Tempe-based Vemma Nutrition Company, an MLM company which sells wellness products, settled a lawsuit last week filed by the Federal Trade Commission.
The settlement ends a year and a half of legal wrangling over the FTC's accusations the company was running an illegal pyramid scheme recruiting distributors to enlist more distributors, rather than focusing on selling a product. It also accused the company of making deceptive claims about income.
“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.”
Under the settlement, Vemma agreed to a $238 million judgment, that according to the FTC, "will be partially suspended upon payment of $470,136 and the surrender of certain real estate and business assets."
According to an email from Vemma CEO B.K. Boreyko, Boreyko personally paid the fine. A statement on Vemma's website reads:
...the settlement contains no admission of fault or any finding that Vemma operated unlawfully or as a “pyramid scheme.” From the beginning of the litigation, Vemma - a twelve year old family-owned business - has denied wrongdoing and has strongly contended that it is a customer-driven company with excellent, clinically-studied wellness products.
The statement goes on to say the company settled because of the legal and emotional cost of litigation. Vemma makes Verve, an energy drink and Bod-e, a protein shake. Read the FTC's statement here
and the response from Vemma's CEO here