How pyramids are built: An inside look

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Marketers of Vemma juice drinks went to college campuses and elsewhere to recruit “affiliates” for their “opportunity.” Affiliates were encouraged to recruit more affiliates, who in turn would recruit more affiliates, who in turn . . . . You get the picture: Lather, rinse, repeat. Touting their “game plan to get you earning $500, $5,000, or even $50,000 per month!” they described what they were selling as a “full-time income with part-time effort.” In a complaint just filed in an Arizona federal court, the FTC calls it something else: an illegal pyramid.

The defendants claim to market health, energy, and weight loss beverages. But the FTC says a big chunk of their business is selling young people on the benefits of shelling out $500-$600 for an “Affiliate Pack” of Vemma products, print materials, videos, and logo merchandise. In fact, according to the FTC, the company restricts affiliates from selling Vemma products at a lot of the likely places – like business offices, flea markets, swap meets, home shopping channels, and online stores or auction sites, including eBay and Craigslist.

Curious about how purported pyramids are pitched? According to the complaint, here’s how Vemma CEO (and defendant) B.K. Boreyko described the system at a company event:  

Here’s our simple plan. Number one, buy an affiliate pack.

Number two, find three people that see what you see in this business in your first week. Remember, you got that 24-second shot clock in a basketball game. That’s what brings excitement. We got this thing called a frenzy bonus and a double frenzy bonus, that all that does is bring excitement to your business here. So, find three people that see what you see in this business. You might find three or four or five customers, but find three affiliates and get them to buy an affiliate pack. And guess what, you’re going to make approximately 700 bucks. Wow, you got your money back for your [ ] business, you’re fired up, and you got three great people that have raised their hands saying I want significant change financially in my life.  (Cheers and applause.)

Third thing, third thing: Get car qualified. If I’m going to give you 400 bucks a month to go get yourself a car so you can feel good, and here’s what’s great about the car is it actually helps your business because people look at you and they go, you’re driving that? What, maybe I should sit down with you . . . So you get yourself in a car and then you help five people get in a car, you’re making $50,000 approximately in residual income. And that is our plan. That’s it. (Cheers and applause.)

Count I of the complaint charges that Vemma’s compensation program is based primarily on recruiting new participants, not on the retail sale of the drinks. Thus, the FTC alleges the defendants are peddling a pyramid scheme, in violation of Section 5 of the FTC Act.

Count II challenges as false the defendants’ claim that participants are likely to make substantial income. According to Count III, they failed to disclose – or failed to adequately disclose – that Vemma’s structure pretty much ensures that most people who sign up won’t earn big bucks.

Count IV focuses on the promotional materials the defendants gave their affiliates to recruit more affiliates. Because they included claims the FTC says are false and misleading, the complaint charges that the defendants provided others with the “means and instrumentalities” to violate the law.

The case was just filed, but if your clients sell business opportunities, the allegations offer insights into the kind of tactics likely to draw law enforcement attention.

If you’re an entrepreneur thinking about sinking some money into a biz opp, investigate thoroughly, consult resources from the FTC to help you spot the telltale signs of deception, and seek input from successful business people among your family and friends – in other words, not someone trying to sell you something.

 

Comments

Every business is a pyramid. Whether it be retail, manufacturing, financial, or whatever, as long as a product is exchanged for a monetary value, it is leagal. The wrong doing or overselling in the marketing plan is what justify it as wrong doing which need to be corrected. A pyramid becomes illegal when no product is being exchaged for the money that has been handed upward.

No. There is no other business model other than MLM where the primary source of product purchases are the people IN the business versus customers OUTSIDE the business. BurnLounge and FHTM had very few OUTSIDE sales, had products, and were recently shut down. QED

So your playing the 'as long as the company has a product its legal' card. Sorry, that's on excuse honey. Go and parrot your MLM brainwashing diatribe someplace else. Ciao!

Opinion vs Fact
People at the top make all the money?
People that get in first make the most money?

Not all the money, but most of it. People that get in first in any ongoing organization generally make the most money. But the issue isn't these points, it's the fact that most MLMs are illegal pyramids and many are RICO frauds, as described here: www.StopTheAmwayToolScam.wordpress.com

That is inaccurate, you must not really know how the business model works then.

In a legitimate MLM, the person who ACTUALLY DOES WORK will make money, regardless of when they got in business and how long they've been in. In actual and legitimate MLMs you're duplicating by other business owners.

The sad thing is that Vemma closed its doors so that those of us who really liked the product now have no place to get it. The marketing plan may have been faulty, but the product was not. The only problem I saw was that it was hard to make bonuses without recruiting. I didn't buy the affiliate pack because I couldn't yet afford it. That cut my earnings by about 3/4 of what I could earn as a full affiliate with the affiliate pak. This was one of the oldest of the MLM companies, not a fly by night bunch. By what you have said above, you had better eliminate all insurance agncies, car dealerships, and industrial sales organizations because they all operate on the override or team leader commission on the team's earnings idea. Yes, Vemma should have put more emphasis on selling products than on recruiting a team. One still had to sell product, as an affiliate pack or a monthly shipment to qualify for the best earnings and to advance in the leadership ranks. IMHO you, FTC, hurt a lot more people today than Vemma hurt in its 22 year history. I think you should have, and, indeed, could have found a way to work with Vemma to change its compensation plan and marketing to make their products have more earnings value than the recruiting plan. Let's face facts, though, most people who want to use the vitamin and weight loss products of Vemma really liked the idea of being able o get their products at a "discount" which was the money, in product points, they got which later translated into money and, since people order this kind of product month after month, it became residual income, just like the per cetn of renewal premiums that an insurance agent receives year after year.

FAR more people were hurt by Vemma than benefited from it. Your description of not being able to make money without sponsoring is EXACT sign of an illegal pyramid. Vemma was around 12 years, not 22. This is NOTHING like insurance, because people are outside customers of the insurance agents, not fellow agents.

I am a affiliate customer Leslie and I have been using vemma products for over two years. The FTC has made an alleged complaint against vemma.
The FTC came in to help me the consumer. Why is it I can't get my high quality clinically tested products that vemma has provided for me.
The FTC has keep me and other consumers of vemma from receiving our monthly products and placing orders. I have friends and family that love the products as well as I do. So if the FTC is protecting me why is it that they don't ensure the truth first before shutting a major well accredited company.
I will just say this one thing to you because I have been consuming vemma products for over two years.
As a voice on social media we should all be careful of what we say about one another, especially if we are not directly connected to one another, and maybe even more if we are connected to one another.
You don't realize the thousands of consumers of vemma products, lives that you have totally disrupted without warning. Many like myself whose has finally after many years of looking found a product to help them nutritionally.
I purchased a member pack when I first came in.like the young college students and they give you boxes full of products to sample and start your business and materials and tools to work with which is fithy dollars worth in comparison to the amount of products they give you. It doesn't last long because people consume the products, the quality is that good. Everyone is buying products and consuming them in vemma some are just making money at it. This is a consumable product and we purchase it over and over again because we like it and it helps use. Just like when you go into walmart to purchase a product over and over again. Walmart has many alleged complaints against them but I have never heard of them being shut down. I really want to know FTC what are you doing. Do you even care about me the consumer because I am being hurt buy this shut down I need my products. I am a affiliate customer I use vemma everyday. vemma has not hurt me and thousands and more of other customers that are using the products everyday, for many years. The FTC and how their tactics, hurt me so how it this protecting me?

There is no such thing as an "affiliate customer." You are either an affiliate (who can buy the products) or an outside customer. You CAN'T be both. The FTC is protecting the people being scammed by Vemma, even the ones like you who don't realize you're being scammed and participating in an illegal pyramid.

How about pyramid within a pyramid?

What does that mean?

A pyramid scheme within a pyramid scheme is possible. Herbalife's nutrition clubs would be an example of that.

I hope Herbalife is next. The fraud has gone on far too long.

Amway needs to be taken care of right away as well.

Your bashing Amway, but my guess is you've either never been in it, don't really know how the marketing plan works, or you got in business and had too big of an ego to get mentorship from someone who knows how to build a business so you made assumptions. Just saying the person who is at the tip doesn't make all the money, in fact I know people who have been in business longer than people within their network and make less than them by far. It's performance based not pyramid based. Sorry.

Amway has been around for over 50 years and is reviewed by the FTC every year. They're basically the benchmark for how other MLMs work. Amway has also paid out the most bonuses to their business owners than any other MLM thays been around. Debt free, privately owned, great products, and a legitimate compensation plan. Just because you had a bad experience with a personal doesn't make the company bad. Do some real research.

I hope Ariix is next. their 4x4 compensation video on youtube is a major fraud

Herbalife needs to be addressed next. Just as bad if not worse

Herbalife is worse, and Amway is worse than both, combined.

Network marketing is one of the highest paid professions in the world. How would you be against such business when they have been providing products through of the DSA with this type of business model for years.

I'm pretty sure buying premium health and wellness products couldn't hurt any one.

If you mean Financially then that's pretty sad statement, if making a a $600 dollar investment is going to "hurt" someone then $600 dollars must be a lot of money huh?

Network marketing is only a highly paid "profession" for the top 1% or less, the other 99% or more are ripped off owing to overpriced products that are nearly impossible to sell to non-distributors and tool scams. You can read about these issues at www.StopTheAmwayToolScam.wordpress.com

The DSA is merely a scam lobbyist organization trying to protect the MLM scams that pay their payrolls. I tried to get the DSA's attention years ago, and they ignored me. They can't ignore the FTC and other regulators and law enforcement agencies, they should all go to jail for trying to protect these scam artists. Keep in mind that Vemma is/was a DSA member in "good standing." The products aren't the major Vemma issue, although products can harm people. The big issue with Vemma is the financial "hurt" their business scam causes. The $600 is a lot of money to many people, but it's only the tip of the Vemma and other MLM iceberg that has sunk the financial health of 10s of million of people over the years. What do you think of that, huh?

All MLM's need to be in court under the Racketeer Influenced and Corrupt Organizations Act Because that's exactly what they are!

Highest paid professions in the world?? Since when? I've looked at a few income disclosure statements of various MLMs and found that every single one of them had an average *gross* commission that was less than the poverty line with most of them being under $1000/year.

Don't confuse the 0.01% of distributors that steal 99% of the rewards with the 99% of distributors that fight over the crumbs.

They did say one of the highest, not THE highest. And they are right. The high level distributors make LOTS of money, especially with companies like Amway, which supports the tool scam. Using average numbers confuses the issues. The real issues are the tool scams (RICO fraud) and lack of retail sales to external customers (illegal pyramid).

Melaleua, Inc. Is one of the most obvious Pyramid Schemes on the planet. I coined Melaleuca #NoRecruitNoPay #EndlessChainScam

The Billion Dollar Question Remains *How do they get away with it? It seems to me that the evidence of coruption and/ or scheming should be abundantly clear to all regulators seeking consumer protection.

I was with Mela over sixteen years and have presented more then enough data to show the scope of *should be criminal activity. Google - ken klocke melaleuca. #FearBasedIcome #FTC #FBI I pray the Federal government takes these good O boys down.

Frank VanderSloot's relationship with (his AG) is way too cozy "Melfeasants sums it up in my mind!!

Check it twice.

Every business is not a pyramid, although you might think that because of the structure. Use Starbucks as an example. There are tons of baristas and cashiers, that might have one manager at a store. Then there is a regional manager that might manage the managers. Then there is a national manager and so on up the CEO level. The difference is that all employees are paid off of what? You guessed it. Actual retail sales and they earn an hourly rate. And actual retail sales that are to people not in the scheme/network/whatever you want to call it.

The FTC did a great job on Vemma and is going to lay the hammer down on some other MLM companies. You could read these court papers and substitute in Herbalife, Nuskin, Usana, Amway, etc. and they would all read the same. All these companies pitch that "now is the best time to join", how can that be in thousands, or tens of thousands are above you. If you can't spot the sucker in the first 30 minutes, you are the sucker.

Great illustration of the "every business is a pyramid" fallacy!

The cornerstone "product" of Vemma and the MLM industry is packaged as business opportunity of a lifetime,
an achievable carrier path, with unlimited income potential.

"MLMsters" deceptive salesmanship of hopes & dreams to massive number of people is both false and misleading.
Selling people "on their own financial freedom dreams and long term prosperity" via the MLM business model, is the
illusion that harms millions of participants.

Upfront and transparent disclosures of internally documented and known actual distributor turnover
and success ratios are never made. Truth is never told nor disclosed about required efforts, actual
expenses and investments required to reach the very few % of distributors that ever make more than
they spend pursuing the "brainwashed" illusion.

Structures dictate behavior: The #MLM industry (incl. the Direct Selling Association "cartel")
has "masterfully" crafted a controllable money making "recycling" machines, with auto ships as
requirements for "independent distributors" to "prosper" in.

The legal rights of the MLMsters, which distributors agree to, without having in most cases no
understanding at all of meaning, are included in the hundred and something pages which form the
distributor agreement.

In short: MLM is the nice writing and saying vs. the reality of practising and promoting
unethical and often illegal business activities.

MLMsters behavior is:
Knowing, without knowing.
Seeing, without seeing.
Saying, without saying
&
Doing , without doing.

How can anyone say anything "bad" about the wonderful "MLM" industry,
don't they know we support this and also that humanitarian cause?
Our distributors are all so passionate about it .. that they actually
justify to themselves and others spending more on our products!

I think its about time the FTC shut down these pyramid schemes. They're rampant and a cancer in our society. They end up rewarding behaviour like lying, deceiving, and being selfish. It adds absolutely no value to our society.

I have been a Vemma Affiliate for 5 years. After having done all the others Amway, Mary Kay, Argonne Vemma was the best. I like the products as does my family. When I initially started in Vemma I was told the compensation plan and like any other MLB you get out of the company what you put into it. Just like any business. Vemma never claimed to cure they actually have a clause. The FTC is shutting down a business that many people depend on for their health my partner including Vemma has made a tremendous impact on his life,health. To me and many otherstudents there is no Nutritional supplements on the market that surpass Vemma.We all make choices I joined Vemma and made the right choice.

It's a scam, Mikey. It needs to be shut down, and all similar MLMs having little to no retail sales to external customers and having tool scams.

I'm just curious, AzMikey, what exactly about this product makes people depend it for their health? I have read the Vemma health studies (carefully I might add) and they were inconclusive at best even though they were commissioned by the company! I see nothing in its formulation and nutritional analysis that can't be achieved just as effectively and more cheaply by eating some fruit with vegetables and taking a multi-vitamin. I'm especially curious if you are making claims that can't be substantiated. And upon examination there seems to be other nutritional supplements out there that do a pretty good job so let me know what I'm missing that makes these special other than they are sold via MLM.

Vemma MIGHT actually have some decent products* but the problem is that most people were encouraged to sell the business opportunity rather than the drinks. When people challenged if it was a pyramid scheme, they were told that it couldn't be because those were illegal. So it was really easy for people to convince others that what they were doing, meaning recruiting rather than selling, was legal. I'm going to be very curious to learn how many non-affiliate customers are out there because I'm guessing that it is likely a small percentage of the business.

*I haven't actually tried any products made by Vemma. Personally I just can't justify the prices charged for the products. I achieve health by eating simple foods, exercising, and making smart life choices.

Every business is not a pyramid, although you might think that because of the structure. Use Starbucks as an example. There are tons of baristas and cashiers, that might have one manager at a store. Then there is a regional manager that might manage the managers. Then there is a national manager and so on up the CEO level. The difference is that all employees are paid off of what? You guessed it. Actual retail sales and they earn an hourly rate. And actual retail sales that are to people not in the scheme/network/whatever you want to call it.

The FTC did a great job on Vemma and is going to lay the hammer down on some other MLM companies. You could read these court papers and substitute in Herbalife, Nuskin, Usana, Amway, etc. and they would all read the same. All these companies pitch that "now is the best time to join", how can that be in thousands, or tens of thousands are above you. If you can't spot the sucker in the first 30 minutes, you are the sucker.

referring to the comments above... it has nothing to do with the products, whether they work, they have value or you like them. In fact, when a product is exchanged it is referred to as a "product based pyramid scheme". The deception is when a fraudulent business opportunity (the false hope/promise of making any money) is "stapled" to a product of value... that is the whole point... to disguise the fraud of the business opportunity by getting people to talk about the product. Otherwise, it would be more like a straight Ponzi scheme, without any product. And the scheme always uses commodity products with super high margins (cosmetics, weight loss shake mix, etc.) in order to pay the royalties to the company and sales promoters (top recruiters) in the conspiracy. With respect to Vemma products being removed from the market... as a consumer, I'm not entitled to have product available just because I like it. (I liked a certain TV show but it got cancelled because not enough others liked it; too bad on me.) Vemma allegedly marketed products with a fraudulent plan... and consumers are not entitled to them. If true market demand exists... rest assured, a consumer products company would step in to buy the brand (as is often done in bancruptcy court). That is unlikely here. Demand for pyramid product exists almost exclusively as a result of being "stapled" to the business opportunity.

The BurnLoung judge used the term "conjoined opportunity" for "stapled," both are very appropriate.

Great to see the FTC finally start getting some teeth on shutting down MLM pyramid schemes. They have quite a few more to deal with though. Herbalife has been ripping people off for 35 years with a fake business opportunity-- I should know!

Yes, you should know. Ackman has produced reams of information regarding Herbalife's scam.

I think it's interesting and sad that some folks in this thread spout their comments as if they are an actual authority on things. Instead of throwing every business out there that doesn't look like a traditional business into the same "this is a scam" trashcan, do some research. Educate yourself. Look for verifiable information and a long track record. An A+ rating with the Better Business Bureau is also a good thing to look for.

All businesses have to sell a producy or service to the public to be legal. The actual earnings potential also needs to be factual and verifiable.

If I'm going to open up a coffee shop or a bakery in my town, I go into that knowing it may not succeed. The marketplace is full of ideas, both good and bad, and my idea may not measure up. That's the chance one takes if one is an entrepreneur.the real issue here is that people who have maybe had a bad experience never forget it. But that possibility exists in all customer service interactions. If my plumber sucks, does that mean all plumbers and the plumbing profession sucks too? No. It just means you had a bad experience.

Use some common sense, people. Do your own research. There are actually some great companies out there whose track record, history, financial statements, and relationship with the BBB make them worthwhile to look at, especially in this economy. Think Thomas Edison or Henry Ford had detractors? Indeed they did. Their inventions revolutionized society, though. That is worth a few moments of thought.

And for the record, your job IS a pyramid. Everyone whose name isn't "boss" or "owner" is working their tails off for someone else's idea, all because they think it's what they should do. Job security is a thing of the past, and inside, I think everyone knows it. Evidence: 99% of ALL job creation in the decade between 2000 and 2010 was in people starting their own businesses. Also worth a few moments of thought...

Good luck out there!

jbjb - you might want to educate YOURSELF. Currently (and when you made your comment), Vemma is not rated by the Better Business Bureau. And as for the factual and verifiable information with regard to Vemma - have you actually looked at its own compensation disclosure? Not exactly the road for riches as the recruiters would have people to believe.

By talking about Thomas Edison or Henry Ford or even Jeff Bezos or Mark Zuckerberg you are only clouding the issue. What is being argued here is whether this is an illegal pyramid scheme which is a business designed to bring profit to the very few at the expense of the many. The issue is if the primary intent of the company is to recruit people or if it was in fact to sell the product with the secondary result that people would be recruited. It is my hope that the FTC carefully examines the percentage of customers that were never affiliates. And they are going to look at the types of promises of wealth that were given even though the compensation disclosures (that you had to look for) would suggest otherwise.

And I don't even know what are trying to say in the last paragraph that is of any significance. Maybe you've drunk too much of the Vemma koolaid? Just a thought.

I think it's interesting and sad that you have NO idea what you're talking about. I've researched MLMs for a decade and was in Amway for 16 years, so I have more expertise than you can dream about. A good BBB rating is meaningless, it only indicates whether the MLM scam addressed a problem a particular person had, not whether the MLM is an illegal pyramid and/or a RICO fraud. Comparing MLM scams like Vemma, Herbalife, and Amway to coffee shops, bakeries, and plumbers is idiotic, only MLM scams are MLMs, not other, traditional businesses. Most non-MLMs aren't pyramids, they have FAR more customers than the employees and don't scam their employees with tool scams.

I find it interesting that, many of those commenting on here about Herbalife are the same spammers on Twitter, and investor message boards, trying to save their short position because they relied on Bill Ackman of Pershing square to bail them out. MLM companies are controversial, I agree, but I also believe that there is a place for them and those that do not abuse consumers and have a wide variety of consumer protections are valid and legitimate businesses. For the many on here like Tex, Peter Brent, etc, why not disclose your short position, or that you are compensated by Pershing Square, directly or indirectly. The smearing of a good company like Herbalife is un-American, and quite frankly deplorable. I love the thought of working constructively with a company to improve, but through smearing and spamming to serve one's obviously poor decision (Bill Ackman) is out of line. Opining that Latinos are stupid is also deplorable and unfortunately that comes straight from Latino groups supported my Bill Ackman and there is plenty of proof that they bid their services to Pershing Square.
As I said, working constructively to improve a business for consumers is great, I also believe in health and fitness and to say that Herbalife has not helped people live healthier lifestyles through community based dieting, and fitness is the biggest lie of all. I hope and expect the FTC to understand the difference between the spam and smearing and what's really going on. As far as Vemma, I noticed the strategy was always about recruiting, they tried recruiting people through all sorts of unconventional methods, and if they are deemed a pyramid scheme, I'm glad they will be shut down. But Herbalife is not a pyramid scheme.

I find it interesting that you don't have a clue what you're talking about. I don't spam anywhere, I educate people about MLM scams like Vemma, Amway, and Herbalife. Most MLMs are illegal pyramids and/or RICO frauds. If you read my website for comprehension, you would already know this. Vemma has about 14% retail sales, Amway has 3.4% by their own study. For this reason, the FTC should have shut down Amway YEARS ago. There is NO place for MLM scams, only for the few that aren't scams. As I have stated on several occasions, I have no Herbalife short position, nor have I been compensated by Pershing Square, directly or indirectly. Herbalife isn't a good company, it is a good example of an MLM scam. I NEVER said Latinos are stupid, but they are being ripped off in Biblical proportions by companies like Herbalife and Amway. Where is the proof Latino groups bid their services to Pershing Square? The little help Herbalife has done with helping some people lose weight while ripping off millions of others would be laughable, if it wasn't so scammy. I hope and expect the FTC to understand the difference between an MLM scam and a legitimate MLM and what's really going on. As far as Herbalife, I noticed the strategy was always about recruiting and tool scams, they tried recruiting people through all sorts of unconventional methods, such as $130/name lead generation, and believe they will be deemed an illegal pyramid scam and RICO fraud, I'm glad Herbalife will be shut down. And Amway is another obvious illegal pyramid scam and RICO fraud.

what about the company saivian? any advice about them , they offer a real product . do you consider that a mlm scam?

The 20% cashback isn't a legitimate product because it isn't paid by the retailers. It is funded by new and existing Saivian membership premiums.

Herbalife is a pyramid scheme period. Anytime you as a "distributor" gets compensation, rewards, discounts etc. by bringing in new recruits is a pyramid. To say Herbalife is making people healthier is also absolutely ridiculous. Just because they are losing weight doesn't necessarily mean they are healthy. One can achieve the same result by starving themselves and drinking nothing but alcohol. Or by being bolemic. Diet and exercise is the key. And when I say diet I mean eating healthy food (not some processed meal replacement powder). These nutrition clubs are also a scam. They call themselves wellness coaches but aren't certified nor dietitians. Their only qualifications are they like to exercise and more than likely get all of their knowledge from watching youtube videos. I have a so called club near my hometown who employs friends who are distributors and they walk around giving out fitness and nutrition advice that only loop around to buy this product. They aren't certified or qualified to do either and I'm sure is happening in most of the herbalife clubs.

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