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Verve ruling hits a nerve

By
Michelle Celarier
Published April 26, 2014, 4:31 a.m. ET

Vemma, a multilevel marketing company that recruits students to peddle its energy drinks, is trying to keep its international regulatory woes from spilling over into the US.

The fast-growing company — which markets its Verve caffeine-rich drink business on campuses — is one of five US companies recently deemed a pyramid scheme in Italy as part of an ongoing crackdown on the multilevel marketing industry in that country.

Italy’s Competition and Markets Authority fined Vemma about $140,000 as part of the ruling in March, which the company is appealing. Vemma’s founder, BK Boreyko, said the Arizona-based company is still operating in Italy.

“We think they are too strict in their interpretation of the law,” he said. “We made the changes when they asked for them, and we’ve worked with them for six months.”

One of those changes involved raising the retail price to ensure sales people profit from selling product, not recruiting. Boreyko said the company has also changed its bonus structure to meet Italian guidelines.

Vemma recently made some similar changes to its business in the US, as part of an attempt to get ahead of any regulatory fallout from Herbalife, a multilevel marketing company that is under investigation by the Federal Trade Commission, the Securities and Exchange Commission and the Justice Department, among others.

But a US consumer group critical of Vemma and the MLM industry isn’t buying it.

The group, truthinadvertising.org, analyzed the Italian regulator’s findings this week and said it would take the information to the FTC.

Vemma has agreed to eliminate several bonuses that required buying huge amounts of product and recruiting additional people.

The consumer group dismissed the changes as window-dressing. It claimed that salespeople still need to buy $150 worth of product every month, purchase a $500 “affiliate pack,” and personally enroll at least six individuals who have to buy $150 of product each month.

“They’re wrong,” said Boreyko. “If you don’t want to buy product, you still qualify for all bonuses. If you get six customers, you can get every bonus we offer. It’s the opposite of what we were doing in the past.”