In the law, there are two types of facts: facts that are relevant to determining the truth of the matter at issue, and facts that are irrelevant — and therefore inadmissible — in determining the ultimate factual issue.
Arizona-based Vemma Nutrition Company is a privately held multi-level marketing company that sells energy drinks, nutritional beverages and weight management products. Vemma, which calls itself an affiliate marketing company, is based in Tempe, Arizona. It was founded in 2004 by Benson K. Boreyko and his sisters. Vemma is an acronym for vitamins, essential minerals, mangosteen and aloe. Nutrition Company and its supporters go to great lengths to discuss why it is not an illegal An inherently deceptive form of multi-level marketing where participants are told they’ll get paid for recruiting other participants, and not necessarily for selling products or services. Typically, participants must pay some sort of initial investment in order to join, and will then earn a commission for each participant they recruit. Unfortunately for the unsuspecting consumers, pyramid schemes are doomed to collapse because the number of potential participants is limited.. But the only relevant issue in determining whether a company is a pyramid scheme is how the company’s reward system works.
Pyramid schemes primarily compensate participants for the recruitment and enrollment of other participants, and not for retail sales to individuals who are wholly unconnected to the company. The following “facts” touted by Vemma don’t answer that key question and therefore should NOT be considered in making the determination.
Endorsements: Mother Teresa, Chuck Norris, Martin Luther King, and yes, even Dr. Oz – it doesn’t matter who endorses Vemma, it can still be a pyramid scheme. (Oh, and by the way, Dr. Oz was “paid” to endorse Vemma. And just joking about the others; they never endorsed Vemma.)
Revenue: It doesn’t matter whether Vemma is making $20 million a month in sales or a gazillion dollars – it can still be a pyramid scheme.
Product: Even if the company has something to sell, a real product, it can still be a pyramid scheme. And even if it has a healthy product – Vemma contends Verve is a healthy energy drink, which it’s not –the company can still be a pyramid scheme. The determination centers on how distributors are compensated, not on whether a company has a product to sell.
Sponsorships: Paying an NBA team — such as the Phoenix Suns, or any professional team for that matter — for a sponsorship is not evidence that Vemma is not a pyramid scheme. If a dozen NBA lawyers did do an analysis of Vemma as the company claimed and determined it wasn’t a pyramid scheme then that might indeed be something. BUT contrary to what Vemma’s CEO said in one of his many videos, the NBA flatly denies that any analysis of Vemma’s business structure was ever undertaken.
What the CEO says: Vemma’s CEO Benson K. Boreyko is NOT an expert in what is and is not a pyramid scheme. This fact is clearly evident from his continual misstatements in attempting to define a pyramid scheme. In a recent video, he says the company isn’t a pyramid scheme because “we sell a real product here that provides real results…We are not selling air.” Ok, but see Reason 3. And because the CEO is not an expert, his opinion is irrelevant as to whether Vemma is or is not a pyramid scheme.
Marketing Budget: Vemma contends that instead of directing its marketing budget to advertisers as traditional companies do to make the public aware of its products, it spreads the word through distributors, known as Brand Partners. But even if its entire marketing budget is directed to Brand Partners, Vemma can still be a pyramid scheme.
Compensation: Even if some Brand Partners may earn more in bonuses than the people above them, Vemma can still be a pyramid scheme.
Longevity: It doesn’t matter how long a company has been in business. Vemma, which began in 2004, may be almost a decade old but age is irrelevant. Just look at Bernard Madoff’s asset management business that was found to be a A fraudulent investment operation that tricks investors into thinking that they will earn lots of money on a short-term investment, when, in reality, there isn’t any investment opportunity at all. Rather, the promoter just uses the money from new recruits to pay off the older investors. In other words, stealing from Peter to give to Paul.. Started in the 1980s, it is said to be one the longest and biggest frauds on Wall Street.
So given all these irrelevant facts, what facts are relevant in determining whether an organization is a pyramid scheme? So glad you asked. Learn some of the differences between multi-level marketing companies and pyramid schemes.
This story was updated on 9/25/2013 with an additional fact point.