Vemma

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Vemma Nutrition Company
Private
IndustryDietary supplements
Predecessor
  • New Vision International
FoundedTempe, Arizona (2004 (2004))
FounderBenson K. Boreyko
Headquarters,
United States
Area served
Worldwide
Key people
Benson K. Boreyko (CEO)
Karen Boreyko (co-founder)
Lauren Boreyko (co-founder)
Brad Wayment (COO)
Yibing Wang (Chief Scientific Officer)
Adrian Berry (Chief Medical Officer)
ProductsVemma, Verve, Bod·ē, NEXT
Websitevemma.com

Coordinates: 33°38′38″N 111°53′57″W / 33.643787°N 111.899148°W / 33.643787; -111.899148

Vemma (/ˈvmə/) Nutrition Company was a privately held multi-level marketing[1][2][3] company that sold dietary supplements.[4] The company was shut down in 2015 by the FTC for engaging in deceptive practices and pyramid scheming.[5]

The company, based in Tempe, Arizona, was founded in 2004 by Benson K., Lauren, and Karen Boreyko.[6][7] In 2013, the company reported US$221 million in revenue.[8] Most distributors were in their twenties. The company had frequently been accused of being a pyramid scheme by U.S. media, business analysts, and former distributors, and was fined by the Italian government.[9][10][8][11][12]

History[edit]

Starting in the 1990s, the Boreyko family have been incorporating dozens of companies under the family's control sharing the same address. In 1994, the family founded New Vision International, a nutritional supplement company. The family also owns a limited liability corporation which has purchased commercial real estate, including property rented back to other Boreyko-controlled companies. Vemma Nutrition Company was incorporated in 2004, and by 2011, New Vision had been entirely folded into Vemma.[13]

Vemma sold its products through its website, and also through independent distributors (referred to internally as affiliates)[14] who could potentially earn a share of the revenue from their own product sales as well as those from the network of distributors they build.[15]

In 2013, Vemma started describing itself as an affiliate marketing company,[16] although Benson K. Boreyko has said that the compensation plan is the same.[17][18] Vemma is a member of the U.S. Direct Selling Association.[19]

In April 2014, the company announced that it was modifying its compensation plan by removing sign-up fees and the $150 minimum monthly product purchase to qualify for commission, among other things. Boreyko stated that the changes were intended to avoid the fallout from the Federal Trade Commission that has happened to other multi-level marketing companies, such as Herbalife.[20] An analysis by advertising watchdog group Truth in Advertising has described this as a red herring, as the company has never required sign-up fees. The group's report also says that minimum monthly purchases are still required for full eligibility, which Boreyko has said is false.[17][21]

In August 2015, the U.S. Federal Trade Commission filed a lawsuit against Vemma, accusing the company of operating an illegal pyramid scheme.[9][10] The company was placed under an injunction which restricts certain marketing activity and compensation methods, and a monitor was appointed by the court to assure compliance with these restrictions.[22][23][24] In December 2016, Vemma reached a $238 million settlement with the FTC, which also banned the company, its CEO, and top distributors from recruitment-focused business ventures, deceptive income claims, and unsubstantiated health claims.[25]

Business model[edit]

Vemma was a multi-level marketing (MLM) company.[1][2][3]

Use of college-aged distributors[edit]

Vemma heavily focused on recruiting college-aged people as distributors,[26][27] which has brought attention from consumer organizations,[2][3] and complaints from parents.[28] As of July 2014, the Federal Trade Commission (FTC) received 170 complaints about Vemma and some colleges have issued warnings to their students about the company.[8]

William Keep, the dean of business at The College of New Jersey and an expert in pyramid schemes has said that the company shows indicators of being a pyramid scheme.[8][11] Keep became aware of Vemma when he found out that a student had been stockpiling unsold energy drinks in his dorm room.[29] Keep and other analysts, as well as former distributors have claimed the company relies on recruiting as its main means of generating revenue.[8][11]

In May 2015, the magazine Stern reported that German and Austrian consumer protection organizations warned that Vemma was exploiting naive customers and unemployed youths who were lured with unrealistic profit expectations into a distribution system that was losing them money.[30]

Products[edit]

Vemma had four product lines, all based on their core Vemma nutritional formulation: Vemma, Verve, Bod-e and Next.[31] The name "Vemma" is an acronym representing: vitamins, essential minerals, mangosteen, aloe.[32] Several of the company's products contain caffeine, with some drinks in the Verve line being similar in caffeine content to energy drinks.[33][34] The "Verve" line was one of the official drinks (along with Gatorade) of the Phoenix Suns, which also acted as a distributor.[35]

Government investigations[edit]

New Vision International[edit]

Vemma was preceded by New Vision International, a Tempe, Arizona-based dietary supplement company founded by Benson Boreyko and his family in 1994. In 1999, New Vision International was ordered by the FTC to stop making claims that one of its products ("God's Recipe") was a cure or treatment for attention deficit hyperactivity disorder (ADD/ADHD).[36] New Vision was accused in the FTC complaint of "unfair or deceptive acts or practices, and the making of false advertisements" about the health benefits of some of their products. In the Decision & Order,[37] the FTC ordered New Vision to stop making various claims; specifically they were ordered (1) to stop saying that one of their product recipes was effective in treating ADD or ADHD, or useful as an alternative to Ritalin; (2) that they not indicate or imply that any testimonial or endorsement of any of their products is typical or ordinary; and (3), that they make no claims about safety or effectiveness in reducing the risk of developing any disease or disorder; and that they communicate all this to their team members in mailings.[38] According to the FTC, that was the first time they had investigated a case involving ADD/ADHD. New Vision settled with the FTC, but did not admit to any wrongdoing.[39]

Italian pyramid scheme accusations[edit]

In March 2014, the Italian consumer protection agency, Autorità Garante della Concorrenza e del Mercato (AGCM), fined Vemma Italia (Vemma's Italian branch) €100,000. The AGCM found that Vemma was acting as a pyramid scheme by encouraging recruitment as the primary means of profit, rather than product sales.[12] Vemma issued a statement that it does not believe it was in violation of the law, and that the company has made a number of changes in response to the government's concerns.[40] An analysis by Truth in Advertising determined that Vemma's new compensation plan is not significantly different from the one that the Italian regulators found to be a pyramid scheme.[17]

Investigations in Austria and Switzerland[edit]

In April 2015 Truth in Advertising announced that two countries were pursuing legal action against Vemma. The State Secretariat for Economic Affairs (SECO) of Switzerland's Federal Department of Economic Affairs reported Vemma to a prosecutor to pursue criminal charges for running a pyramid scheme. The charges were filed due to multiple complaints, the nature of which are not public until a judgement has been reached.[41][42]

In Austria, the Vorarlberg Chamber of Labor’s Consumer Protection Division said that it would pursue criminal proceedings against the company for being a pyramid scheme. In August 2014, the agency had issued a statement warning consumers against becoming involved with the company.[41][43]

Shutdown by FTC[edit]

On August 21, 2015, the U.S. Federal Trade Commission filed a lawsuit against Vemma, freezing the company's assets and seeking injunctive relief for consumer redress.[23] The FTC alleges that Vemma is a pyramid scheme; that Vemma has misrepresented participants' earning potential; and that the Boreyko family has inappropriately incorporated dozens of companies with the same staff, facilities, and commingled funding.[44][45] The restraining order was set to expire fourteen days later unless extended.[46] The company itself, CEO Benson Boreyko, and distributor Tom Alkazin were named as defendants.[24]

On September 18, 2015, U.S. District Court Judge John Tuchi barred Vemma from resuming normal operations and appointed a monitor to oversee its business practices, saying there was little doubt it was operating as a pyramid scheme. The ruling prohibited Vemma from paying commissions, recruiting new members, offering rewards for purchases and tying sales to multi-level marketing. In his ruling, Tuchi characterized Vemma's marketing material as deceptive and misleading, and noted that "some Vemma material also contains representations the Court would characterize as ridiculous—bordering on absurd—such that a listener could not reasonably be expected to believe them."[47]

Penalty[edit]

In a September 2016 judgement, Vemma reached a settlement agreement with the FTC, wherein Vemma Nutrition Company, Vemma's CEO Benson Boreyko, as well as Tom Alkazin and Alkazin's wife, Bethany, agreed to a permanent injunction and monetary penalties.[48]

Vemma Nutrition Company was ordered to pay a USD $238 million fine as a company, restructure its compensation plan, and forfeit certain company assets.[49][50] The Alkazins, on the other hand, were fined USD $6.7 million as individuals.

As part of the settlement the defendants were banned "from involvement in any pyramid, Ponzi, or chain marketing schemes."[5]

References[edit]

  1. ^ a b Hannan, Caleb (30 October 2014). "Selling the Bro Dream: Are Frat Boys Peddling Vemma Suckers?". Rolling Stone. Retrieved 25 November 2014.
  2. ^ a b c Celarier, Michelle (29 September 2013). "Verve energy drink turning college students into sales force". New York Post. Retrieved 11 January 2014.
  3. ^ a b c "Nine Things You Should Know About Vemma". Truth in Advertising.org. 4 October 2013. Retrieved 11 January 2014.
  4. ^ "Vemma, Building A Solid Nutritional Foundation IS Vital To Your Overall Health". Vemma. Retrieved 2014-11-14.
  5. ^ a b "Vemma Agrees to Ban on Pyramid Scheme Practices to Settle FTC Charges". FTC.gov. Retrieved 21 December 2016.
  6. ^ Babener, Jeffrey. "New Vision USA, Inc". MLM Legal. Retrieved 2014-01-26.
  7. ^ "Executive Bios". Vemma. May 2013. Retrieved 2013-08-01.
  8. ^ a b c d e Rossen, Jeff; Billington, Jovanna (31 July 2014). "Controversial energy drink company targets students as sellers". Today News. NBC News. Retrieved 31 July 2014.
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  11. ^ a b c "Pyramid Scheme Expert Issues Warning About Vemma". Truth in Advertising (organization). 17 September 2013. Retrieved 31 July 2014.
  12. ^ a b "Vendite piramidali, Antitrust multa 3 società per 500mila euro". La Stampa (in Italian). 10 March 2014. Archived from the original on 18 October 2014. Retrieved 13 April 2014.
  13. ^ Rena Murray, Laura (14 October 2014). "Behind Boreyko's Millions". al Jazeera. Retrieved 29 October 2014.
  14. ^ "Verve Energy Drink". Verve. Retrieved 24 March 2014.
  15. ^ "Vemma Compensation Plan" (PDF). Vemma. Retrieved 18 January 2014.
  16. ^ "Vemma Makes the Move To Affiliate Marketing". Pitch Engine (press release). January 6, 2014. Archived from the original on January 10, 2014. Retrieved November 14, 2014.
  17. ^ a b c truthinadvertising.org (24 April 2014). "Vemma Deemed Pyramid Scheme in Italy".
  18. ^ Nuyten, Ted (13 November 2013). "Vemma 2.0 Announced – Brand Partners Will Be Affiliates". Business for Home.org. Retrieved 18 January 2014.
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  30. ^ "Verbraucherschützer warnen vor Einstieg bei Vemma". Stern TV (in German). 1 May 2015. Archived from the original on 1 May 2015. Retrieved 1 May 2015.
  31. ^ "Products". Vemma. July 2013. Retrieved 2013-08-01.
  32. ^ "Verve Energy Drink". Archived from the original on 26 August 2013. Retrieved 2 August 2013.
  33. ^ "Caffeine in Verve Energy Drink". Caffeine Informer. Retrieved 20 January 2014.
  34. ^ "Vemma Verve Nutritional Facts". Brian Willet. May 25, 2011. Retrieved 2014-01-11.
  35. ^ Lombardo, John (11 February 2008). "Phoenix Suns deal with Verve puts team in distributor role". Phoenix Business Journal. Street & Smith's SportsBusiness Journal. Retrieved 18 January 2014.
  36. ^ "DOCKET NO. C-3856 DECISION AND ORDER". United States Federal Trade Commission. Retrieved 27 April 2014.
  37. ^ United States of America, Federal Trade Commission, Robert Pitofsky, Chairman (March 1999). "New Vision International Inc. - Decision and Order No. C-3856". Ftc.gov. Retrieved 2013-06-21.CS1 maint: multiple names: authors list (link)
  38. ^ US Federal Trade Commission, Donald S. Clark, Secretary (March 1999). "New Vision International Inc. - Complaint No. C-3856". Ftc.gov. Retrieved 2013-06-21.CS1 maint: multiple names: authors list (link)
  39. ^ Whitlock, Chuck (13 January 2003). Mediscams. St. Martin's Griffin. pp. 146–147. ISBN 9780312306021.
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  41. ^ a b "Vemma Facing Judicial Inquiries in Europe". Truth in Advertising (organization). 30 April 2015. Retrieved 16 May 2015.
  42. ^ Madeleine Stäheli Toualbia (13 August 2015). "Strafanzeige gegen Energy-Drink Vertreiber Vemma". Limmattaler Zeitung (in German). Retrieved 16 August 2015.
  43. ^ "Vorarlberg Chamber of Labor Warns Against the Sale and Distribution of "Vemma" Energy Drink" (PDF). Vorarlberg Chamber of Labor's Consumer Protection Division. 20 August 2014. Retrieved 16 May 2015. Translated from German by Truth in Advertising
  44. ^ Gara, Antoine (26 August 2015). "Federal Trade Commission Calls Vemma A Pyramid Scheme That Preys On Young Adults". Forbes. Retrieved 27 August 2015.
  45. ^ Rena Murray, Laura (26 August 2015). "Vemma Nutrition shut down for running pyramid scheme". al Jazeera. Retrieved 27 August 2015.
  46. ^ Addady, Michal (27 August 2015). "This energy drink company was shut down for operating a pyramid scheme". Fortune. Retrieved 30 August 2015.
  47. ^ Anglen, Robert (September 18, 2015). "Judge forbids Vemma to resume normal operations; company to be supervised by federal monitor". The Arizona Republic. Retrieved September 18, 2015.
  48. ^ "VEMMA REACHES SETTLEMENT AGREEMENT IN FTC PYRAMID CASE". TruthInAdvertising.org. Retrieved 3 October 2016.
  49. ^ Maynard, Christopher. "FTC agreement puts a permanent stop to the Vemma pyramid scheme". Consumer Affairs. Retrieved 21 December 2016.
  50. ^ Woods, Alden. "Tempe's Vemma settles with FTC; fined $238 million, admits no wrongdoing". AZ Central. The Arizona Republic. Retrieved 21 December 2016.

External links[edit]