FTC targets company after Enquirer investigation

UPDATE 11:30 a.m.

The Federal Trade Commission is moving to shut down a controversial company that it says lures college students and other young adults with promises of shucking traditional jobs by selling energy drinks instead.

The FTC on Wednesday announced its efforts to stop the operation called Vemma, which earned more than $200 million annually in 2013 and 2014. The agency said that Vemma is an illegal pyramid scheme that has affected consumers throughout the U.S. and in more than 50 other countries.

The Enquirer last year published an investigation on the company that found it was specifically targeting young adults and promising monthly payouts of up to $50,000.

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

Vemma is a multilevel marketing company that uses its members, called "affiliates," to promote health and wellness drinks. The company claims affiliates can earn big money by enrolling others either as affiliates or as customers, but the FTC claims that Vemma focuses on recruitment rather than retail sales of its products to make its money.

According to Vemma's own income disclosures, more than 97 percent of its active affiliates earn $12,000 a year or less – far below a minimum-wage full-time salary. Nearly 80 percent earn less than $1,600 a year.

Vemma urges consumers to make an initial investment of at least $500 for an "affiliate pack" of products and business tools, according to the FTC complaint. Affiliates also are pushed to buy $150 in Vemma products each month to remain eligible for bonuses.

In a Wednesday statement, the FTC said that consumer losses are "inevitable because Vemma is an illegal pyramid scheme that rewards affiliates for recruiting participants rather than for selling products."

Vemma founder B.K. Boreyko has vehemently denied in blogs and videos posted online that his company is a pyramid scheme. He calls it "network marketing" and likens the company's business practices to those used by Amazon.com.

UPDATE 10:30 a.m.

The Federal Trade Commission has declared a controversial company that targets college students an illegal pyramid scheme disguising itself as a legitimate sales company, according to a lawsuit made public Wednesday.

Vemma, which sells energy drinks such as Verve and Bod-e Burn, was the focus of an Enquirer investigation last year.

Truth In Advertising, a consumer advocacy organization based in Connecticut that has been critical of Vemma since 2013, obtained copies of the FTC's sealed lawsuit Wednesday and posted them online.

The lawsuit cites some of the income claims that The Enquirer highlighted in its front-page story last year, including monthly earnings of up to $50,000 a month. In reality, the vast majority of salespeople earn less than $1,600 a year.

The suit asks for the company to be forced to repay its "ill-gotten monies." Vemma faces five charges from the FTC, including operating an illegal pyramid scheme.

The FTC has filed for, and been granted, a temporary restraining order with asset freeze to keep the company from destroying records or disposing of assets, according to Truth In Advertising. A court hearing is set for Sept. 3.

ORIGINAL STORY

The Federal Trade Commission has served a complaint to Vemma, a controversial company hawking energy drinks that was the focus of an Enquirer investigation last year.

Details of the complaint are sealed until Friday, according to a consumer advocacy agency that has been critical of the company for the past two years. FTC officials didn’t respond to requests for comment Tuesday. FTC investigations – including the existence of investigations – aren’t public.

The Enquirer found that as of July 2014, more than 160 consumer complaints had been filed nationally against the company, including a dozen in the Cincinnati region. Consumers complained that the company preyed on young adults, enticing them with payday promises that they didn’t deliver.

One Mason parent reported that his son dropped out of college and seemed “brainwashed,” no longer able to think for himself as he chased his get-rich-quick dreams and denounced family members who questioned the company.

Vemma touted that salaries in the $50,000-a-year range were possible with hard work, but its own income disclosures indicated that more than 97 percent of its active affiliates earned $12,000 a year or less – far below a minimum-wage full-time salary. Nearly 80 percent earned less than $1,600 a year.

Vemma fans have been quick to dismiss the FTC’s concerns online, with one salesman posting a video on Twitter denouncing the agency as “so dumb” and “slow-moving” as he drank a Bod-e Burn, one of Vemma’s energy drinks.

“I believe Vemma’s going to come out of this, and Vemma’s going to be fine as a company,” said salesman Brad Sarver in his video. “The federal government does not like free enterprise. They do not like health and wellness companies.”

Sarver said the company was shut down Monday while FTC officials conducted an on-site investigation. On Tuesday, Vemma affiliates continued to get error messages warning that product orders “are temporarily unavailable at this time.”

Vemma’s founder, B.K. Boreyko, has had previous run-ins with the FTC. In 1999, Boreyko headed New Vision, which claimed that its product “God’s Recipe” was an effective treatment for attention deficit hyperactivity disorder. Boreyko agreed in a settlement to quit making unsubstantiated health claims about his products.

The Connecticut-based consumer advocacy group Truth in Advertising has highlighted Vemma in multiple posts since 2013, accusing the company of making illegal health claims and operating a pyramid scheme-like business structure.

“After two years of TINA.org investigating Vemma, I am not at all surprised that the FTC is bringing a legal action against the company given its business structure and continual violations of the 1999 FTC consent order that precluded Vemma from making health claims,” Bonnie Patten, the group’s executive director, told The Enquirer in an email Tuesday.