A federal court has temporarily halted operations at Vemma Nutrition Co., according to a statement released Wednesday by the U.S. Federal Trade Commission (FTC). The decision was handed down after the FTC filed a complaint alleging the Arizona-based company is an unlawful pyramid scheme.
The complaint states that Vemma depends on recruitment of members or “affiliates” rather than retail sales of its products to generate income. Consumer losses are inevitable, the FTC alleges, because the company rewards affiliates for recruiting participants rather than providing meaningful sales training and incentives to sell products.
“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,” Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, said in a statement. “We are also alleging that Vemma is an illegal pyramid scheme.”
According to the complaint, which names Vemma and its holding company, as well as Founder and CEO BK Boreyko and top affiliate Tom Alkazin, Vemma has targeted young adults with marketing that depicts young people with luxury cars, jets, and yachts, alongside claims that affiliates can earn as much as $50,000 per week. The FTC also points to Vemma’s alleged claims that an affiliate’s earning potential is limited only by his or her effort, and that the business provides an opportunity for young adults to bypass college expenses.
On top of the pyramid scheme allegations, the FTC charged Vemma with making false earnings claims, failing to disclose that most affiliates will not earn substantial income through its business structure, and supplying false and misleading materials aimed at recruiting additional affiliates.
The FTC carried out its investigation with the cooperation of the Attorney General Offices of Arizona, South Carolina, and Michigan, the Tempe Police Department, and the nonprofit organization Truth in Advertising. FTC commissioners authorized the complaint for permanent injunction against Vemma in a 5-0 vote.
The Direct Selling Association, which counts Vemma as a member, on Wednesday issued a statement by DSA President Joseph Mariano addressing the allegations.
“Every member of our Association, including Vemma, is required to abide by our Code as a condition of membership. All companies which use the direct selling model must uphold the highest ethical business standards, including polices that protect consumers and members of the salesforce against unrealistic earnings, lifestyle and product claims,” said Mariano.
The independent administrator of the DSA’s Code of Ethics is launching its own review of Vemma and the FTC’s complaint against the company.
“The allegations against Vemma have yet to be proven, and the company is entitled to due process of law,” Mariano concluded. “Any consumers or salespeople who have concerns regarding any DSA member, including Vemma, should contact the Code Administrator.”