A year after being called a likely pyramid scheme by a federal judge in Arizona, Vemma Nutrition Company has agreed to halt certain business practices FTC alleged made the company a pyramid scheme. However, Vemma CEO Benson K. Boreyko, also a defendant in the FTC complaint, claimed victory because Vemma admitted no wrongdoing and was not declared a pyramid scheme.
Under the settlement, the Tempe-Arizona-based multi-level marketing (MLM) health and wellness beverage company will no longer be able to pay its distributors unless the so-called “affiliates” gain most of their revenue from actual sales to real customers, not just other downstream affiliate distributors.
“Unfortunately, extravagant income claims and compensation plans that reward recruiting over sales continue to plague the MLM industry,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a press release.
FTC filed a complaint in August 2015, seeking an injunction against Vemma for certain marketing practices, including selling so-called affiliate packs for US$600, which the agency alleged made the business a pyramid scheme. In its complaint, FTC explained Vemma told affiliates they would win bonuses if they bought the company’s mangosteen-based products and if they recruited others to do the same. This, the agency argued, established a pyramid scheme that compensated participants primarily for recruiting others rather than for selling product to legitimate customers.
The company will also be prohibited from making deceptive income claims and unsubstantiated health claims.
“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,” Rich said.
In September 2015, U.S. District Judge John J. Tuchi in Phoenix preliminarily enjoined Vemma from such marketing practices and assigned a monitor to ensure Vemma complied with the order. He said he was confident FTC would prevail and noted Vemma made little to no effort to monitor real product sales to actual customers.
In addition to Boreyko, the original Vemma complaint also named top Vemma affiliate Tom Alkazin and his wife Bethany Alkazin. A separate order imposes similar business prohibition on the Alkazins as well as a $6.7 million judgment partially suspend upon their payment of $1.2 million and forfeiture of certain real estate and business assets, including 1.61 acres of land in San Marcos and all assets of San Marcos Properties Limited Partnership.
