The FTC Just Shut Down Vemma, Is Herbalife Next?

Massive news in the world of multi-level marketing seems to have gone 100% completely unnoticed by the markets and major financial media. This article from Truth in Advertising broke the news on Tuesday: the FTC have served MLM company Vemma with a complaint and frozen the assets of the company.

On Wednesday we got more details – the FTC has frozen the assets of Vemma claiming the company is an illegal pyramid scheme. You read the full complaint and corresponding documentation from Truth in Advertising here

Vemma is the outfit top Herbalife distributor Anthony Powell defected to when the heat was turned up by Bill Ackman in 2013.

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Reading the complaint, it seems clear that this injunction could have an aftershock across the MLM industry as a whole. Among the suit is some language that looks like it could apply directly to Herbalife.

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A similar action against Herbalife or any other MLM company would be disastrous.

What is very interesting is that among a slew of smaller companies that have been shut down by the FTC since the Herbalife debacle started years ago, Vemma is a big deal because it’s a part of the Direct Selling Association, which Herbalife has very close ties to and which Avon dropped out of earlier this year for unethical practices.

According to Truth in Advertising:

The FTC on Monday served the company, which markets mangosteen-based supplements and weight-loss products, and heavily recruits students with promises of riches as part of its Young People Revolution, with a complaint that is sealed until Friday, according to multiple media reports.

MLM insider Troy Dooly wrote on his Facebook page Monday that he spoke with Vemma CEO Benson K. Boreyko and that the conversation revealed that the FTC complaint centers around Vemma’s auto-shipment program, from which the majority of the company’s revenues are gained. Boreyko did not immediately respond to a request for comment Tuesday by TINA.org.

Confirming the news was this separate article, which states a couple of notable things:

“This is not a Vemma issue, this is an attack on the Industry. Vemma has the bad luck to be the guinea pig, and it will cost the company and CEO BK Boreyko, huge amounts of time and money to defend them against this FTC investigation.”

It also pointed out MLM attorney Kevin Thompson’s comments:

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Vemma, is one of the largest (if not the largest) private multi-level marketing companies in the U.S. and now it has reportedly been served with an FTC complaint..

Why is this interesting to Herbalife?

  1. Both companies are part of the direct selling association
  2. Top HLF distributor Anthony Powell recently left Herbalife for Vemma
  3. Noted MLM/Herbalife defender Kevin Thompson called this “war with the industry”
  4. Herbalife, like Vemma, has been vehemently criticized for its shipping and handling methods

You don’t have to be one for tea leaf reading, but the market missed this on Tuesday and it’s not a good sign for public MLM companies, in QTR’s opinion.

Disclosure: Short HLF