FTC Warning About Pyramids

 

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How pyramids are built: An inside look

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.

FTC Files Case Against VEMMA

FTC Acts to Halt Vemma as Alleged Pyramid Scheme

Promised Unlimited Income Potential, But Most Participants Lose Money

FOR RELEASE

At the Federal Trade Commission’s request, a federal court has temporarily halted an alleged pyramid scheme, Vemma Nutrition Company, that lures college students and other young adults with the prospect of getting rich without having a traditional 9-to-5 job. The FTC seeks to stop the operation, which earned more than $200 million annually in 2013 and 2014 and has affected consumers throughout the United States and in more than 50 other countries, from continuing as an unlawful pyramid.

“Rather than focusing on selling products, Vemma uses false promises of high income potential to convince consumers to pay money to join their organization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “We are also alleging that Vemma is an illegal pyramid scheme.”

Vemma is a multilevel marketing company that claims to use its members, called “affiliates,” to promote its health and wellness drinks. According to the FTC’s complaint, the defendants claim affiliates can earn substantial income by enrolling others either as affiliates or as customers, but Vemma focuses on recruitment rather than retail sales of its products to generate this income. The vast majority of participants make no money, and most of them lose money.

According to the FTC’s complaint, the defendants’ websites, social media, and marketing materials show seemingly prosperous young people with luxury cars, jets, and yachts, and falsely claim that Vemma affiliates can earn substantial incomes – as much as $50,000 per week. The defendants allegedly claim that affiliates’ earning potential is limited only by their own efforts and that Vemma provides young adults an opportunity to bypass college and student loan debt. Vemma urges consumers to make an initial investment of $500-$600 for an “Affiliate Pack” of products and business tools, buy $150 in Vemma products each month to remain eligible for bonuses, and enroll others to do the same.

Consumer losses are inevitable because Vemma is an illegal pyramid scheme that rewards affiliates for recruiting participants rather than for selling products, the FTC alleges. The defendants provide affiliates little guidance for selling products, but instead teach them to give away products as samples when recruiting new participants. Vemma offers no meaningful discounts or incentives to encourage retail sales, according to the complaint.

In addition to allegedly running an illegal pyramid scheme, the defendants are charged with making false earnings claims, failing to disclose that Vemma’s structure ensures that most people who join will not earn substantial income, and furnishing affiliates with false and misleading materials to recruit others.

The defendants are Vemma Nutrition Company, Vemma International Holdings Inc., Tom Alkazin, and Benson K. Boreyko, who is under a 1999 court order after settling with the FTC for his involvement with New Vision International Inc.,  a multilevel marketing company that sold nutritional supplements. The complaint names Bethany Alkazin as a relief defendant who profited from the scheme. On August 21, 2015, the court halted the deceptive practices, froze the defendants’ assets, and appointed a temporary receiver over the business pending a trial.

The Commission vote authorizing the staff to file the complaint for permanent injunction was 5-0. The order was entered by the U.S. District Court for the District of Arizona on August 21, 2015.

The FTC appreciates the assistance of the Attorney General Offices of Arizona, South Carolina, and Michigan, the Tempe Police Department, and the nonprofit organization Truth in Advertising in bringing this case.

To learn more about multilevel marketing, read Multilevel Marketing and Business Opportunity Scams.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook(link is external), follow us on Twitter(link is external), and subscribe to press releases for the latest FTC news and resources.

Zeek Rewards: Zeek Alleged “Winner” Under New Scrutiny

Ah, the story writes itself. I suppose serial promoters just cannot help themselves from promoting illegal and probably immoral schemes for the sole benefit of their own financial gains.  Most swear words do not properly describe these individuals. Perhaps we need to make new ones?

Kenneth Bell has filed the below as a “MOTION FOR ORDER REQUIRING RETURN OF RECEIVERSHIP PROPERTY, DEPOSITION, AND PRODUCTION OF FINANCIAL RECORDS”

1. Darryle Douglas was a key member of Zeek’s senior level management involved with affiliate communications and relations. Prior to Zeek, Douglas worked closely with Paul Burks in other multi-level marketing businesses. Mr. Douglas received more than $1,975,000.00 from the scheme, and the Receiver has obtained a default judgment against him in the amount of $2,271,239.20.

2. It has come to the attention of the Receiver that Mr. Douglas has begun promoting a new investment scheme known as “Auction Attics” and intends to use a copy the ZeekRewards affiliate database to solicit investors into this new scheme. The Facebook page promoting Auction Attics requests that all funds be sent to Darryle Douglas via wire to an account in the name of Domonique Douglas, presumably Mr. Douglas’s wife. See Exhibit A. (ZeekDoc392-1)
3. In addition, the Facebook page contains a long statement from Mr. Douglas which reports he will use his “business database” which contains “over 2 million plus contacts,” of which “[o]ver 90% . . . have already bought bids before!” See id.
4. Considering the large debt he owes to the Receivership Estate, and in light of his current activity in promoting a new scheme in an attempt to collect funds from the same victims he previously deceived, the Receiver requests an order requiring Mr. Douglas to submit to a deposition in the Western District of North Carolina and produce to the Receiver all financial records from November 1, 2011 to the present for his personal and business-related accounts.
5. The Receiver’s concurrently filed Memorandum in support of this Motion sets
forth more fully the justification for the requested order.

You can read the Memorandum in Support here>   ZeekDoc393

Zeek Rewards: More “Sovereign” Stuff From Canadian “Winners”

In a recent letter to the Receiver’s legal representatives at McGuire Woods, Canadian “natural person” Sandra Gavel responded to communications sent to her in 3:14-cv-444-GCM.  The nonsensical letter states:

  • where is your evidence to prove that your constitution and codes apply to me?
  • where is the evidence to support your claim that I am a pro se litigant? I have not proceeded pro se in any court and have not consented to the jurisdiction of any court.
  • I do not consent to the jurisdiction of any U.S. Magistrate Judge or the equivalent in Canada.

She signs the letter as “Sandra Gavel, natural person”.

Where have I seen this stuff before??

SEC Wants Court to Find Sann Rodrigues In Civil Contempt

Plaintiff Securities and Exchange Commission (“the Commission”) hereby moves that the Court hold defendant Sanderley Rodrigues de Vasconcelos (“Rodrigues”) in civil contempt for repeated violations of the Temporary Restraining Order, Order Freezing Assets, and Order for Other Equitable Relief entered as to all defendants on April 14, 2014 (Dkt. #13), the Preliminary Injunction, Order Freezing Assets, and Order for Other Equitable Relief entered against him personally on May 8, 2014 (Dkt. #89), and the Order to Provide Accountings and Carve-Out as to Rodrigues entered on June 10, 2015 (Dkt. #304).

Over on BehindMLM.com, you’ll find a very good story on this. I see no sense in duplicating the same information here.

DOJ Press Release – Sann Rodrigues Indictment

Department of Justice
U.S. Attorney’s Office
District of Massachusetts

FOR IMMEDIATE RELEASE
Wednesday, August 12, 2015

Alleged Pyramid Scheme Promoter Indicted on Visa Fraud Charges

BOSTON – A Florida man connected to two notable pyramid schemes was indicted on visa fraud charges today.

Sanderley Rodrigues De Vasconcelos, 43, of Davenport, Fla., was indicted on fraud and misuse of visas, permits, and other documents.

According to the indictment, Rodrigues presented his green card to U.S. Customs and Border Protection Officers on May 3, 2015, at Logan International Airport, knowing that he obtained that document based on false statements to immigration officials.  Rodrigues was arrested at Newark International Airport on May 16, 2015 upon returning to the United States after a trip abroad.  He was detained until July 13, 2015, but has since been released by the Court on strict conditions pending trial.

Rodrigues came to the attention of federal authorities in 2006 when the U.S. Securities and Exchange Commission (SEC) sued him in connection with his ownership of Universo Fone Club and defrauding investors of millions of dollars.  More recently Rodrigues was cited by the SEC for his role in promoting TelexFree, a pyramid scheme that purported to sell a voice over Internet service.  In July 2014, the owners of TelexFree were charged with conspiracy to commit wire fraud and several counts of wire fraud.  In addition to the instant indictment, Brazilian authorities have obtained a warrant for Rodrigues’ arrest, charging him with leaving Brazil in violation of a court order.

The charging statute provides a sentence of no greater than 10 years in prison, three years of supervised release, and a fine of $250,000.  Actual sentences for federal crimes are typically less than the maximum penalties.  Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

United States Attorney Carmen M. Ortiz and Matthew Etre, Special Agent in Charge of Homeland Security Investigations in Boston, made the announcement today.  The case is being prosecuted by Assisted U.S. Attorney Cory S. Flashner of Ortiz’s Worcester Branch Office.

The details contained in the indictment are allegations.  The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Financial Fraud
Updated August 12, 2015

Massachusetts TelexFree Victims Relief Fund

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Website – http://www.massvictimrelieffund.com/

This site has been established pursuant to an Order of the Massachusetts Securities Division, an office of the Secretary of the Commonwealth, to assist Massachusetts residents who participated in a TelexFree promotional program. If you previously filed a claim with the Massachusetts Securities Division, please see the Frequently Asked Questions page below.

If you are a Massachusetts resident who participated in a TelexFree promotion program and believe you have a valid claim but have not previously filed with the Massachusetts Securities Division, please submit that claim here: www.MassVictimReliefFund.com/Claims

If you have received a letter from the Massachusetts Securities Division, and are required to provide additional documentation, or Valid Evidence of participation, please do so here: www.MassVictimReliefFund.com/Claims

Grant Thornton LLP
Independent Claims Administrator
Massachusetts Victim Relief Fund
P.O. Box 960839
Boston, MA 02196

Zeek Rewards: Receiver Files Motions to Show Cause

Today, the receiver has filed several Motions for Orders to Show Cause for Cashiers Checks as follows:

  • moves the Court for an Order directing Peoples Bank of Alabama (“Peoples Bank”) to turn over $30,000.00 in funds that are proceeds of three (3) Peoples Bank cashier’s checks payable to RVG drawn on bank account #*****8498, routing #620XXXX which were on August 17, 2012 and are today Receivership Assets, or, alternatively, directing Peoples Bank to appear and show cause why Peoples Bank should not be charged with contempt for violation of the freeze order.
  • moves the Court for an Order directing Chino Commercial Bank, N.A. (“Chino Commercial”) to turn over $10,000.00 in funds that are proceeds of one (1) Chino Commercial cashier’s check payable to RVG drawn on bank account #***0075, routing #12224XXXX, which was on August 17, 2012 and is today a Receivership Asset, or, alternatively, directing Chino Commercial to appear and show cause why Chino Commercial should not be charged with contempt for violation of the freeze order.
  • moves the Court for an Order directing Valley National Bank (“Valley National”) to turn over $29,000.00 in funds that are proceeds of five (5) Valley National cashier’s checks payable to RVG drawn on bank account #*****7490, routing #02120XXXX which were on August 17, 2012 and are today Receivership Assets, or, alternatively, directing Valley National to appear and show cause why Valley National should not be charged with contempt for violation of the freeze order.
  • moves the Court for an Order directing Northwest Georgia Bank (“Northwest Georgia”) to turn over $11,500.00 in funds that are proceeds of four (4) Northwest Georgia cashier’s checks payable to RVG drawn on bank account #*****8990, routing #06110XXXX which were on August 17, 2012 and are today Receivership Assets, or, alternatively, directing Northwest Georgia to appear and show cause why Northwest Georgia should not be charged with contempt for violation of the freeze order.

Sann Rodrigues Seeks Modified Release Condition

DEFENDANT’S MOTION TO MODIFY CONDITIONS OF RELEASE

NOW COMES the Defendant, Sanderley Rodrigues de Vasconcelos, in the above captioned matter and hereby moves this Honorable Court to modify the conditions of his release as ordered on May 21, 2015, for the following reasons:

1. The Defendant was detained on May 7, 2015 in New Jersey. On May 21, 2015, the Defendant appeared before U.S. Magistrate Steven Mannion, who set the conditions of Defendant’s release.

2. The Defendant was subsequently transferred to Massachusetts, and this Court ordered the same conditions to be imposed.

3. One of the conditions is that the Defendant submit to mental health testing and/or treatment, as directed by Pretrial Services (“PTS”).

4. Another condition was that Defendant remain under home incarceration at all times except for medical needs or treatment, religious services, court appearances, or other activities pre-approved by the Court.

5. The Defendant respectfully requests that this Honorable Court modify the condition requiring Defendant to remain in his residence 24 hours per day, and approve the Defendant to be allowed to go to the gym located within his gated community once per day. As the Defendant has secured his release on very significant bond ($200,000.00) to secure his appearance, has surrendered all identification and travel documents, and is being electronically monitored, he does not pose a flight risk, and merely requests to be allowed to go to the gym once a day, at a time approved by the Court.

6. The Defendant further requests that this Court modify the requirement that Defendant submit to mental health testing and/or treatment as directed by PTS. The Defendant is not an imminent threat to himself or to others, and his mental health is not at issue.

WHEREFORE, the Defendant respectfully requests that this Honorable Court modify the conditions of Defendant’s release from custody, as requested above. He has otherwise complied with the terms of his release.

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