“Meet me at the food court in Square One.”
This summer, Munawar Peer, a second-year student at the University of Toronto, received a text from a student in his organic chemistry class asking him to meet. “It seemed weird because he’d never asked me to hang out before,” said Peer. In the food court, the student led Peer to a table with five other students, where he was asked to sit down.
“At this point, I had no idea what it was about,” said Peer. “They started talking about energy drinks, and how I could be a millionaire based on this idea.”
One of the students then pulled out an iPad, and instructed Peer to enter his credit card information and pay $500. “They said it was a massive opportunity that I had to sign up for right then,” Peer continued. He rejected the offer.
The six individuals were affiliates for Vemma Nutrition Company — a privately held company founded in 2004 that sells energy drinks and natural health products. The company markets its products through affiliates who purchase product from the company at wholesale, and then market the product to other consumers.
Some have alleged that Vemma operates like a pyramid scheme, while others have alleged that some affiliates end up getting ripped off.
According to Vemma’s Income Disclosure Policy, 74 per cent of Canadian affiliates earned between $0 and $1,178 in 2012. According to the company, these amounts do not include profits earned on the resale of products to consumers or other affiliates. In Canada, the low-income cut-off is around $21,000.
Consumer advocates have targeted Vemma in the past. According to a Freedom of Information Act request filed by TruthInAdvertising.org, an independent advertising watchdog, the Federal Trade Commission (FTC) has received at least 40 complaints about Vemma and its products.
In 1999, the FTC also accused New Vision International of “unfair or deceptive acts or practices, and the making of false advertisements.” New Vision International eventually transferred its business operations to Vemma. Benson K. Boreyko — Vemma’s founder and Chief Executive Officer, and cofounder of New Vision International — was named in the complaint. The complaint was eventually settled, and Boreyko agreed not to make claims about the efficacy of any products without “competent and reliable scientific evidence, that substantiates the representation” until 2019.
While there has been limited mainstream media coverage of the company, a number of blogs serve as forums for ex-Vemma affiliates to voice their concerns with the company. The company is also facing a class-action lawsuit in California, which charges the company with “fraudulent, deceitful and unfair business practices.” According to the lawsuit, “As part of Vemma’s business practice, once a consumer purchases its Verve Product via Vemma’s online website, Vemma knowingly or negligently, and without prior disclosure, charges consumers for additional Verve Product that they did not purchase or agree to purchase.”
According to a spokesperson for Vemma who declined to give her full name, signing emails as “Breeana E.,” affiliates earn compensation in one of two ways: “First, when the distributor purchases the product at wholesale from Vemma and sells it to the general public, he or she retains any profit on the sale. Second, the independent distributor may be paid a commission on product sales…by the distributor and product sales by other distributors sponsored in to the distributor’s sales organization.”
“No commissions are paid for sponsoring or introducing other people into Vemma,” the spokesperson continued. Affiliates can, however, benefit from recruiting; according to the Vemma website, a monthly fee for product delivery is waived if an affiliate meets certain conditions, which include signing up three new “customers,” who must cumulatively purchase a signifigant amount of product. The difference between customers, affiliates, and brand ambassadors is not clear — although the website does state that customers can enroll more customers, and receive the benefits of doing so.
Activity on postsecondary campuses
Vemma stated that it does not have up-to-date numbers of active affiliates and customers, nor does it have information on the proportion of affiliates who are college students. Nonetheless, students report Vemma affiliates at campuses across Ontario — including the University of Toronto, Ryerson University, and Brock University.
“It is my impression that Vemma admits to focusing on college-aged people,” says William Keep, dean of The College of New Jersey (TCNJ) School of Business and trial expert in various pyramid scheme cases.
One FTC complaint against Vemma, filed on March 22, 2013, echoes this sentiment: “The company preys on high-school and college students…A few of them end up making six figures, while the majority waste away their $500 membership fee.”
Becoming an affiliate
Posing as a U of T student looking to generate extra income, The Varsity spoke to Ron — a 19-year-old Vemma affiliate in Mississauga, who claimed to have 35 other affiliates and customers on his “team” — to learn about the process.
According to Ron, one becomes an affiliate through a $500 one-time payment. This payment buys the affiliate 192 cans of Verve! energy drink, a success toolkit, access to mentors, and an ecommerce website. The affiliate also has the option to transition to two-product auto-delivery, which provides a continuous supply of product for $120 per month. “The two-product auto delivery ensures that you’re staying active, that you’re still in the business,” said Ron.
To sell product, affiliates refer buyers to an ecommerce website. The company then compensates the affiliate. “This is not $10-an-hour,” said Ron. “It’s how much you think an hour of your life is worth. You do the work, you get out the word to more people — you get paid more.”
According to Ron, Vemma relies on prominent endorsements to garner credibility. “We have NBA players, NFL players, Entertainment Tonight — they work hand in hand when we do events,” Ron noted. “We have our own Verve! NASCAR, and the credibility goes on with this drink.” Verve! is the official energy drink of the Phoenix Mercury, a Women’s National Basketball Association (WNBA) team, and the Phoenix Suns, a National Basketball Association (NBA) team. Ron was subsequently contacted on the record, but had not provided further comment as of press time.
Multi-level marketing schemes
In September 2013 dean Keep was alerted to recruiting by Vemma affiliates at his college. In response, Keep sent out a memo urging students to exercise caution. The memo read: “some MLM [multi-level marketing] companies have proven to be pyramid schemes.”
The Canadian Anti-Fraud Centre — a federal agency that collects information on fraud schemes — defines pyramid schemes as: “frauds that are based on recruiting an ever-increasing number of investors. The initial promoters (those at the peak of the pyramid) recruit investors who are expected to bring in more investors, who may or may not sell products or distributorships. Recruiting newcomers is more important than selling products.” Under Canada’s Competition Act, pyramid schemes are illegal.
According to David Soberman, a professor of marketing at the Rotman School of Management, multi-level marketing schemes can be a viable business structure. As an example, Soberman cited Avon Products — a multibillion-dollar manufacturer and distributor of household and personal care products.
On the other hand, illegal pyramid schemes “are generally associated with having people join who also have to make a large monetary contribution to join. The ‘get-rich-quick’ positioning is a good signal of something that might be fishy,” said Soberman, “multilevel marketing companies that sell physical goods are generally legitimate, since the revenues are not generated until the goods are delivered.”
According to Breeana E., “Vemma has adopted, and enforces other policies to ensure compliance with federal and state laws and to make certain that many of the abuses commonly associated with illegal pyramids, such as inventory loading, cannot occur.” Inventory loading is a process whereby companies encourage the large purchase of inventory by affiliates, as a condition for retaining affiliate status or qualifying for rewards.
Vemma avoids inventory loading with its buy-back policy, whereby “the company will buy back all product in resalable condition purchased by the distributor and provide a 100% unconditional, full money-back guarantee.” Affiliates can also terminate their agreement with the company at any time.
Nonetheless, some FTC complaints allege that the company drags its heels on refunds. “We had cancelled our auto-account with Vemma. They advertise that cancellation can be made at any time…risk free,” one complaint alleges, “They continue to send us their products and charge us.”
Caffeinated energy drinks
As of January 2, 2013, Health Canada regulates all caffeinated energy drinks (CED), like Verve!, as food products. This means that CEDs are subject to enforcement by the Canadian Food Inspection Agency.
CED labels must be in full compliance with the Food and Drugs Act and Food and Drug Regulations by the date indicated in a company’s Temporary Marketing Authorization Letters (TMAL). This means that all CEDs must have a Nutrition Facts Table, ingredient listing, and allergen information.
A transition period of up to 18 months — no later than December, 2013 — was provided to bring CED products into compliance with food labelling requirements. Verve! was issued a TMAL on December 12, 2012. A can of Verve! with a listed expiry date of May 2014 — obtained by The Varsity on January 19, 2014 — did not have a Nutrition Facts Table. When asked for comment on the labelling of its products, Vemma referred The Varsity to Health Canada.
According to Laurie Stephens, director of media relations at U of T, the university is unaware of any multilevel marketing schemes operating at U of T. However, she noted, “Students should be cautious about such enterprises and be aware of where they invest their money.”