in granting the court order.
Vemma employed about 100 people and up to 400,000 active, independent salespeople worldwide who sold nutritional supplements, vitamin drinks, weight-loss products, and the popular energy drink Verve.
Todd Searle attended Arizona State University in 2013 and witnessed the company become a pervasive presence on campus.
For Searle and hundreds of thousands of other young people in the United States and and abroad who sold Vemma products and recruited others to do the same, Vemma was more than a company — it was the promise of independent wealth.
Searle says Vemma marketing materials were filled with photos of prosperous young people with luxury cars, jets, and yachts. These Vemma "affiliates" referred to themselves as members of the Young People Revolution, using the hashtag #YPR to build excitement for potential recruits.
Searle invested an initial $500, and then purchased $150 worth of products monthly for six months. He says he never recouped most of that money.
Once he joined the company's ranks, it became clear that energy drinks were secondary to recruitment of more salespeople, Searle says.
“Sure their energy drinks were part of it — kids like caffeine. But it was mostly: 'Do you want to try and get rich?'” Searle says. “'Do you want to make more money? Come to this meeting with me.' It wasn’t pushing the product at all.”
It’s exactly this distinction that creates the fine line between a legal multi-level market
ing company and a pyramid scheme, says Bonnie Patten, executive director of Truth in Advertising, which spent the last several years investigating Vemma.
“The main difference between an MLM and a pyramid scheme is all about recruitment,” Patten says. “In a pyramid scheme, the primary purpose is recruitment. In a legitimate MLM, the primary purpose is to sell goods or service to ultimate users.”
In the company's pitch, potential Vemma salespeople were told that they could earn as much as $50,000 a week. Some students were encouraged to drop out of college to sell for the company full time. However, more than 97 percent of Vemma’s affiliates earned $12,000 a year or less, according to the FTC’s suit.
“As a general matter, the vast majority lost money,” Patten says. “You don’t hear a lot of complaints about all these people losing tremendous amounts money. They are embarrassed, they’re ashamed, they think it is their own fault.”
Today, there are an estimated 600 to 800 multilevel marketing companies in the United States, with roughly 15 million distributors and $150 billion in annual revenue. Over the past 40 years, the FTC has investigated 25 such businesses as pyramid schemes.
Though it is notoriously difficult to get the FTC to launch an investigation into an MLM, Vemma’s targeting of young people may have infuriated a very vocal group — parents.
“Here you had all these parents who were outside the organization seeing what was happening to their kids . . . Their children were losing money. Their children were dropping out of school,” Patten says. “Parents were terrified.”
Vemma chief executive officer B.K. Boreyko did not respond to New Times' request for comment. But in a declaration to the court, he maintained that the company's primary goal was “wellness, energy, and weight management.”
"I am particularly disappointed and aggrieved . . . that the FTC managed to obtain extraordinary relief against me personally and against the company without allowing us an opportunity to be heard in response to the pyramid claims,” Boreyko wrote.
As for Searle, he got out of Vemma in 2014 when he saw the demand drop for its products as they became overexposed on campus. He said he wasn’t surprised that the FTC finally took steps to shut down Vemma.
“When I first started, I thought it would become huge," he says of the firm. "But [later] I could see the writing on the wall."
Keep Phoenix New Times Free... Since we started Phoenix New Times, it has been defined as the free, independent voice of Phoenix, and we would like to keep it that way. Offering our readers free access to incisive coverage of local news, food and culture. Producing stories on everything from political scandals to the hottest new bands, with gutsy reporting, stylish writing, and staffers who've won everything from the Society of Professional Journalists' Sigma Delta Chi feature-writing award to the Casey Medal for Meritorious Journalism. But with local journalism's existence under siege and advertising revenue setbacks having a larger impact, it is important now more than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" membership program, allowing us to keep covering Phoenix with no paywalls.