Vemma Pyramid Scheme


Last night, I found myself on Skype with a gentleman named Shawn Stoik who was telling me about this fantastic new product, and the unbelievable opportunity I had to "get in early" in marketing Verve to Canada.

Within about four seconds, I was pretty sure it was a pyramid scheme. But I played along for an hour and asked the tough questions (to which he didn't have answers).

Here's why I think it's a pyramid scheme.

I was brought into a meeting by a friend who told me she wanted my advice for a new social media marketing company she started up (or so I thought).

Shawn started off by telling me how much money he and all his friends were making in this "billion dollar" business. He mentioned that he retired when he was 26, and proceeded to show me his pay cheque for last month - $3,600.

I had to hold back a laugh.

Not only is $3,600 not an incredible sum of money for a 30 year old "retiree", he was adamant that it was a REAL cheque written from the company's president.

Usually when managers assure me that the company pays with real money, I get a little concerned.
He then went further to insist that the product is endorsed by Dr. Oz and Oprah. There was a lengthy discussion about the incredible health benefits of the product such as anti-inflammatory properties, cancer prevention, fighting off colds, etc. I let it slide, but the health claims would prove to be an interesting point when I did more research later (see bottom of page).

The real red flag came when he couldn't explain this one simple question: Where is the income produced? 

The products are never sold outside the pyramid, so I was failing to grasp how thousands of dollars could be generated per month in revenue per salesperson. I tried at least three times to frame the question differently, but each time he just went on to tell me how fast the company is growing, how much money he's making, and how I don't want to miss out on this opportunity because there will be dozens of people who would happily fill my spot.

What qualifies a pyramid scheme as illegal? 

According to the Canadian Anti-Fraud Centre, an illegal pyramid scheme has three criteria:

  1. Compensation is paid for recruiting a new salesperson. 
  2. There is inventory loading, that is, the recruits must purchase an unreasonable quantity of product. 
  3. Purchases are required as a condition of entry. (You may, however, be required to pay for a sample kit, but this kit must be at cost). 
I'd like to address each of these points, and how Vemma meets each and every one of them. 

1. Compensation is paid for recruiting a new salesperson. 

Each new salesperson who gets recruited buys in for $500, which gets them 192 cans of Verve energy drink ($2.60 per unit). They can do whatever they want with those 192 cans - drink them, give them away, have a party, etc. Shawn was adamant that new recruits don't have to sell anything at all (which isn't actually true, because their sole purpose in life is to sell the new recruits on signing up). They could literally throw the energy drinks in the garbage, as long as they recruited new people. 

One thing that he was sure to emphasize was that I would make my money back in the first week. If I just signed up two new people (who each paid the $500 entry fee) I would get a $700 bonus, more than making up for my entry fee. For every two new people that I signed up thereafter, I would also be given a bonus. 

That sure sounds like getting compensated for recruiting new salespeople to me. 

2. There is inventory loading, that is, the recruits must purchase an unreasonable quantity of product.

After the initial buy-in, recruits have to subscribe to a certain amount of product per month. The minimum monthly order was 48 cans for $130 ($2.70 per unit). He assured me that I could order more cans per month if I wanted, but that was the minimum. 

Since the recruits aren't actually selling the product, but buying it at a massive markup directly from Vemma, I reminded him that each recruit is simply turned into a subscription purchaser. I pushed him once again to explain where the extra tens of thousands of dollars were being produced. He told me that marketing generates all the money. 

What? 

3. Purchases are required as a condition of entry. (You may, however, be required to pay for a sample kit, but this kid must be at cost). 

As mentioned above, the $500 entry fee is absolutely requisite to joining the pyramid (but don't worry, you just have to fool two people to get your $700 bonus!).

Shawn took a moment to tear a strip off Red Bull for "selling their product for $4 when it only costs them 6 cents to make, 4 cents of which is for the can".

"Quite the markup." I told him. "How much does it cost to produce a can of Verve?"

"That's a great question and I actually don't know the exact number, but I can assure you that it's higher than 6 cents."

Interesting response....

Finally, I found it interesting that they focus on recruiting people in high school and University. I can't help but think the strategy behind this is that we are less likely to recognize it as the illegal pyramid scheme that I think it is.

You can decide for yourself whether this company is operating legally (and morally), but I think my opinion is pretty clear.

Oh, right, there is one more thing. 

The founder, BK Boreyko (Benson K. Boreyko) actually had another business that was extremely similar to Verve in the '90s. The company was called New Vision International Inc, and I found this interesting quote:

For 16 years, New Vision has been committed to providing products to better your health and business. That's why we continually assess our operations based on trends established by our Team Members and Consumers. After careful consideration, we've decided to transfer New Vision business operations to our sister Company, Vemma Nutrition Company.

Turns out, Mr. Boreyko claimed that his product could cure ADD and ADHD in children, but the Federal Trade Commission disagreed. I think I'd be carefully considering a transfer to a new operating name as well. A particularly interesting excerpt is the following nugget:


11. Through the means described in Paragraph 10, respondents have represented, expressly or by implication, that:
A. God's Recipe can cure, prevent, treat or mitigate Attention Deficit Disorder or its symptoms.
B. God's Recipe can cure, prevent, treat or mitigate Attention Deficit Hyperactivity Disorder or its symptoms.
C. God's Recipe is an effective alternative treatment to the prescription drug Ritalin for Attention Deficit Disorder and Attention Deficit Hyperactivity Disorder.
D. Testimonials from consumers appearing in the advertisements for God's Recipe reflect the typical or ordinary experience of members of the public whose children have used the product.
12. Through the means described in Paragraph 10, respondents have represented, expressly or by implication, that they possessed and relied upon a reasonable basis that substantiated the representations set forth in Paragraph 11, at the time the representations were made.

13. In truth and in fact, respondents did not possess and rely upon a reasonable basis that substantiated the representations set forth in Paragraph 11, at the time the representations were made. Therefore, the representation set forth in Paragraph 12 was, and is, false or misleading.

14. The acts and practices of respondents as alleged in this complaint constitute unfair or deceptive acts or practices, and the making of false advertisements, in or affecting commerce in violation of Sections 5(a) and 12 of the Federal Trade Commission Act.

I'm no lawyer, so here is the court order for you to read over. I think it's only a matter of time before the big bad wolf huffs and puffs and blows the house down once again.

You can fool some people sometimes, but you can't fool all the people all the time.

**********

If you decide you want to start a real business, start by reading these 10 books:

  1. The Four Hour Workweek
  2. Rework
  3. Never Eat Alone
  4. Crush It!
  5. The Thank You Economy
  6. The 22 Immutable Laws of Marketing
  7. The Art of the Start
  8. The $100 Startup
  9. Made to Stick
  10. Linchpin

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