FTC Charges Vemma Is Pyramid Scheme Lawsuit Temporarily Shuts Down Energy Drink Maker

The Federal Trade Commission said Vemma Nutrition Co. has been temporarily shut down in response to a lawsuit alleging that the energy drink maker is running an illegal pyramid scheme. The FTC filed the suit on Aug. 21

In its suit, filed in U.S. District Court in Arizona, the FTC charges that Tempe, AZ-based Vemma "lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job."

The FTC seeks to stop the Vemma operation, which reportedly earned more than $200 million annually in 2013 and 2014 and has allegedly scammed consumers throughout the United States and in more than 50 other countries, by continuing as an unlawful pyramid.

In response to the lawsuit, the court ordered Vemma to stop its deceptive practices, froze the company and its owners' assets, and appointed a temporary receiver over the business pending a trial.

"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 FTC Bureau of Consumer Protection director Jessica Rich. "We are also alleging that Vemma is an illegal pyramid scheme."

Vemma is a multilevel marketing company that claims to use its members, called "affiliates," to promote its health and wellness drinks. According to the FTC's complaint, affiliates can earn "substantial" income by enrolling others either as affiliates or as 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 lawsuit charges.

According to the FTC's complaint, Vemma's websites, social media and marketing materials show seemingly prosperous young people with luxury cars, jets and yachts, and falsely claim that Vemma affiliates can earn as much as $50,000 a week.

Vemma claims 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 FTC charges that Vemma urges consumers to make an initial investment of $500 to $600 for an "Affiliate Pack" of products and business tools, buy $150 in Vemma products each month to remain eligible for bonuses, and enroll others to do the same.

Consumer losses are inevitable, the FTC said, because Vemma is an illegal pyramid scheme that rewards affiliates for recruiting participants rather than for selling products. Vemma provides affiliates little guidance for selling products, but instead teaches them to give away products as samples when recruiting new participants. Vemma offers no meaningful discounts or incentives to encourage retail sales, according to the complaint.

In addition to allegedly running an illegal pyramid scheme, the defendants are charged with making false earnings claims, failing to disclose that Vemma's structure ensures that most people who join will not earn substantial income, and furnishing affiliates with false and misleading materials to recruit others.

The defendants are Vemma Nutrition Co., Vemma International Holdings Inc. and Tom Alkazin. Another defendant, Benson K. Boreyko, is under a 1999 court order after settling with the FTC for his involvement with New Vision International Inc., a multilevel marketing company that sold nutritional supplements. The complaint also names Bethany Alkazin as a relief defendant who profited from the alleged scheme.