Vemma Called ‘Pyramid Scheme’ By FTC; Direct Selling Association’s Early Response Muted

UPDATED 6:44 P.M. EDT U.S.A. The Federal Trade Commission voted unanimously (5-0) to charge Vemma Nutrition Co.  with operating a pyramid scheme. So much for the absurd proposition that Republicans on the commission are like hapless “Wheel of Fortune” contestants who couldn’t form the term “pyramid scheme” if spotted 12 of the 13 letters that comprise it.

Want to put yourself on the FTC radar? Develop a scheme. Target college students. Plant the seed that a higher education in an academic setting is a waste of time and perhaps even a conspiracy to keep students and their parents chained to college-loan debt. By all means make sure your CEO and most visible figure (Benson K. “B.K.” Boreyko) has a history such as this.

The PP Blog encourages readers to pay careful attention to the wording of today’s FTC announcement about the Vemma action.  Make no mistake: the agency clearly is calling Vemma a “multilevel marketing company” that is operating a “pyramid scheme.” That’s important because it speaks directly to an absurd claim from practiced hucksters that no MLM can operate as a pyramid scheme because the two terms — MLM and pyramid scheme — are mutually exclusive.

Put another way: Not all MLM is legitimate.

Meanwhile, the FTC is seeking a permanent injunction that would prohibit Vemma from continuing to operate a pyramid scheme. As of Aug. 21, the company is in receivership. A federal judge has ordered an asset freeze.

Vemma is a member of the Direct Selling Association. DSA, notably, did not come out today with word daggers aimed at the heart of the FTC. Such a muted response by the DSA will hardly be a source of comfort to Vemma’s cheerleaders in the field.

Here is DSA’s initial response in its entirety (italics added):

“Earlier today, the Federal Trade Commission (FTC) announced action against Vemma Nutrition Company alleging violations of federal law, which, if true, would also constitute violations of DSA’s Code of Ethics. 

“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.

“The Code’s independent administrator will be alerted to the action and will review the FTC’s allegations against Vemma.  If they are proven to have merit, the administrator may pursue punitive measures to ensure that appropriate standards of consumer protection are enforced. 

“The allegations against Vemma have yet to be proven, and the company is entitled to due process of law.  Any consumers or salespeople who have concerns regarding any DSA member, including Vemma,  should contact the Code Administrator.”

Says the FTC:

“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. The defendants provide affiliates little guidance for selling products, but instead teach 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.

“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.”