Washington, DC - Marketers of Vemma juice drinks went to college campuses and elsewhere to recruit “affiliates” for their “opportunity.” Affiliates were encouraged to recruit more affiliates, who in turn would recruit more affiliates, who in turn . . . . You get the picture: Lather, rinse, repeat. Touting their “game plan to get you earning $500, $5,000, or even $50,000 per month!” they described what they were selling as a “full-time income with part-time effort.” In a complaint just filed in an Arizona federal court, the FTC calls it something else: an illegal pyramid.
The defendants claim to market health, energy, and weight loss beverages. But the FTC says a big chunk of their business is selling young people on the benefits of shelling out $500-$600 for an “Affiliate Pack” of Vemma products, print materials, videos, and logo merchandise. In fact, according to the FTC, the company restricts affiliates from selling Vemma products at a lot of the likely places – like business offices, flea markets, swap meets, home shopping channels, and online stores or auction sites, including eBay and Craigslist.
Curious about how purported pyramids are pitched? According to the complaint, here’s how Vemma CEO (and defendant) B.K. Boreyko described the system at a company event:
Here’s our simple plan. Number one, buy an affiliate pack.
Number two, find three people that see what you see in this business in your first week. Remember, you got that 24-second shot clock in a basketball game. That’s what brings excitement. We got this thing called a frenzy bonus and a double frenzy bonus, that all that does is bring excitement to your business here. So, find three people that see what you see in this business. You might find three or four or five customers, but find three affiliates and get them to buy an affiliate pack. And guess what, you’re going to make approximately 700 bucks. Wow, you got your money back for your [ ] business, you’re fired up, and you got three great people that have raised their hands saying I want significant change financially in my life. (Cheers and applause.)
Third thing, third thing: Get car qualified. If I’m going to give you 400 bucks a month to go get yourself a car so you can feel good, and here’s what’s great about the car is it actually helps your business because people look at you and they go, you’re driving that? What, maybe I should sit down with you . . . So you get yourself in a car and then you help five people get in a car, you’re making $50,000 approximately in residual income. And that is our plan. That’s it. (Cheers and applause.)
Count I of the complaint charges that Vemma’s compensation program is based primarily on recruiting new participants, not on the retail sale of the drinks. Thus, the FTC alleges the defendants are peddling a pyramid scheme, in violation of Section 5 of the FTC Act.
Count II challenges as false the defendants’ claim that participants are likely to make substantial income. According to Count III, they failed to disclose – or failed to adequately disclose – that Vemma’s structure pretty much ensures that most people who sign up won’t earn big bucks.
Count IV focuses on the promotional materials the defendants gave their affiliates to recruit more affiliates. Because they included claims the FTC says are false and misleading, the complaint charges that the defendants provided others with the “means and instrumentalities” to violate the law.
The case was just filed, but if your clients sell business opportunities, the allegations offer insights into the kind of tactics likely to draw law enforcement attention.
If you’re an entrepreneur thinking about sinking some money into a biz opp, investigate thoroughly, consult resources from the FTC to help you spot the telltale signs of deception, and seek input from successful business people among your family and friends – in other words, not someone trying to sell you something.