What You Should Know about the FTC’s Action against Vemma
August 26th, 2015
1. What’s the FTC been up to?
On August 17, 2015, the FTC secretly filed documents with the Federal District Court in Phoenix, Arizona, including a five-count complaint against defendants primarily alleging that Vemma is an illegal pyramid scheme. Further, out of concern that vital evidence would be destroyed or assets disappeared, the FTC moved for and was granted an ex parte Temporary Restraining Order with Asset Freeze, and appointment of receiver against Boreyko and the Vemma entities on August 21, 2015. (More on that below.) After that the FTC presumably raided Vemma headquarters.
2. Pyramid scheme alleged
In a nutshell what the FTC evidence attempts to demonstrate is that the Vemma program is a perpetual recruitment chain that dooms the vast majority of participants to financial loss. As the FTC explains it:
[d]espite the numerous representations regarding substantial income potential, the vast majority of Vemma Affiliates will be in a position of financial loss at any given moment in time. . . . [T]he promised rewards may be realized only if successful recruitment continues indefinitely; thus, positive earnings suggestions are inherently deceptive and cannot be fulfilled for the overwhelming majority of participants. These losses are inherent in the very design of Vemma’s compensation plan.
3. The FTC’s star witness
No, it’s not the undercover FTC agent that pretended to be a Vemma affiliate for at least five months. The star witness for the FTC is definitely Vemma CEO Boreyko, whose quotes are liberally scattered throughout the FTC documents as solid evidence that defendants were marketing an illegal pyramid scheme using misleading income representations.
4. Distributors sued
In a move sure to send shock waves through the MLM industry, the FTC named Vemma’s top earning distributors, Tom and Bethany Alkazin, as defendants in its legal action. Tom is alleged to be in cahoots with Borekyo and Vemma in misrepresenting the nature and income potential of Vemma through marketing and sales efforts. His wife Bethany has been named as a “relief defendant,” meaning that the FTC doesn’t allege she did anything wrong, but seeks to recover all the ill-gotten gains she received from Vemma, which could be as much as $17 million.
5. You’ve got mail
If you are an affiliate, sales entity, successor, assign, member, officer, director, employee, agent, independent contractor, client, servant, attorney, subsidiary, division, or representative of any of the defendants then you’re in luck because Vemma is required to personally provide you with your own copy of the District Court’s 28-page Order, which is worth the read, but it won’t answer whether distributors will get any money out of Vemma or from this lawsuit – that issue is still up in the air.
6. Gag order
Just in case you’re not in the mood to read the 28-pages of legal jargon that can be found in the Order, permit me to direct your attention to pages 8 and 9, which state in sum and substance that no one associated with Vemma can market it as a business opportunity – meaning there is no incentive for consumers to buy $600 starter packs or spend $150 every month on products, which likely means a rapid decrease in revenues for the company and distributors.
7. New sheriff in town
The Court has appointed an international and domestic banker and fiduciary, Robb Evans of Robb Evans and Associates LLC, as the temporary receiver for Vemma and Boreyko. This title gives Evans broad authority to control all aspects of the Vemma business and its assets, including giving Boreyko the old heave-ho when it comes to running the company. But more importantly for Vemma affiliates, this is the person who will (for now) decide if distributors will be compensated for past and future recruitment (or is that product sales?)
8. What’s Boreyko been up to?
It seems that social media has been missing Borekyo’s presence of late but his absence is understandable. In the last few days he’s had to turn over to the FTC and Receiver complete and accurate financial statements disclosing all his personal assets and assets of corporations, partnerships, trusts, or other entities that he owns or controls. In addition, he also had to turn over his state and federal tax returns for the last three years, and take all steps necessary to transfer to the United States all documents and assets in his possession, custody, or control that are located outside the United States.
9. FTC’s expert witness
The FTC is relying on the expert opinion of Dr. Stacie Bosley, who holds a BBA in Finance from the University of Wisconsin-Madison and a Ph.D. in Applied Economics from the University of Minnesota. She is currently an assistant professor in the department of Management, Marketing and Public Administration at Hamline University and presently studies the dynamics of pyramid schemes in the U.S. and around the world, examining social and economic factors that influence participation.
10. What’s Next
Vemma, Borekyo, and the Alkazins will get their first day in court on Sept. 3 when the Court is scheduled to conduct a hearing on the FTC’s motion for Preliminary Injunction. Given the amount of evidence the FTC has amassed, a betting person would likely side with the FTC – especially when one considers that in its last 24 cases against an MLM alleging pyramid scheme, the FTC has either won the case outright or obtained a favorable settlement. Or, to put it another way, the FTC hasn’t lost a case like this in the past 40 years.
And while it’s true that no one can predict the future, there is no doubt that the FTC’s legal documents in this case could easily be used as a blueprint to prosecute other MLMs that are out there. So if you’re listening MLMers, a word of advice from one of your own – Borekyo himself, who recently said:
Some people think experience is the best teacher and it’s not, it’s other people’s experience. Learn from other people’s experiences – learn the pitfalls of what to do, what not to do.
Amen to that.
To peruse the documents filed against Vemma, et al., by the FTC, click here.