Yesterday the Federal Trace Commission effectively shut down operations for Verve energy drink seller, Vemma. The alleged violation? Running a so-called pyramid scheme, which is illegal in the United States as well as many other countries.
But it turns out the definition of “pyramid scheme” might be harder to prove than most people thought. Take a look at the allegations brought against Vemma, and you’ll see for yourself how thin the pyramid scheme accusation might look from some perspectives.
Here’s the case brought by the FTC
Ten days ago, plaintiff Federal Trace Commission brought before the United States District Court for the District of Arizona a 5-count complaint against Vemma (Vemma is based in Arizona).
The document stated a complaint for “permanent injunction and other equitable relief” against the following defendants:
- Vemma Nutrition Company
- Vemma International Holdings Inc
- Benson K. Boreyko a.k.a. B.K. Boreyko both as an individual and as an officer of Vemma Nutrition Company and Vemma International Holdings INc
- Tom Alkazin
- Bethany Alkazin, relief defendant
The FTC is asking for big bucks: refund of monies paid, disgorgement of ill-gotten monies, and other relief for their violations. Here are the 5 charges:
- Count 1. “Illegal Pyramid”. This is based on the fact that Vemma’s compensation plan allegedly emphasizes recruiting over product sales.
- Count 2. “Income Claims”. It’s claimed that Vemma both directly and indirectly implied that their affiliates are likely to earn huge incomes. The FTC has deemed this not to be true, sating that “consumers who became Vemma affiliates are not likely to earn substantial income.”
- Count 3. “Failure to Disclose”. The FTC claims that Vemma failed to disclose that their compensation plan is deliberately set up so that most affiliates don’t earn substantial income.
- Count 4. “Means and Instrumentalities”. This simply means that Vemma is guilty (allegedly) of distributing promotional materials, making it possible for their affiliates to be deceptive in their recruiting activities. In other words, they provided the means.
- Count 5. “Relief Defendant”. This names Bethany Alkazin, wife of Tom, as the person who received assets and funds from customers. And since the funds were received as a result of (alleged) deceptive practices, she should “disgorge” those funds.
There’s some pretty subjective language in this case!
As you might be able to tell from reading the summary of the FTC vs Vemma case, some of it is highly debatable.
“It’s crazy. Two of my cousins are in it, and that’s how they feed their families, Melissa Stark, a manager at Tucson Exterminating, said.
“Kinda messed up.”
For instance, look at Count #1: the compensation plan emphasizes recruiting over product sales. Who’s to say? Are network marketing companies not allowed to help their affiliates grow their teams? After all, direct selling companies with small advertising budgets rely on their associates/affiliates to spread the word about their products. In many cases customers become recruits. There’s a very fine line there and if you scrutinize the legal document it’s not exactly spelled out how they came to the conclusion that Vemma cares more about recruitment than product sales.
I mean, there’s a fine line. Communities, such as My Advertising Pays Facebook Pages, have teamed up to make sure people are being compliant and not inviting the FTC to scrutinize.
And that’s only the beginning. Each of the counts against Vemma are equally vague and subjective.
But I’ll let Count #1 stand on its own as the prime reason this lawsuit seems like bunk to me.