FTC Accuses Vemma of Running a Pyramid Scheme
Energy drink company Vemma is in a lot of trouble after the Federal Trade Commission (FTC) recently announced that it was temporarily shutting down the company. The FTC has stated that Vemma was running an illegal pyramid scheme that targeted young adults and students.
— UPI.com (@UPI) August 28, 2015
Vemma recruited “affiliates,” most of them impressionable college students, who then were required to purchase starter kits to sell the nutrition drinks to others. Products that Vemma produced included Verve, and Bod-e. The starter kits were $500 each, and then Vemma affiliates had to purchase an additional $150 in products and marketing tools each month. Vemma told the affiliates that they could make up to $50,000 a week working for the company. Despite those claims, the vast majority of participants ended up losing money, or earning very little.
But most importantly, the affiliates also helped to recruit more affiliates who were then subject to the same outrageous fees. According to the FTC, Vemma made its money by bringing on affiliates–hence the pyramid scheme accusations. Vemma made over $200 million in revenue in 2014 through these methods. Jessica Rich, Director of the FTC’s Bureau of Consumer Protection stated:
Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization. We are also alleging that Vemma is an illegal pyramid scheme.
Vemma is also being accused of misleading marketing–the promotional materials it used to try to attract the affiliates promised that if you worked for the company you’d be “driving a BMW within 90 days” and featured pictures of young people in luxury vehicles, yachts, and jets.
Vemma isn’t the first nutrition drink company to come under a watchful eye. Herbalife was also accused of running a pyramid scheme in 2013, by a hedge fund called Pershing Square. Ironically, there’s a connecting between Herbalife and Vemma as Anthony Powell jumped ship from the former to the latter that same year. The FTC is now investigating Herbalife as well.
Vemma shows the mighty fall far, as it was once heralded as a company on the rise. The Phoenix Business Journal–Vemma is based out of Arizona–named it the Number one fastest growing private company on the Arizona Corporate Excellence. However, at this point it seems like that growth was begotten through illegal means.
For now, the FTC suit is still ongoing, but it doesn’t look like Vemma will be springing back anytime soon.