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Tag: FTC

  • URGENT >> BULLETIN >> MOVING: Herbalife Must ‘Fundamentally Restructure Its Business,’ FTC Says In Settlement Announcement; Agency Brings Complaint In Federal Court That Alleges ‘Deceptive And Unlawful Acts And Practices’

    EDith Ramirez makes the announcement this morning. Source: Screen shot of live news conference feed.
    Edith Ramirez makes the announcement this morning. Source: Screen shot of live news- conference feed.

    URGENT >> BULLETIN >> MOVING:  (13th Update 3:45 p.m. EDT U.S.A.) The FTC is going to federal court in the Central District of California, alleging that Herbalife engaged in “deceptive and unlawful acts and practices.”

    Separately, the agency announced a settlement with the company that will have Herbalife pay $200 million and change the way it does business. The company has not formally been accused of operating a pyramid scheme, although the agency directed harsh words at the MLM enterprise.

    “This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Edith Ramirez said in a statement. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”

    Herbalife described the FTC settlement and a separate, $3 million settlement with the state of Illinois as wins.

    “The settlements are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms,” said Michael O. Johnson, chairman and CEO, in a statement.

    Although Herbalife contended in a statement this morning that the “terms of the settlement do not change Herbalife’s business model as a direct selling company and set new standards for the industry,” the FTC’s complaint paints a picture of a company the institutionalized deception and pyramid behavior.

    Herbalife currently “does not offer participants a viable retail-based business opportunity,” the FTC alleged.

    And, it alleged, the firm’s “compensation program incentivizes not retail sales, but the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product . . . The retail sale of Herbalife product is not profitable or is so insufficiently profitable that any retail sales tend only to mitigate the costs to participate in the Herbalife business opportunity.”

    Said Herbalife: “While the Company believes that many of the allegations made by the FTC are factually incorrect, the Company believes settlement is in its best interest because the financial cost and distraction of protracted litigation would have been significant, and after more than two years of cooperating with the FTC’s investigation, the Company simply wanted to move forward. Moreover, the Company’s management can now focus all of its energies on continuing to build the business and exploring strategic business opportunities.”

    Herbalife’s stock soared when Wall Street opened this morning. At 9:36 a.m., it was up more than $10 — or more than 17 percent.

    The National Consumers League said it welcomed the settlement.

    “The FTC’s action today addresses many of the concerns that NCL and other experts on pyramid schemes raised about Herbalife’s business practices. Specifically, consumers will benefit greatly from the settlement’s requirement that Herbalife base its compensation structure on verifiable retail sales to end-users of the product, not recruitment of new distributors. This is the core distinction, as enumerated by more than 30 years of case law, between a legal direct-selling company and a fraudulent pyramid scheme. The settlement’s requirement that at least 80 percent of product sales, companywide, must be made to end-users will further address concerns about a lack of retail sales to buyers outside the business opportunity. The FTC’s settlement will also address many of the blatantly unsubstantiated earning claims made by Herbalife’s distributors to entice new recruits to join the business opportunity and keep existing distributors paying to remain in the business opportunity. We look forward to the FTC’s forthcoming guidance to the direct selling industry as an opportunity to address the persistent lack of clarity that has characterized many industry practices.”

    Despite Herbalife’s settlement with Illinois, the state still is soliciting complaints about the company.

    “This scheme preyed on people looking to make a better life for themselves and their families,” said Illinois Attorney General Lisa Madigan. “Herbalife created an incentive structure that made it easy for people to invest, but impossible for most people to make any money.”

    From Madigan’s office (italics added):

    Madigan alleged that Herbalife’s current business model involved luring members with promises of lavish rewards for selling the company’s products, when in fact, the majority of incentives were given to people who recruited others to sell the company’s products. As a result, most people who joined Herbalife never made any money from the company but lost the costs of starting a business.

    The FTC settlement requires Herbalife to change its business model to ensure all compensation is based on retail sales that are verified. It also prohibits Herbalife from making statements that indicate that participation in Herbalife is likely to result in a lavish lifestyle, such as you “can quit your job,” “be set for life,” “earn millions of dollars,” or “make more money than they ever have imagined or thought possible.” That also includes images of opulent mansions, private helicopters, private jets, yachts and exotic automobiles in their promotions.

    Pershing Square Capital Management — the home of Herbalife short-seller Bill Ackman — suggested other regulators across the globe might follow the FTC’s lead in acting against Herbalife.

    Ackman famously has called Herbalife a pyramid scheme.

    “The FTC complaint and settlement provide a roadmap for regulators in 90 other countries around the world to enforce similar requirements,” Pershing Square said in a statement. “We intend to work with these regulators to ensure that no future victims are harmed whether in the U.S. or otherwise.”

    Moreover, Pershing Square said the forced changes at Herbalife might cause core distributors to flee — something that could affect Herbalife’s bottom line.

    “The [FTC] settlement also requires Herbalife to eliminate minimum purchase requirements and other inventory loading incentives,” Pershing Square said. “Furthermore, in order to maintain eligibility or advance in the plan, distributor requirements must be met through ‘Profitable Retail Sales’ or sales to ‘Preferred Customers,’ who are not buying product to participate in the business opportunity.

    “We expect that once Herbalife’s business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse as top distributors and others take their downlines elsewhere or otherwise quit the business.”

    Even though the FTC didn’t use the phrase “pyramid scheme” today in its actions against Herbalife, the agency’s “findings are clear,” Pershing Square contended.

    It “appears that Herbalife negotiated away the words ‘pyramid scheme’ from the settlement agreement,” Pershing Square said.

    Read the FTC complaint against Herbalife. Read the “STIPULATION TO ENTRY OF ORDER FOR PERMANENT INJUNCTION AND MONETARY JUDGMENT.”




  • After Vemma College Flap, Herbalife Products Marketed Through One Of Largest Catholic High Schools In United States

    HerbalifeMDHSconsentUPDATED 3:59 P.M. EDT U.S.A. It surfaced on Twitter today in the $HLF search thread that Herbalife products are being marketed through Mater Dei High School in Santa Ana, Calif. The Catholic school bills itself  “the largest non-public school west of Chicago.”

    Herbalife is under investigation by the Federal Trade Commission. Hedge-fund manager and Herbalife short-seller Bill Ackman has claimed the company is a pyramid scheme that targets vulnerable population groups. Herbalife denies the claims.

    Mater Dei says its 2,145-member student body consists of 38% Caucasian, 33% Hispanic, 19% Asian, 4% African-American, 1% Native American, 1% Pacific Islander and 4% “Other Race.”

    The school did not immediately respond today to a request for comment in which the PP Blog asked it whether it was aware of an Herbalife-related promo on its website, whether the promo was a school-endorsed activity and whether Mater Dei students were being recruited to sell Herbalife.

    Vemma, another MLM company, was charged last year by the FTC with operating a pyramid scheme, amid allegations the firm was targeting college students.

    Herbalife did not respond immediately to a request for comment on whether it was aware its products were being offered to Mater Dei students, whether students were being targeted for recruitment and whether the company had any concerns given the targeting allegations against Vemma.

    The Mater Dei website has a page styled “Herbalife Program > Consent & Waiver Form.” The page says “ALL current Mater Dei student-athletes are required to have a signed consent and waiver form on file in order to participate in the HERBALIFE Program.”

    A link to the form is provided, along with  a text prompt that says forms also are distributed by “coaches.” (See PP Blog screen shot of form.)

    A separate page on the Mater Dei website is styled “Herbalife Program > About.” It includes a phone number consistent with an Herbalife affiliate site in the name of “Coach Donte Mdhs.”

    The affiliate site says, “MATER DEI HIGH SCHOOL INFORMATION . . . All H24 Products are available to MD students (except Prepare).”

    A search of the Mater Dei website returns hundreds of results for the search term “Herbalife” (without the quotation marks). One of the results is an “Order NOW & Coupon Codes” page that says discounts are available to nearly two dozen school athletic teams and “Alumni, Dance, Faculty and Pep Squad” groups.

    In February, a man being sued for the return of his alleged winnings in the TelexFree MLM scheme claimed Herbalife executives and personnel helped sell him on the TelexFree deal. Herbalife did not respond to a request for comment on the claim.

    TelexFree generated more than $3 billion in illicit business, a court-appointed bankruptcy trustee claims.




  • BULLETIN: 2 Arrested In Alleged ‘Banners Broker’ Pyramid Scheme

    breakingnews725BULLETIN: (14th Update 3:39 p.m. ET U.S.A.) Toronto police have arrested “Banners Broker” figures Christopher George Smith of Toronto and Rajiv Dixit of Vancouver.

    Both suspects are 45 and are scheduled to make a court appearance today, police said. The scheme allegedly raised $93 million (U.S.).

    They have been charged with Defrauding the Public of Over $5000, Possession of the Proceeds of Crime, Laundering the Proceeds of Crime, Operating a Pyramid-Selling Scheme and Making False or Misleading Representations under the Competition Act, police said.

    “[T]here are 1000’s of victims worldwide in Banners Brokers pyramid scheme,” police said on Twitter. The remark was attributed to Det. Sgt. Ian Nichol of the Toronto Police Mass Marketing Section.

    And, the department Tweeted, the agency and mass-marketing fraud investigators from the Royal Canadian Mounted Police “worked for 2yrs full time on Banners Brokers pyramid scheme investigation.”

    Also assisting in the cross-border probe were the Competition Bureau of Canada, the Ministry of Government and Consumer Services, the Ministry of Finance, the U.S. Federal Trade Commission, FINTRAC and the Canada Revenue Agency, police said.

    FINTRAC stands for the Financial Transactions and Reports Analysis Centre of Canada.

    “[T]he program’s existence was entirely dependent upon the fee-based entry of new members and little or no real product or service was provided,” police said.

    Banners Broker, a purported “advertising” program similar to the AdSurfDaily Ponzi scheme broken up by the U.S Secret Service in 2008 and a current “program” known as MyAdvertisingPays or MAPS, previously has been described as a criminal enterprise.

    As the PP Blog reported last year, Banners Broker, like similar schemes, appeared to be trying to intimidate members.

    Read the statement by the Toronto Police Service on Banners Broker and the arrests of Smith and Dixit.

    In 2013, the PP Blog received bizarre spam from apparent Banners Broker supporters unhappy about the Blog’s coverage of the “program.”

    The PP Blog’s first reference to Banners Broker was published on June 17, 2012, when the Blog reported that a site that claimed it sold “customers” to Zeek Rewards members also was pushing traffic to Banners Broker and JSS Tripler/JustBeenPaid, the bizarre, 730-percent-a-year “program” purportedly operated by Frederick Mann.

    Mann also was a pitchman for the AdSurfDaily Ponzi scheme. JSS/JBP, which later morphed into a “program” known as ProfitClicking, may have ties to the sovereign-citizens movement. Zeek allegedly was a Ponzi/pyramid scheme that gathered more than $850 million.

    Some HYIP promoters move from scheme to scheme to scheme, creating a condition in which losses mount globally and banks become warehouses for fraud proceeds. The SEC yesterday announced charges against alleged Zeek promoter Trudy Gilmond, whom the agency alleged recruited members for multiple failed schemes.

    See the PP Blog’s tag archive of references to Banners Broker or use the search function near the upper-right corner.

    Also see: “Law Firm’s Name Used In Bid To Dupe Members Of Banners Broker, Profit Clicking, MLM Attorney Says.”

    Within the story, the PP Blog showed a menacing communication it had received in January 2013. The story also shows the interconnectivity of certain online MLM schemes, as does this 2013 story: “TelexFree Affiliate Pitches Appear To Have Been ‘Scraped’ To Drive Traffic To Purported Gold And Silver Venture In Panama; Spam Link Leads To Site That Showcases ‘First Zeek Red Carpet Event’ And ‘Banners Broker’ In Folder Labeled ‘aaronsharazeek’  




  • 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 . . .

  • 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.

     

  • 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.

  • 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.

  • Transcript Shows Courtroom Clash Between Vemma And FTC

    vemmalogoVemma critic Truth In Advertising has posted a transcript of the Sept. 15 battle in Arizona federal court between Vemma and the Federal Trade Commission over the preliminary injunction, asset freeze and appointment of a receiver. Vemma hopes to undo these things or at least to modify them in a way that would put the company back in business. (Link to transcript below.)

    Truth In Advertising — TINA, for short — is a witness against Vemma and has been investigating the company since at least 2013. TINA says its mission is to empower consumers to protect themselves and one other from false advertising and deceptive marketing.

    As a preliminary matter, the PP Blog observes that the transcript shatters the myth advanced by some Vemma supporters that the firm — alleged by the FTC last month to be a pyramid scheme — has been denied due process.

    At least five attorneys appeared for Vemma. Two others appeared for Vemma CEO B.K. Boreyko, a charged FTC defendant. Still two others appeared for Tom Alkazin and his wife Bethany.  (Tom is an alleged promoter charged by the FTC; Bethany is a relief defendant alleged by the agency to have profited from the scheme.)

    Vemma cross-examined FTC witnesses and advanced witnesses of its own.

    U.S. District Judge John J. Tuchi, a former federal prosecutor backed for the court by Arizona GOP Sen. John McCain and appointed to the bench by President Obama, McCain’s rival in the 2008 U.S. Presidential election, is hearing the Vemma case.

    The transcript consists of 228 pages. The FTC claims that Vemma was a pyramid scheme through which Vemma told its own distributors they effectively could buy commissions. Vemma, meanwhile, accuses the FTC of gross overreach, orchestrating a sneak attack against a legitimate business and cherry-picking facts to make it appear as though the only appropriate way for the court to deal with the company is to kill it through the imposition of an asset freeze and the installation of a court-appointed receiver.

    The judge is expected to issue a key order by 2 p.m. Arizona local time tomorrow.

    Link to the transcript.

  • BULLETIN: Name Of Herbalife Refugee Anthony Powell Surfaces In Vemma Pyramid-Scheme Case

    breakingnews7252ND UPDATE 4:16 P.M. EDT U.S.A. Former Herbalife President’s Team member Anthony Powell is referenced in a report by the court-appointed receiver in the Vemma pyramid-scheme case filed by the FTC last month.

    The mention is potentially embarrassing to the MLM trade, which has a reputation for recruiters dragging financially strapped prospects from scheme to scheme.

    Powell, an MLM recruiter,  joined Vemma after leaving Herbalife in 2013 and has been a subject of scorn by activist-investor and Herbalife short-seller Bill Ackman. Herbalife is under investigation by the FTC.  Ackman has claimed since 2012 that Herbalife is a pyramid scheme.

    With the FTC calling Vemma a pyramid scheme, Vemma receiver Robb Evans says a firm operated by Powell was the subject of at least 16 complaints to Vemma and that Vemma appears disingenuously to have tried to distance itself from Powell.

    At least one such complaint about Global Pro Systems or GPS — the Powell firm — was submitted to the Arizona Attorney General, according to the report by Evans.

    Trying to play dumb about Powell could constitute a material misrepresentation by Vemma, the receiver opines.

    From the receiver’s report dated Sept. 4 (carriage returns added/formatting may not be precise):

    The Temporary Receiver has made reference to GPS several times in this report. The Temporary Receiver located a document at the premises that stated GPS is operated by Anthony Powell. In a letter to the Arizona Attorney General dated August 29, 2013 wherein the Field Compliance Manager attempted to distance themselves from GPS by stating that, “Global Pro Systems is not owned or operated by Vemma Nutrition Company or BK Boreyko.”

    Similar statements were made by the company in all of the responses sent to the Arizona Attorney General and the Arizona BBB regarding complaints that also involved GPS. While these statements on their face are true and may not be a misrepresentation, they are not completely forthcoming. In an email communication from the field compliance
    manager to the BBB, the company stated, “Unfortunately, since Global Pro Systems (GPS) is not owned or operated by Vemma Nutrition Company or BK Boreyko, we do not have any control over their marketing tactics (emphasis added).”

    The Temporary Receiver has determined that Anthony Powell is in fact a Star Ambassador with Vemma. Assuming Mr. Powell had to sign an Affiliate Agreement like every other Affiliate, he and his business practices would be subject to the same terms and conditions as any other Affiliate. The company made a material misrepresentation when they claimed that they had no control over GPS’ marketing tactics.

    The Temporary Receiver also viewed a video posted by the company showing the defendant, Boreyko personally welcoming Anthony Powell to Vemma. Anthony Powell claims that he made millions with Herbalife and decided to bring his team to Vemma. The video indicated that Mr. Powell was a Star Ambassador. The Temporary Receiver is not aware of any disciplinary action taken against Mr. Powell or any of the other Affiliates associated with GPS. This would indicate that the most successful Affiliates are not subject to the same level of scrutiny as the less successful Affiliates.

    NOTE: Our thanks to the ASD Updates Blog.