FTC sues Vemma Nutrition over alleged pyramid scheme

A federal court in Arizona has temporarily shut down Vemma Nutrition Company, a multilevel marketer of energy drinks that the government described as an “unlawful pyramid."

FTC filed suit accusing Vemma of exploiting college students and other young adults by promising that they could earn riches without working a traditional 9-to-5 gig. While Vemma earned more than US$200 million annually in 2013 and 2014, most of its members or so-called affiliates lost money, according to FTC, which is responsible for cracking down on deceptive business practices.

“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization," said Jessica Rich, director of FTC’s Bureau of Consumer Protection, in a press release. “We are also alleging that Vemma is an illegal pyramid scheme."

Vemma claimed affiliates could make substantial income by enrolling other individuals as affiliates or customers, but the company is focused on recruitment rather than retail sales of its health and wellness drinks to generate the income, according to FTC’s complaint.

Consumers are encouraged to make an initial investment of between $500 and $600 for products and business tools, purchase $150 in Vemma products each month to remain eligible for bonuses, and enroll others to do the same thing, according to the agency.

The Tempe, Arizona-based company did not immediately respond Thursday to a request for comment.

In an Aug. 21 order, a federal judge found “good cause" to believe the defendants are operating an illegal pyramid scheme in violation of Section 5(a) of the FTC Act. The judge granted FTC’s request for a temporary restraining order, froze Vemma’s assets and appointed a temporary receiver. The receiver has temporarily suspended Vemma’s operations until a preliminary injunction hearing is concluded, the company noted on its website.

FTC’s complaint was filed against Vemma Nutrition Company and Vemma International Holdings, Inc. as well as Vemma’s CEO, Benson K. Boreyko. Tom Alkazin, who promoted Vemma’s business activities, and his wife, Bethany Alkazin, also were named as defendants.

Tom and Bethany Alkazin first met the Boreyko family in 1980, according to the website, My Roadmap to Success. “On a professional level, we have seen the Leadership, business savvy and marketing tools in Vemma grow to a point where they rival some of the greatest companies in the world - both in and outside our industry," the husband-and-wife duo declare on the website. Natural Products INSIDER was unable to immediately reach them through the website for comment.

Like other multilevel marketing companies, few of Vemma’s affiliates earn enough income to enjoy a posh lifestyle of yachts, fancy automobiles and world travel. In 2013, more than 93 percent of affiliates earned less than $6,169, while less than 0.62 percent earned $92,181 or more, according to the FTC’s complaint.

Still, FTC said, Vemma and its representatives promote the company as a ticket to the good life.

“So, in fact, we’ve got people making $1,000, $1,500, $2,000 in their very first month," Boreyko reportedly said in a presentation. “So let’s get you in that new BMW."