PatrickPretty.com

Category: Writing And Branding

  • PICTURE STORY: Attempted Candle-Snuffing

    The PP Blog writes about Ponzi schemes, pyramid schemes, securities fraud, cross-border scams (transnational crime) and issues pertaining to economic and national security.

    This Blog has been here for you since 2008, through 2,738 articles. The graphic below shows blocked malicious login attempts here over just the past small handful of months. Be it random bots or individuals attacking WordPress sites in general or the PP blog in specific, it’s easy enough to see it all as attempts to blow out a candle and make the world a darker place.

    Among the current leaders in attempted candle-snuffing here are IPs that appear to originate in Iraq, Pakistan, Ukraine, the Czech Republic and the Netherlands.

    We do wonder about such things, for the same reason we wonder about how ISIS has come into possession of so many Toyota trucks.

     

    mallogin10062015small

     

  • 2 Of 3 Wire-Fraud Counts Against DFRF’s Filho Pertain To YouTube Videos; Feds Busy With Search Warrants

    Daniel Filho in a YouTube pitch for DFRF.
    Daniel Filho in a YouTube pitch for DFRF.

    EDITOR’S NOTE: See related story yesterday.

    Pitching your HYIP fraud scheme on YouTube and deceiving your audience en masse? You might need a good attorney: Two of the three wire-fraud counts against alleged DFRF Enterprises operator Daniel Fernandes Rojo Filho pertain to YouTube pitches.

    One, allegedly uploaded on Oct. 20, 2014, is titled “Primeiro Evento DFRF.” The other, allegedly uploaded on May 9, 2015, is titled “DFRF Entrevista Stock Market Registration and Card With CEO Daniel Filho.” The third wire-fraud count involves “a wire transfer of $1.8 million from an Eastern Bank account ending in 7206, in the name of DFRF Enterprises, LLC, to a Citibank account ending in 4458, in the name of DFRF Enterprises, LLC,” according to an indictment returned Aug. 5.

    The video below has the same title of second one referenced in the indictment, but may be a copy:

    Some HYIP promoters may not know that making false claims on YouTube can result in criminal charges of wire fraud and potentially decades in prison. Filho is alleged to have been at the helm of a $23 million Ponzi- and pyramid scheme.

    From the Filho indictment.
    From the Filho indictment.

    Other records show criminal investigators have been busy executing search warrants — no fewer than six of them, including ones that suggest there could be criminal actions coming against one or more others.

    These warrants, according to docket entries, involve at least three mobile phones with numbers in the regions of Orlando and Tallahassee, Fla., and San Francisco. The Feds also have sought “GPS Location information” for a “Rolls Royce Ghost,” plus information on AOL and .com (dotcom) email addresses with DFRF links.

    The SEC, among other agencies, has been warning for years about scams spreading on YouTube and other social media. Here is one such warning.

    NOTE: Our thanks to the ASD Updates Blog.

  • BULLETIN: FTC Alleges Vemma’s Boreyko Violated Order After Judge Entered Preliminary Injunction

    breakingnews725BULLETIN: (3rd update 10:17 p.m. EDT U.S.A.) The Federal Trade Commission has gone to federal court in Arizona, alleging that Vemma CEO B.K. Boreyko violated a court order within 11 days after a federal judge imposed a preliminary injunction against the MLM company.

    Boreyko contacted certain affiliates on an unknown date with Vemma  “sales or marketing material” in violation of U.S. District Judge John J. Tuchi’s Sept. 18 order prohibiting such contact “without prior delivery to the FTC and a five (5) day period for the FTC to review the materials,” the agency argued.

    The violation occurred “a mere eleven days or less” after Tuchi’s Sept. 18 order, the FTC contended,

    “FTC staff recently located two Facebook postings by self-proclaimed Vemma Affiliates that include a message from Defendant Boreyko outlining details about Vemma’s new compensation plan . . . ,” the FTC argued. “The postings assert that Vemma has doubled its Auto-delivery discount from 10% to 20% and will be having a ‘Customer Thank You Sale,’ and attaches a revised price list of Vemma products . . . None of the information contained in the messages had been disclosed to the Monitor or the FTC before being disseminated.”

    Prior to today’s FTC argument, Vemma asserted (yesterday) that “it is clear that the FTC’s interpretation of what constitutes ‘new marketing or sales materials’ and the scope of its authority to dictate the content of communications by the Corporate Defendants under the Order extends far beyond the intended scope of the Order.  Furthermore, the persistent objections by the FTC to any communications that the Corporate Defendants propose or send is preventing Vemma from restarting operations as permitted by the Order and causing it irreparable harm.”

    NOTE: Our thanks to the ASD Updates Blog.

    More later . . .

  • BRIEF: DFRF’s Daniel Fernandes Rojo Filho Indicted; Feds Establish Victims’ Page

    Arrested and jailed in July, alleged Ponzi schemer Dniel Fernandes Rojo Filho earlier was tooling around in this gold Lamborghini. From a YouTube video. Highlights by PP Blog.
    Arrested and jailed in July, alleged Ponzi schemer Daniel Fernandes Rojo Filho earlier was tooling around in this gold Lamborghini. From a YouTube video. Highlights by PP Blog.

    Federal criminal prosecutors in the office of U.S. Attorney Carmen M. Ortiz of the District of Massachusetts have moved to stay discovery in the SEC’s civil case against DFRF Enterprises and alleged Ponzi- and pyramid-scheme operator Daniel Fernandes Rojo Filho.

    Initially charged in July 2015 via criminal complaint with wire fraud,  Filho was indicted by a grand jury on Aug. 5 and charged with three counts of wire fraud. Prosecutors have established a page here and are soliciting information from potential victims.

    In essence, criminal prosecutors are arguing that a stay is warranted as a means of assuring Filho does not use the relaxed discovery standards in the civil action to gain an unfair advantage in the criminal case.

    As of yesterday, Filho  did not have counsel in either the civil case or the criminal case, prosecutors said.

    They also thumb-nailed the criminal allegations. From prosecutors’ motion to intervene in the civil case (italics added):

    The investment pitch that Filho and others gave was, in sum and substance, as follows: By sending DFRF as little as $1,000—or as much as an individual wanted to invest—and becoming a DFRF “member,” potential investors could share in the large profits DFRF was generating through highly profitable gold-mining operations in Africa. Investor money would first be sent to a private bank in Switzerland, where the money would be “leveraged” or increased. DFRF would then invest “member” money in the gold-mining operations, resulting in even greater profits, of approximately, or up to, 15% per month. “Members’” investments would be 100% insured and they could get their principal investment returned anytime they wanted.

    According to the Indictment, many of the representations that Filho and others working at his direction made were false and misleading. For example, DFRF never transmitted any investor money to a private Swiss bank and never transmitted any investor money to gold-mining operations in Africa. The Indictment also alleges that Filho concealed his scheme in various ways, such as distributing debit cards, which “members” could purportedly use to withdraw funds, but which did not actually work. In Ponzi-scheme-like fashion, Filho also recycled money provided by some investors to pay other investors who were expecting their principal or returns thereon.

    Investigators have tied Filho to Sann Rodrigues, a figure in the TelexFree pyramid- and Ponzi case.

    Criminal prosecutors successfully intervened in the SEC’s civil case against TelexFree, believed to be one of the largest pyramid- and Ponzi schemes in U.S. history and to have gathered on the order of $1.8 billion through the firm’s MLM program.

    Though allegedly smaller than TelexFree with an estimated haul of about $23 million, DFRF allegedly targeted some of the same affinity groups targeted by TelexFree.

    NOTE: Our thanks to the ASD Updates Blog.

  • BULLETIN: SEC Calls U.S. Fine Investment Arts Inc. (USFIA) A ‘Worldwide Pyramid Scheme’ Tied To ‘Gemcoins’

    breakingnews725BULLETIN: (7th update 3:26 p.m. EDT U.S.A.) An SEC complaint against USFIA Inc. first reported on Tuesday by the Sierra Madre Tattler and BehindMLM.com now has become public, with the SEC calling the venture a “worldwide pyramid scheme” that gathered on the order of $32 million while claiming it was backed by amber mines and duping MLM participants into believing they’d score big through a purported cryptocurrency known as Gemcoins.

    Among the deceptions, according to the SEC, was that “the United States government has purchased 70% of the Gemcoins in circulation.”

    The SEC complaint follows by less than two months a complaint by the FTC that called Vemma, another MLM program, a pyramid scheme.

    “We allege that the defendants’ false claims of riches that investors would realize from USFIA’s amber mining activity never materialized,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing.”

    Here’s how the SEC described the action, which has led to asset freezes ordered by U.S. District Judge R. Gary Klausner of the Central District of California (italics added):

    This is an action brought to halt an ongoing securities offering fraud perpetrated by defendant Steve Chen, and various purported business entities that he operates and controls including defendants US Fine Investment Arts, Inc. (“USFIA”), Alliance Financial Group, Inc. (“AFG”), Amauction, Inc., Aborell Mgmt I, LLC, Aborell Advisors I, LLC, Aborell REIT II, LLC, Ahome Real Estate, LLC, Alliance NGN, Inc., Apollo REIT I, Inc. Apollo REIT II, LLC, Amkey, Inc., US China Consultation Association (“USCCA”), and Quail Ranch Golf Course, LLC. All of these entities are co-located in an office building owned by one of Chen’s business entities, Apollo REIT II, LLC, located in Arcadia, California.

    “In the face of growing investor unrest, and negative publicity in the press, Chen was interviewed by the Arcadia Police Department on September 15, 2015, regarding his operation of USFIA,” the SEC alleged. “Immediately after that interview, Chen attempted to wire $7.5 million out of USFIA’s bank account at Bank of America to a bank in the Peoples Republic of China. The wire was broken down into two parts, and $3.5 million was sent abroad, while the remainder is still held by the bank.”

    What about the amber? Some investors received some, and discovered it was “practically worthless,” the SEC alleged.

    USFIA sold unregistered securities in tiers and tied them to a recruitment scheme, the agency charged.

    “USFIA also represented that it had an extensive bonus and award system to encourage investors to recruit additional investors,” the SEC charged. “As set forth in its written investor ‘Compensation Program,’ investors could choose from five different ‘packages’ ranging in amounts of$1,000, $2,000, $5,000,$10,000 and $30,000. Depending on the type of package purchased by a downstream investor, the recommending investor would receive a 10% ‘Recommendation Award,’ and an additional ‘binary”‘reward based on sales of an investor’s downline investors. Investors would also receive a ‘Recurring Bonus’ generated by different ‘generations’ of downstream investors, ranging from 5% to 20%.”

    As was the alleged circumstance with Vemma, USFIA allegedly used showy automobiles to lure prospects. At USFIA, prospects also allegedly were lured with the prospect of owning a dream home on a golf course.

    Though USFIA initially claimed investors would score through an IPO, the IPO never materialized. Investors then were told they’d receive gemcoins, “some type of digital currency,” the SEC alleged. The gemcoins purportedly were backed by amber holdings in the Dominican Republic and Argentina.

    Chen and USFIA issued “outlandish statements” to dupe the masses, the SEC charged.

    Read the SEC complaint.

    See the Tattler’s coverage (Tuesday into Wednesday). See BehindMLM’s coverage.

  • Vemma Tells Court Consumers ‘Possibly’ Took Unreasonable Risk In Joining Its MLM Program, But Did So Knowingly

    “Consumers represented by the FTC knowingly and voluntarily, and possibly unreasonably, exposed themselves to any claimed losses with knowledge or appreciation of the risk involved.” — Part of Vemma’s Sept. 30 defense to pyramid-scheme and deceptive-advertising charges filed by the FTC in August

    vemmalogoConsumers can be forgiven if they view part of Vemma’s defense to the FTC’s pyramid-scheme and deceptive-advertising charges as a reason to avoid the MLM trade altogether.

    Not taking time and expenses into account, the odds of losing money in MLM already are high and the odds of making money are low. But Vemma now is asserting that while the risk affiliates took when joining its program may have been unreasonable, they took it knowingly.

    Meanwhile, Vemma is claiming that “[a]ny losses sustained by the FTC and/or the consumers it purports to represent were caused by the acts or omissions of third parties over whom the Corporate Defendants had no control or right to control.”

    Vemma did not identify the third parties. But if the firm was referring to its own affiliates, including those who hyped the program on college campuses and through constant banging on social media, consumers again can be forgiven for avoiding the trade.

    There is little reason for consumers to trust any MLM if one of the industry’s most famous companies is saying it cannot control affiliates, especially if it earlier benefited from the toxic tradecraft of those affiliates.

    Vemma’s defense is pretty much a blanket denial of the FTC’s material allegations contained in the complaint here.

    Vemma critic Truth In Advertising has a link to Vemma’s response to the FTC complaint. (See Vemma’s Answer to FTC’s Complaint for Permanent Injunction here.)

    A week before Vemma filed its response, one of its top affiliates took to the web and made crude remarks about the FTC while at once asserting that Vemma itself had a “douchebag element” in its affiliate ranks. This occurred just days after CEO B.K. Boreyko had made an appeal for people to pray for the company.

    The firm’s defense that affiliates may have knowingly made an unreasonable choice in joining would come later.

     

  • NEW STANDARD FOR MLM DISINGENUOUSNESS: Words DON’T Mean Things

    Sann Rodrigues
    Sann Rodrigues

    Has a globetrotting serial huckster facing a civil-contempt proceeding in the SEC’s pyramid- and Ponzi case against TelexFree, key executives and promoters set the new standard for vomitous MLM?

    Accused of repeatedly violating U.S. court orders, Brazil native, TelexFree promoter and two-time accused securities fraudster Sann Rodrigues now effectively is hoping to convince a federal judge that spoken words don’t mean things. In the face of multiple videos showing him speaking English, Rodrigues is claiming through attorneys that he “does not speak English” and that he “is almost completely unable to read English and has between no proficiency and an elementary proficiency in speaking in English,” according to the SEC.

    And, Rodrigues contends,  he “did not understand the asset freeze orders because he can barely speak English,” the SEC contends.

    The claims amount to “nonsense,” the SEC argued in a memo to U.S. District Judge Nathaniel M. Gorton. The memo included links to two videos showing Rodrigues speaking English. (One of them is below.)

     

    Whether Rodrigues will be able to convince the judge that spoken words don’t mean things is a question likely to be answered in the days immediately ahead — and the task perhaps just got harder.

    That’s because the SEC today filed an affidavit from a Florida banker who says he spoke with Rodrigues in person approximately every two weeks from August 2014 to May 2015.

    Rodrigues had eight corporate accounts, and all of them were closed by the bank, according to the banker.

    Moreover, all the conversations took place “entirely in the English language,” the banker said.

    And, the banker said, all of the forms “filled out and signed by Mr. Rodrigues were entirely in the English language.”

    NOTE: Our thanks to the ASD Updates Blog.

  • Alleged Bid To Gag Customers Leads To FTC Lawsuit Against Florida Seller Of ‘Unproven Weight-Loss Products’

    Image from FTC complaint against Roca Labs of Sarasota, Fla.
    Image from FTC complaint against Roca Labs of Sarasota, Fla.

    Let’s say you’re a direct-seller and manage to persuade yourself that trying to threaten and intimidate your own customers is a good business practice.

    How might you accomplish this?

    Well, the FTC alleged today that Florida-based Roca Labs Inc. and Roca Labs Nutraceutical USA Inc. inserted “gag clause provisions” in purported customer agreements in a bid “to stop [consumers] from posting negative reviews and testimonials online.”

    From an FTC statement dated today (italics added):

    “In a complaint filed in federal court, the FTC alleges that Roca Labs, Inc.; Roca Labs Nutraceutical USA, Inc.; and their principals have sued and threatened to sue consumers who shared their negative experiences online or complained to the Better Business Bureau, stating that the consumers violated the non-disparagement provisions of the ‘Terms and Conditions’ they supposedly agreed to when they bought the products. The FTC alleges that these gag clause provisions, and the defendants’ related warnings, threats, and lawsuits, harm consumers by unfairly barring purchasers from sharing truthful, negative comments about the defendants and their products.”

    Said Jessica Rich, director of the FTC’s Bureau of Consumer Protection:

    “Roca Labs had an adversarial relationship with the truth. Not only did they make false or unsubstantiated weight-loss claims, they also attempted to intimidate their own customers from sharing truthful – and truly negative – reviews of their products.”

    The FTC accuses Roca Labs of advertising its “Formula” and “Anti-Cravings” lines as “safe and effective alternatives to gastric bypass surgery.” In addition, the agency alleges, “[t]hey also claimed that users could lose as much as 21 pounds in one month, and that users have a 90 percent success rate in achieving substantial weight loss.”

    Meanwhile, according to the FTC, “the defendants used testimonials and supposed ‘third-party’ reviews to illustrate the weight-loss success consumers achieved with their products. They solicited ‘Success Videos’ from purchasers by offering to pay 50 percent of the products’ price for providing positive reviews. In addition to threatening consumers who violated the gag clause provisions, the defendants claimed that consumers who posted negative reviews would owe the ‘full price’ for their products – hundreds of dollars more than advertised or actually paid, according to the complaint.”

    Customers have directed at least $20 million to the firms for the powder products since 2010, the FTC alleges.

    “The defendants sold the products starting at $480 for a three-to-four month supply, and have sold at least $20 million of the powder since 2010, according to the complaint.

    In addition to the FTC’s unfairness charges based on the defendants’ gag clauses, the FTC alleges that the defendants’ weight-loss claims are false or unsubstantiated. The FTC also charges that the defendants failed to disclose that they compensated users who posted positive reviews. In addition, the FTC alleges that defendants violated consumers’ privacy by disclosing their personal health information in some cases to payment processors, banks, and in public court filings.”

    Also named defendants were Don Juravin, also known as Don Adi Juravin and Don Karl Juravin, and George C. Whiting, also known as “Dr. George Whiting” and “George C. Whiting, Ph.D,” the FTC said.

    Roca Labs implemented oppressive Terms and Conditions to stifle customers from complaining, the FTC charged. Here is one example, according to the complaint. (Italics and bolding added/light editing performed.)

    A version of the Terms Defendants used prior to December 2014 . . . provided that Defendants, in the event a purchaser violated the Gag Clause, had the right to sue purchasers for an injunction, immediately bill them for $3500 in court costs and legal fees until they are determined in court, and immediately revoke all “discounts” that purchasers purportedly received. This version of the Terms further provided that Defendants could, after thirty days, report any such charge that remained unpaid to consumer reporting agencies, and forward the unpaid charges to a collection agency. This version of the terms also provided that Defendants could require purchasers who violated the Gag Clause to execute a notarized affidavit stating that their “disparaging remarks or review contained factually inaccurate material, was incorrect and breached [the Terms].” A version of the Terms used from approximately September 2012 into mid-2014 . . . provided that the purchaser further agreed that “any report of any kind on the web will constitute defamation/slander,” and agreed “to a predetermined compensation of $100,000. You agree and understand that you can not [sic] talk badly about the Formula because of any frustration you might have with the support department or your misunderstanding.”

    In 2015, Public Citizen, a nonprofit group, sued Michigan-based KlearGear.com amid allegations the company effectively fined a Utah couple $3,500 after the wife posted a negative review of KlearGear at RipoffReport.com after her husband never received a desk toy and a keychain he’d ordered as Christmas gifts in 2008.

    KlearGear also was accused in the lawsuit of causing a debt collector to go after the couple and of lying to credit-reporting agencies when asserting the debt was valid.

    See Palmer v. KlearGear.com at Wikipedia.

  • BULLETIN: Class-Action Proposed Against 20,000 Alleged TelexFree Winners — With MAPS Pitchman As Lead Defendant

    newtelexfreelogoBULLETIN: Class-action attorney Robert J. Bonsignore has asked a federal judge for permission to file a third amended consolidated complaint that effectively would sue at least 20,000 “net winners” in the TelexFree scheme shut down by the SEC last year.

    The proposal would name alleged TelexFree promoter Daniil  Shoyfer the lead class-action defendant, effectively making him the Todd Disner of TelexFree-related court actions. Disner is a Zeek Rewards figure sued by Zeek receiver Kenneth D. Bell in clawback actions aimed at more than 9,000 alleged winners in the Zeek scheme shuttered by the SEC in 2012.

    Disner also promoted the AdSurfDaily Ponzi scheme broken up by the U.S. Secret Service in 2008.

    The PP Blog reported in June 2015 that Shoyfer also was promoting a scheme known as MyAdvertisingPays — or MAPS, for short.

    If the judge approves the proposal by Bonsignore, it would appear to mark the first time alleged TelexFree winners have been targeted en masse for the return of their alleged winnings from a scheme the SEC has described as a massive pyramid- and Ponzi fraud. Up to $1.8 billion flowed through TelexFree, now in the hands of a court-appointed trustee who has called it a pyramid scheme.

    Web records showed that Shoyfer also was promoting MAPS alongside MAPS colleagues such as U.K. hucksters Simon Stepsys and Shaun Smith.

    Smith is alleged by the receiver in the Zeek Rewards Ponzi- and pyramid case to be one of the largest Zeek “winners” in the United Kingdom.

    Bell, the Zeek receiver, has raised questions about MLMers moving from one fraud scheme to another.

    Bonsignore’s proposed amended complaint on the TelexFree front may lead to similar questions. At a minimum, the development highlights the dangers of fraud schemes that spread at least in part though the Internet to involve hundreds of thousands of participants. Victims can pile up in extraordinary numbers, and a fraction of participants who emerge as winners can end up confronting lawsuits and expensive, emotionally draining litigation.

    MAPS, a purported advertising scheme similar to AdSurfDaily, continues to operate.

    NOTE: Our thanks to the ASD Updates Blog.

     

  • VEMMA REP: FTC Used ‘Overlarge . . . Strap-On Dildo’

    vemmalogoEDITOR’S NOTE: On some days, it seems as though no one in MLM has any PR savvy. This is one of those days.

    Positioning himself as an insider who has spoken with Vemma CEO B.K. Boreyko, one of the company’s top affiliates took to the Internet today to declare the Federal Trade Commission appears to have worn a “very overlarge, extra-size strap-on dildo” and initiated a “bend-over job” against the company in the agency’s pyramid-scheme and deceptive-advertising case last month.

    This approach apparently has hampered Vemma’s ability to get restarted, the pitchman suggests.

    The crude, videotaped remarks by self-identified Top 25 Vemma affiliate Lanny Morton on Periscope came while Pope Francis was visiting the United States and occurred just days after Boreyko took to Instagram and asked “prayer warriors worldwide” for 24 hours of nonstop prayer in advance of a key Vemma hearing on Sept. 15.

    The PP Blog was unable to contact Vemma today for its reaction to Morton’s comments, which were recorded while he drove a car on an Arizona highway. His video, titled “vemma vs FTC update,” also blamed the company’s troubles on Vemma promoters who were a “douchebag element.”

    A federal judge last week permitted Vemma to restart operations, but put severe restrictions on the MLM company.

    Individuals who caused trouble at Vemma can “suck on my left nut,” Morton said in the video.

    Boreyko, he said, is “working his ass off” to get things going again.

  • URGENT >> BULLETIN >> MOVING: Evidence Before Court Leaves ‘Little Doubt’ FTC Will Prove Vemma Is Pyramid Scheme, Judge Says

    breakingnews7256th Update 6:41 p.m. EDT U.S.A. A federal judge has issued a much-anticipated order in the Federal Trade Commission’s pyramid-scheme case against Vemma that says “[t]he evidence before the Court leaves little doubt that the FTC will ultimately succeed on the merits in demonstrating that Vemma is operating a pyramid scheme.”

    U.S. District Judge John J. Tuchi is doing away with the receivership approach  established in August and instead will appoint a monitor, according to the order.

    This section of the order suggests the judge views Vemma’s products as marketable if it can get its sales process under control both in-house and externally. Even so, a limited restart may prove to be a hollow win for Vemma. Although the company will be able to restart operations under the order, Tuchi has banned the sale of “Affiliate Packets” and a compensation system that “links or ties an Affiliate’s eligibility for bonuses, or the Affiliate’s accumulation of bonus qualifying points, to that Affiliate’s purchase of the Corporate Defendants’ product, such as through autodelivery or Two & Go.”

    Was Vemma a good ambassador for the MLM trade?

    Vemma’s marketing material was “replete with deceptive income statements,” Tuchi found.

    And, the judge observed, “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. ”

    From the order (italics added):

    In practice, [Vemma] Affiliates are very likely engaging in inventory loading. The great majority of Vemma product sales is to its Affiliates and, as [FTC expert witness] Dr. [Stacie] Bosley noted, under the current bonus system there is no way to unbundle the Affiliates’ intent to consume Vemma products as ultimate users from their desire to remain qualified for bonuses— bonuses that are largely driven by recruitment of other Affiliates. But their intent in purchasing Vemma products must be viewed in light of Vemma’s program design as well as its training and marketing materials, which explicitly provide that Affiliates should enroll in auto-delivery for the purpose of remaining qualified for bonuses.

    In all likelihood, Affiliates’ purchases of Vemma products are incidental to the right to qualify for and obtain bonuses . . .  Moreover, Vemma’s purported anti-inventory-loading safeguards are neither effective nor enforced . . .   Vemma contacts only 15 of its over 90,000 Affiliates a month to ask if at least 70% of their sales were for consumption or retail. And Vemma’s Vice President of Legal Affairs admitted in her testimony that the script for those calls does not really investigate the reason an Affiliate purchased product or check for inventory loading. Moreover, the Receiver found that, in practice, Vemma is five months behind on its inventory loading audits and has never suspended or disciplined an Affiliate who failed to make the requisite sales to ultimate users. And Vemma does not even attempt to apply a rule similar to the ten customer rule that was found to be a reliable way to control inventory loading in Amway. 

    Also from the order:

    ” The FTC’s evidence is certainly sufficient to show Vemma was operating an illegal pyramid scheme through 2014, and although evidence is not yet complete for 2015, the Court notes that Vemma’s 2015 “Two & Go” program contains the same indices of pyramidal structure as the former programs. Defendants have not produced evidence that the critical defects in their programs have been remedied since 2014, and the Court thus has no reason to believe at this stage that Vemma’s violations of the FTC Act are not continuing or likely to recur in the absence of injunctive relief. In sum, the Court finds the FTC has again met its burden to show a likelihood of success on the merits in demonstrating Vemma and Mr. [B.K.] Boreyko are operating a pyramid scheme, even in light of the argument and evidence provided by these Defendants.

    Tuchi has lifted the asset freeze, saying the monitor and court supervision and “an injunction against the alienation by Defendant Boreyko of any of his real estate holdings during the pendency of this action” should be enough to protect against mass dissipation.

    More analysis upcoming.

    Read the order at the website of Truth In Advertising, a Vemma critic that has worked with the FTC on the pyramid and deceptive-advertising case.

    Our thanks to the ASD Updates Blog.