Regulators Halt Alleged Energy Drink Pyramid Scheme That Targeted College Students, Other Young Adults

Federal regulators continued their crackdown on supposedly deceptive dietary supplement companies this week by temporarily shutting down an Arizona-based company that allegedly ran a pyramid scheme promising college students they would rake in the big bucks by selling energy drinks.

The Federal Trade Commission announced today that a federal court granted its request to temporarily halt Vemma Nutrition Company’s alleged pyramid scheme that brought in more than $200 million annually in 2013 and 2014 based on promises that college students and other young adults could become rich by peddling their products.

According to the FTC’s complaint [PDF], Vemma – a multilevel marketing company that claims to use its members, called “affiliates,” to promote its health and wellness drinks – focused on recruitment of these affiliates, rather than retail sales of its products, to generate income.

The FTC claims Vemma employees visited college campuses and told students that selling the beverages was an alternative to a regular 9-to-5 job.

The company’s websites, social media, and marketing materials show seemingly prosperous young people with luxury cars, jets, and yachts, and falsely claim that Vemma affiliates can earn substantial incomes – as much as $50,000 per week.

“The defendants allegedly claim that affiliates’ earning potential is limited only by their own efforts and that Vemma provides young adults an opportunity to bypass college and student loan debt,” the complaint states.

Those interested in selling the products were required to pay an initial investment of $600 for products and business tools and $150 in Vemma products had to be bought each month to receive bonuses. The affiliates were then encouraged to enroll others to also sell the products.

The defendants provided affiliates little guidance for selling products, but instead taught them to give away products as samples when recruiting new participants.

Vemma offers no meaningful discounts or incentives to encourage retail sales, according to the complaint.

So instead of making the promised riches, the FTC found that the vast majority of consumers actually lost money while hawking the company’s products.

“Consumer losses are inevitable because Vemma is an illegal pyramid scheme that rewards affiliates for recruiting participants rather than for selling products,” the FTC alleges.

In addition to allegedly running an illegal pyramid scheme, the defendants are charged with making false earnings claims, failing to disclose that Vemma’s structure ensures that most people who join will not earn substantial income, and furnishing affiliates with false and misleading materials to recruit others.

The FTC complaint names Vemma Nutrition Company, Vemma International Holdings Inc., Tom Alkazin, Bethany Alkazin and Benson K. Boreyko as defendants.

Boreyko is under a 1999 court order after settling with the FTC for his involvement with New Vision International Inc. – another multilevel marketing company that sold nutritional supplements.

FTC Acts to Halt Vemma as Alleged Pyramid Scheme [Federal Trade Commission]