Vemma Reaches Settlement Agreement in FTC Pyramid Case
Company struggled under court-mandated customer-focused business structure.
Parents share their stories and experts offer tips on what families can do.
Janet always had a close relationship with her son. When he went to college she and her husband would visit frequently, attend football games and take him out to eat. One weekend, her son, asked his parents to come to a lunch he prepared. But instead of making lunch, he made a pitch about Vemma, a supplement drink manufactured by an Arizona-based multi-level marketing company (Multilevel Marketing – a way of distributing products or services in which the distributors earn income from their own retail sales and from retail sales made by their direct and indirect recruits.) that heavily recruits young affiliates, including on college campuses to market its business. In Vemma lingo, these young recruits are part of a “Young People Revolution,” which is heavily promoted on social media with the hashtag #YPR.
Janet’s son told her that Vemma, a mangosteen-based beverage, and Verve, a highly caffeinated energy drink specifically marketed to millennials, would improve her health.
Janet said she was a little put off by the pitch, but wasn’t overly concerned. But that changed rapidly, she said, as her son became more involved with the company and the YPR movement. Over the next few months, Janet (whose name has been changed to protect her family’s identify) said her son started putting more time into marketing the Vemma business and watching motivational videos than into his own studies and started to view it as his future path.
Worried, Janet researched Vemma’s structure. She wasn’t comfortable with the company’s emphasis on recruitment – in the months following her son’s involvement the company was deemed a pyramid scheme in Italy and has been facing increasing media scrutiny — or the reality that few affiliates ever earned the six-figure salaries Vemma touted. She expressed her concerns but said her son, a freshman who was struggling in some college classes, had a counter response to every issue she raised, sometimes texting fellow Vemma affiliates for a response to her specific questions as she was talking to him.
“It was like talking to a Moonie. He had an answer for everything. And it was awful. Our relationship suffered quite a bit and it got to the point that we couldn’t even talk about it,’’ Janet said. “My son’s personality changed. He became disrespectful … telling us untruths, which he has never done.”
Over the course of about a year she said her son, who had bought the company’s $499 builder pack and was purchasing about $150 worth of products each month, which was required to be fully eligible for all bonuses at that time, drew down the $5,000 that was in his student bank account. Alarmed he had spent this money and was increasingly unwilling to talk to his parents about his involvement, Janet sought help.
She reached out to Vemma about her concerns that the company was sending the wrong message to students that school is not a good investment. CEO Benson K. Boreyko responded to her saying he never went to college and that her son should not only focus on school, but focus on “work ethic” that could be more valuable to him in life, noting high unemployment rates for college grads and student loan debt.
She called the college, which told her to call the parents’ association. The college’s parents’ association told her to call student counseling, which she did. The counselor gave her some general advice on how parents can communicate with their children and offered a family counseling session.
Janet decided the best course of action was to try to repair her relationship with her son by dropping the subject of Vemma altogether.
After a few very difficult semesters her son ended his affiliation with Vemma. Janet was able to repair her relationship with her son, but he will still not discuss Vemma with her and she avoids any discussion of his involvement to keep the peace. But cognizant of the company’s continual efforts to recruit college students, Janet wants to warn other parents.
“I didn’t realize I had to tell my kids about this. I knew I had to tell them about sexual diseases and drugs and pregnancy and alcohol … all those things, but I didn’t realize this was such a horrible thing,’’ she said. “I think parents need to be warned and kids need to be warned. I hate to see anybody else go through this.”
Concerns about company tactics
Several Vemma videos are aimed at parents and used to recruit students on campus. In one video, Boreyko directly talks to parents. Another shows parents who are thrilled with their children’s involvement with the company. Parents in the videos discuss how their children have learned leadership skills and responsibility and how their child’s involvement has brought the family closer together.
But other parents tell a different story.
Sheri Trimboli, a business owner in Chico, California, became concerned when her son, who attends college nearby, got involved in the company this summer. He had gone to two meetings and was urged at one late night meeting to go to Walmart and use the cash he had on hand to get a prepaid Visa card so he could sign up, which he did.
She said several people in town told her that her son had asked them to come to a meeting, though he was secretive about what it was for, in an effort to get them to enroll. He also tried to get his cousin, who attends a college in San Diego, involved as well. When she and her husband researched the company and advised against it, she said her son got very upset and emotional. He told her his goal was to help them retire and make sure the family didn’t have to worry about money anymore and that their way of doing business — they own a log design firm — was archaic.
“I thought it was cult-like because of the fact that they focus on a specific market and the market is 18-22 year olds…the whole thing was to become part of the ‘cool’ group… He really felt loved by outsiders who told him he had such potential,’’ Trimboli said. “It was the first time I had a strained relationship with my son. He’s never had an attitude with me.”
She said she was worried her son would consider dropping out of college and after many conversations about their concerns, she told him they’d stop paying for his car and rent if he continued with Vemma. Her son opted against continuing his affiliation with the company. But she and her husband want others to be wary as Vemma affiliates recruit in their college town.
Parents, students appeal to officials for help
Similar concerns are echoed in more than a dozen complaints filed with the FTC. Several of the complaints, which were obtained by TINA.org through a Freedom of Information request, specifically express the concern that young adults were giving up on school to chase the small chance of earning big bucks with Vemma. They also describe the effect their child’s involvement with the company had on their relationships.
Said one parent:
As his father, I am very concerned about the misleading and negative influence that Vemma has had with my son. Not only did he drop out of college, but he has been living on the streets in his car for the past three weeks. My son has been persuaded by Vemma’s training and negative influences to have unrealistic expectations for earning an income. I believe he is not able to think for himself, yet turns to Vemma for guidance over his family.
My son and nephew are both students at Marshall University and apparently Vemma is spreading like a virus on campus. I am afraid that there will be several students abandon (sic) college based on the false hopes and dreams of this scheme.
The FTC records also show that many students have complained about aggressive tactics used by Vemma affiliates to recruit them.
I was contacted several times this past summer to join the YPR Vemma MLM organization. I was told I’d be rich quick. … Furthermore, I was almost bullied by those who have joined (calling me uneducated, ignorant, lazy etc.) I do not hold any of those traits. …Why promise so many kids wealth? Why feed lies and preach that college is not useful anymore…
Another student wrote:
The employee approached me at school and proceeded to start pitching this company to me that had a cancer curing “extremely” healthy energy drink. He mentioned schools (sic) lack of importance and that if I joined Vemma, in 3 to 5 years I could be earning 1.5 Million Dollars (sic) per year. He also referred to my parents as average because their salaries were not as high as the ones he earns at his company. After this I decided to part ways with him to get to class. … Later that day he contacted me on Facebook … I told him I wasn’t interested at all and closed the chat but shortly after I saw my name on the newsfeed on a status in which he referred to me as a (sic) “Average Hater.
In response to questions from TINA.org regarding these concerns CEO Boreyko said that the company has never encouraged students to drop out of school.
“As I mentioned, I just had a call with a parent a couple days ago, and then spoke to her son,” Boreyko said in an email. “My message was to finish what you start. It’s the biggest secret to success I can give young people. You should stay in school, stay focused, work hard and get great grades. Make friends, take business classes and network. If you want to continue with Vemma, do it part time. And listen to your parents.”
Sensitive to recent criticism that the company is targeting college students, Vemma started offering a new college cash bonus. (Though less than 10 percent of affiliates qualified for that level of bonus in 2012 and even less of a percentage qualified in 2013.) The company also said it was stepping up compliance efforts regarding affiliates who were making health or get-rich-quick claims.
Boreyko termed concerns about cult-like behavior as “accusations” that were “wild and outrageous. “ He said, “If you believe in something, you speak in favor of it. That’s a cult?”
Experts say young adults particularly vulnerable
Experts say young adults can be particularly vulnerable to recruitment pitches used by some questionable MLMs and pyramid schemes.
“There is a very heavy period of time where people are trying to find themselves, they are trying to define what do they believe, what am I going do for a career, what am I going to do when I graduate … the economy is not so great … ,“ said mental health counselor Steve Hassan, of the Freedom of Mind Resource Center based in Newton, Mass. “ … People are still very much in formation of who they are so they are going to be more susceptible to peer pressure. They are going to be more vulnerable to people who say, you know, ‘I see greatness in you, man, I see greatness. I mean you could be doing so much more with your life.’ What kid doesn’t want to hear that especially from a peer or an older person? Then they have the fraudulent you can have a $3 million yacht and do it part-time.”
Students may be particularly sensitive to criticism from loved ones about their involvement with a particular MLM business that may be a pyramid scheme. Experts said that may be because some employ some of the same tactics as cults, such as indoctrinating members to think that if a loved one isn’t supportive of the organization than they just don’t understand it well enough or are “dream killers” and obstacles to their success.
“The pyramid scheme … can mobilize its very own victims in cult formations to expand its reach, attack whistle-blowers and protect itself from law enforcement when exposed. … It contains elements of cultism, mind-control, authoritarianism, political corruption and social disruption,’’ Robert Fitzpatrick, president of pyramidschemealert.org, wrote in a July 2014 letter to the FTC.
Parents who believe their child is involved in a shady MLM have to respond carefully and thoughtfully, experts say. If a parent comes on too strong, their child could shut them out.
“The worst thing you can do is say you are in a fraud, you are in a cult, you’ve been brainwashed, or you are stupid, you are going to regret what you’ve done, in other words, attacking the person or attacking the group, the product, or the methodology…’’ said Hassan. “Because that will activate what I refer to as thought-stopping techniques.”
Approach from a business perspective
Stacie Bosley, an assistant professor of economics at Hamline University in Minnesota and an expert in MLMs, said there are several MLM companies recruiting distributors on campus. Bosley said when she talks to students about MLMs she approaches it from a purely business perspective so that they don’t become defensive. She said it is vital that family members recognize and respect their child’s passion for the endeavor.
Bosley suggested discussing the need for the product the MLM is marketing, market saturation issues, such as whether too many distributors in the same small regional area such as a college campus will diminish the student’s chances to succeed, whether the product can be found elsewhere more cheaply, and how much they are spending on the business. Often, she said, questionable MLMs and pyramid schemes will emphasize potential for long-term revenue and obscure expenses off-setting that. She said:
If you start to talk … about pyramid schemes and things my guess is at that by that time they are to the point where they have been indoctrinated to reject that outright, and that person has been seen as sort of an obstacle to their success. … Treat it more along the lines of the rhetoric that they are already working in, which is a business … If you talk about it as a business and you ask them to process the true difference between the paycheck and the expenses, try to get them to process, from a net profit point of view, what’s actually happening on a month-to-month financial basis …
She and other experts say distributors in questionable MLMs and pyramid schemes often believe that if they aren’t earning revenues it is because they aren’t working hard enough or haven’t completely committed to the organization, rather than that there is a flaw in the structure of the business.
Fitzpatrick said in his FTC letter:
Whereas the Ponzi scheme enables all its victims to grasp the nature of the fraud once it is revealed and to identify themselves as innocent victims, the pyramid must engage in mind control, cultivate a predatory value system among participants and subject victims to a debilitating narrative of self-blame, leaving many unaware of how or why they lost their money…
Tips for parents
If the student is still resistant to discussing a business a loved one suspects of being a pyramid scheme, experts suggest following these steps:
Here are links to resources for family members concerned about a student’s involvement in a questionable business.
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