Feds say Vemma is a pyramid scheme

via Moak: Feds say Vemma is a pyramid scheme, clarionledger.com, 9/1/2015

It seemed like a perfect solution for cash-strapped college students and young adults. You could make lots of money through a company called Vemma, without having to go to a 9-to-5 job by selling products that supposedly can provide energy and nutrition. But the Federal Trade Commission threw a flag on that play Thursday, when they obtained a federal court order to stop the company’s operations and seize its assets.

“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “We are also alleging that Vemma is an illegal pyramid scheme.”

According to the FTC’s court order, the operation earned the company more than $200 million annually in 2013 and 2014. Vemma had “affiliates” in more than 50 other countries, some of which (Italy, Austria, Switzerland and others) had been investigating accusations it was a pyramid scheme.

As a reminder, a pyramid scheme is a business that purports to sell a product or service by using a network of participants, but in reality, is just designed to enrich people at the top of the pyramid by recruiting new members. Few — if any — products are actually sold, and participants at the bottom of the operation usually lose the money the invested.

The FTC alleges Vemma used its “affiliates” to promote its health and wellness drinks. According to the complaint, Vemma promised affiliates could earn substantial income by enrolling others as affiliates or customers, but Vemma focuses on recruitment rather than retail sales of its products to generate this income. “The vast majority of participants make no money, and most of them lose money,” the FTC noted.

Luring potential members involved the use of social media and websites, which showed young people living prosperous lifestyles, with “luxury cars, jets, and yachts,” while claiming participants could earn as much as $50,000 per week. “The defendants allegedly claim that affiliates’ earning potential is limited only by their own efforts and that Vemma provides young adults an opportunity to bypass college and student loan debt,” the agency noted. To participate, Vemma requested an initial investment of $500-$600 for an “Affiliate Pack” of products and business tools, and affiliates had to buy $150 in Vemma products each month to remain eligible for bonuses. At the same time, Vemma offered no meaningful discounts or incentives to encourage retail sales.

So, how do you know if a business is a pyramid scheme, vs. traditional network marketing? It’s hard to tell, but here are a few red flags:

  • Your income is based mainly on the number of people you recruit (the “downline”), and the money those new recruits pay to join the company — not on the sales of products to consumers.
  • You’re required to buy lots of inventory.
  • You’re forced to buy other things you don’t want or need just to stay in good standing with the company.
  • Be skeptical of “rags-to-riches” stories, or images of extravagant lifestyles. Even if true, these are unlikely to reflect the average customer’s experience.

Finally, before signing on with any company, check it out thoroughly. Don’t rely on the company’s own website or testimonials; the information is unlikely to be objective, and is designed to make participation attractive. For more on how to recognize a pyramid scheme, visit https://www.consumer.ftc.gov/blog/telltale-signs-pyramid-scheme.

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