The Federal Trade Commission has filed a lawsuit on Vemma the MLM company. The charges that they are being accused of is: illegal pyramid scheme, failure to disclose relevant information, means and instrumentalities and relief defendant.
The FTC is accusing Vemma of tricking young people into thinking they can make an income with Vemma. The reasoning behind it is that the FTC accuses Vemma of focusing only on recruiters and not selling products. The “usual” model is to hire recruits to sell your company’s products. Then, these recruits sell the company’s products and they hire their own recruits to sell products for them.
Thanks to a court order the FTC was given permission to freeze corporate assets – including the CEO Bk Borekyo. On September 3, the first court hearing will be held and it will be determined whether the freeze will continue.
According to court filings the FTC stated that, “Defendants are running a global pyramid scheme that has likely victimized hundreds of thousands or millions of consumers.”
This is considered an assault on the MLM industry as if Vemma is taken out – other companies might do so as well. This is because many other businesses operate on Vemma’s model as well. If Vemma is removed it’ll set precedent to take out the other businesses as well.
Vemma an energy & weight loss company business model is to recruit distributors and get them to sell the company’s products. The FTC accuses Vemma that the true business model is to get the distributors to recruit people to pay a large amount of money upfront and thus making the recruits do the same.
Jessica Rich Director of the FTC’s Bureau of Consumer Protection stated in a press release that, “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.”
The FTC determined that Vemma is a scam according to their own metrics because of what they see as misleading marketing to young individuals. Many claims were made about how much money can be made if you worked with Vemma. According to the agency, “most participants lost money.”
The latest data available (which is 2013) on the earnings of distributors show that 93% of Vemma sellers made less than $6000. 87% made less than $4000 in income.
The FTC said this, “The vast majority of Affiliates make no money.” It appears that many side with the Federal Trade Commission. Attorney generals from various states and a group called “Truth In Advertising.”
Companies that employ the MLM strategy under increased scrutiny by Wall Street. Businesses like Herbalife and Nuskin are being monitored very carefully by many people.
Bill Ackman the hedge fund manager of Pershing Square gave MLMs massive attention due to his billion dollar short position against Herbalife. Bill Ackman also is saying that Herbalife is a pyramid scheme. It is unclear whether the FTC will investigate Herbalife anytime soon. (due to their apparent similarities.)