A year ago, a court agreed to put a temporary halt to an alleged pyramid scheme that made its money by convincing college students they could make big bucks shilling energy drinks — but only paying up for recruiting more sales friends instead. Today, the FTC has announced a settlement with the Vemma Nutrition Company that puts a halt to those practices for good.
The FTC filed a complaint against Vemma in Aug. 2015, effectively claiming that the company’s multi-level marketing program was a pyramid scheme.
What’s the difference between multi-level marketing and a pyramid scheme, you may ask? Any MLM is by definition going to lean toward the pyramid side of things, but in a legitimate MLM you should at least be able to stand a chance of making money by selling the thing you signed up to sell. If the only way to earn money through the MLM is to recruit others (and then rely on them recruiting others, etc.), then you’ve got a pyramid.
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It was a lucrative one for Vemma: the 2015 complaint alleged that it managed to bring in more than $200 million annually in 2013 and 2014, largely by promising college students that they could become rich from pushing Vemma products as a 9-5 job.
Those students had to pay Vemma $600 to get started and buy at least another $150 in products a month in order to receive bonuses. As you might expect, the vast majority of participants lost money in the process.
After the 2015 complaint, a federal court granted the FTC’s request to temporarily halt Vemma’s scheme pending continued legal action. And the rest of that legal action comes today.
Under the terms of the settlement announced today, Vemma is now permanently barred from doing most of the things that make it into a pyramid scheme. Specifically, it can’t pay out any compensation for recruitment anymore — money you make from Vemma has to come from Vemma product sales, not from roping more people into selling Vemma stuff.
Similarly, Vemma is now banned from tying compensation to purchases. That means it has to compensate you for the things you sold, even if you didn’t buy as much from them in a month as they want.
The company, its CEO, and its top affiliate are all barred from participation in any pyramid, Ponzi, or chain marketing schemes and from making “misrepresentations about the profitability of business ventures or the health benefits of products,” which are unlawful things to do anyway.
The final order imposes a $238 million judgement against the company, but the vast majority of that is never expected to be paid. The company is instead on the hook for $470,136 and “surrender of certain real estate and business assets,” after which the rest of the judgement will be suspended.
“Unfortunately, extravagant income claims and compensation plans that reward recruiting over sales continue to plague the MLM industry,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “MLM companies must ensure that their promotional materials aren’t misleading, and that their compensation programs focus on selling goods or services to customers who really want them, not on recruiting more distributors.”
by Kate Cox via Consumerist