Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: Alleged pyramid scheme temporarily halted at FTC’s request, (Aug 27, 2015)

By Michael Menzhuber, J.D., LL.M.

A federal court, at the request of the FTC, has temporarily halted an alleged pyramid scheme, Vemma Nutrition Company, which lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job, the agency announced today. Vemma is a multilevel marketing company that claims to use its members, called “affiliates,” to promote its health and wellness drinks. The FTC seeks to stop the operation, which earned more than $200 million annually in 2013 and 2014 and has affected consumers throughout the United States and in more than 50 other countries, from continuing as an unlawful pyramid (FTC v. Vemma Nutrition Co., No. CV-15-01578-PHX-JJT).

According to the FTC’s complaint, the defendants claim affiliates can earn substantial income by enrolling others either as affiliates or as customers, but Vemma focuses on recruitment rather than retail sales of its products to generate this income. The defendants’ websites, social media, and marketing materials show seemingly prosperous young people with luxury cars, jets, and yachts, and falsely claim that affiliates can earn substantial incomes of up to $50,000 per week. The defendants also allegedly claim that affiliates’ earning potential is limited only by their own efforts and that Vemma provides young adults an opportunity to bypass college and student loan debt. Consumers are urged by Vemma to make an initial investment of $500-$600 for an “Affiliate Pack” of products and business tools, buy $150 in Vemma products each month to remain eligible for bonuses, and enroll others to do the same.

The FTC alleges that: (1) consumer losses are inevitable because Vemma is an illegal pyramid scheme that rewards affiliates for recruiting participants rather than for selling products; (2) the defendants provide affiliates little guidance for selling products, but instead teach them to give away products as samples when recruiting new participants; and (3) Vemma offers no meaningful discounts or incentives to encourage retail sales.

In addition to allegedly running an illegal pyramid scheme, the defendants are charged with making false earnings claims, failing to disclose that Vemma’s structure ensures that most people who join will not earn substantial income, and furnishing affiliates with false and misleading materials to recruit others.

The defendants are Vemma Nutrition Company, Vemma International Holdings Inc., Tom Alkazin, and Benson K. Boreyko, who is under a 1999 court order after settling with the FTC for his involvement with New Vision International Inc., a multilevel marketing company that sold nutritional supplements. Bethany Alkazin is named in the complaint as a relief defendant who profited from the scheme. On August 21, 2015, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver.

News: ConsumerProtection FederalTradeCommissionNews