FTC shuts down Vemma for being a $200 million pyramid scheme...

It brings me no joy to see this news, which was a surprise even to me... I expect action, but not this fast. 

But to summarize, Vemma's assets has been frozen and operation stopped based on temporary restraining order as issued by court based on lawsuit brought by the Federal Trade Commission.

Quoting AP / CNBC story:

The Federal Trade Commission said Wednesday that Vemma Nutrition has been temporarily shut down for operating a pyramid scheme that promised college students riches if they sold its nutritional drinks, but most ended up losing money. 

The consumer protection agency said that Vemma told recruits that they could make as much as $50,000 per week selling its nutritional beverage Vemma, energy drink Verge or protein shake Bod-e. An initial investment of $600 was paid for products and business tools and $150 in Vemma products had to be bought each month to receive bonuses. The FTC said Vemma provided little help on how to sell its products and instead rewarded them for recruiting more people. 

Vemma earned $200 million a year in 2013 and 2014, according to the FTC.
A representative from Vemma, which is based in Tempe, Arizona, did not immediately respond to a request for comment.

A full copy of the complaint and the 5 summary points are available at BehindMLM.com:

Count 1 – Vemma is an “illegal pyramid” scheme 

Defendants promote participation in Vemma, which has a compensation program based primarily on providing payments to participants for the recruitment of new participants, not on the retail sale of products or services. 

Defendants’ promotion of this type of scheme, often referred to as a pyramid scheme, constitutes a deceptive act or practice. 

Count 2 – Income Claims 

In numerous instances in connection with the advertising, marketing, promotion, offering for sale, or sale of the right to participate in the Vemma program, Defendants have represented … that consumers who become Vemma affiliates are likely to earn substantial income. 

In truth and fact … consumers who become Vemma affiliates are not likely to earn substantial income. 

Count 3 – Failure to Disclose 

In numerous instances … defendants have represented … that individuals have earned substantial income from participation in the Vemma program, and that any consumer who becomes a Vemma affiliate has the ability to earn substantial income. 

In numerous instances … Defendants have failed to disclose, or disclose adequately, that Vemma’s structure ensures that most consumers who become Vemma affiliates will not earn substantial income. 

This additional information would be material to consumers in deciding whether to participate in the Vemma program. 

Count 4 – Means and Instrumentalities 

By furnishing Vemma affiliates with promotional materials to be used in recruiting new participants that contain false and misleading representations, (Vemma) have provided the means and instrumentalities for the commission of deceptive acts and practices. 

Count 5 – Relief Defendant 

Relief Defendant Bethany Alkazin, has received … funds or other assets from (Vemma) that are traceable to funds obtained from (Vemma’s) customers through the deceptive acts or practices described herein. 

Relief Defendant will be unjustly enriched if she is not required to disgorge the funds or the value of the benefit she received as a result of (Vemma’s) deceptive acts or practices.

But what does this mean to you, the Vemma affiliate, other MLM participants, and so on? What will happen on the hearing on September 3rd?

Here's a few layman's speculations. Remember, I'm not a lawyer, and I have no insider information. (Lack of such, however, has not stopped various Vemma "leaders" from issuing feelings, such as "Vemma doesn't deserve to be shut down" "It's just a complaint, not a lawsuit" "The lawsuit is a joke", "FTC bit off more than it can chew" and so on)

But let's be realistic here... If you want people to lie to you and tell you everything will be alright, go read whatever verbiage your upline put out. You're here for some real analysis.




Analyzing the 5 Charges levied against Vemma

Of the five counts, the first and fourth are probably the most damaging, particularly the first: that Vemma is a pyramid scheme.

As I've explained many times on this blog, often with excerpts from various Vemma affiliate websites, and widely documented via popular media such as various campus newspapers around the nation, even Rolling Stones magazine, Vemma has minimal retail. Which college student can afford to pay $3 (or more) for a can of Verve (and that's price directly from Vemma, no markup) when one can get Red Bull for as low as $1.60 off Amazon with free shipping? It's pretty obvious that most people who signed up are out to sign up more people JUST LIKE themselves... they are buying Verve simply because they have to in order to earn from recruiting people. There is no other logical explanation. No college kid with a brain will willingly pay twice the price for a no-name energy drink unless he thinks it'll benefit him (or her) in OTHER ways, such as put money in his own pocket by recruiting others (who will go on to recruit others... like the Borg, or pyramid scheme).

The fourth charge is providing misleading material to enable the affiliates to engage in further fraud. That just means the material needs to scrapped (and rewritten).

But one can't change the business model without scrapping the entire company.

The second and third charges are basically the same charge: bogus income claims with omission of relevant data that constituted fraud. These two can be easily fixed by writing better marketing materials (but then the affiliates will have a MUCH harder time signing up people if they have been told the whole truth, right?)

But everything revolves around the main charge: it's a pyramid scheme.

Does Vemma have any chance of resuming operations on September 3rd, 2015?

My personal opinion: slim to none. Why? FTC don't bluff. They must have massed ENOUGH evidence to nail Vemma and they would have high confidence of that before they went ahead and obtained the temporary restraining order. This case will likely drag on for YEARS, much like Burnlounge.  It's unlikely the TRO can be lifted, as it is impossible to separate "retail" from self-consumption by the affiliates.

But what does this mean for the rest of the MLM "industry"? There's a major paradigm shift coming.

I had written before that DSA, and MLM industry had lost its soul years ago... when it claimed that affiliates have the RIGHT to self-consume as much as they want. It's illogical, and stupid. The question that nobody wants to answer, but lies at the heart of the problem, is a simple one: WHY is the affiliate buying the product? Is it because s/he needs to "qualify" for commission? Or is it because s/he genuinely likes the product?

However, "guessing" at the intent is a complex set of questions as people often lie, either to themselves or to others.

Majority of DSA's major players have business model similar to Vemma. If Vemma goes, the entire MLM industry will go.

IMHO, Vemma will likely ask for a settlement and pay a huge fine in order to constitute some sort of reforms, much like Amway did back in 1979 with the FTC, by creating the Amway Safeguard rules which all subsequent MLM was to have adopted.

But Vemma that we knew? That's done.