Parents complain: Drink company turning kids away from college - News, Weather, Sports, Toledo, OH

CBS 5 INVESTIGATES

Parents complain: Drink company turning kids away from college

PHOENIX (CBS5) -

To the tens of thousands of young people who sell the product, Vemma is not just an energy drink, it's a revolution, a path for young people to make lots of money, drive expensive cars and do it all under a business model that does not involve college or traditional employment. 

But critics have complained to a federal agency that the company preys on young people, and appears to be a pyramid scheme.

“I really wanted to try something new. I had kind of an entrepreneurial spirit and wanted to kind of venture out,” said Todd Searle, an ASU student who joined Vemma two years ago.

“A lot of young people were successful at it, so I figured if these kids could do it, why not me?” Searle said. “If you're a 21-year-old and you see another 21-year-old roll up in a Ferrari, yeah, you're going to think, ‘I can do this. I'm going to work at it.'"

Searle said he initially made money after following the strategy he learned from his Vemma mentor. It encourages recruits to contact their friends, family and other members of their social circles and sell to them, or more importantly, recruit them to join the company.

But it was that strategy that Searle said ultimately cost personal relationships with family and friends and caused him to walk away from Vemma.

“It's the destruction of relationships. I felt like you push so hard on some of your closest friends that you grew up with, or even family members, that you end up souring relationships. Some of them don't ever talk to you the same.” Searle said.

Vemma said they employ 145,000 part-time salespeople, or “affiliates," as Vemma refers to them. They are not employees in the traditional sense. They are independent contractors without insurance benefits whose compensation is based upon how much product they sell, according to the company. 

But several former Vemma affiliates said the compensation is also indirectly tied to how many new salespeople they recruit.

"They say there's a few ways. But really, the ultimate way is recruiting," Searle said.

It's a claim Vemma denies.

According to interviews with former affiliates, the recruiting process starts with an invitation to something called a “home event,” either at a partner's house or at the company's Tempe headquarters. Some participants describe these events as high-energy, high-pressure sales pitches. 

They often involve testimonials from one of the company's “Royal Ambassadors,” members who rank in the top 10 in sales. They might also involve a video played on a television or computer.

“My highest week was last week, and I did $26,000. This month I'm going to hit royal, which is over $1 million a year. I don't tell you that to impress you, I don't care. I'm telling you that to impress upon that, yeah, it's working,” said Alex Morton on one of the dozens of home-event videos found on You Tube. Morton is one of the company's highest-profile affiliates.

The events are highly successful with the company's target audience: late high school and college-age people. Unlike traditional sales practices, Vemma does not advertise or contract with commercial distributors. It relies on an army of affiliates to sell the products: energy, diet and vitamin drinks.

But it is the recruitment aspect that has critics accusing the company of being a pyramid scheme. Complaints filed with a federal government agency and interviews with former Vemma affiliates mirror those accusations.

“It's when you have a company where recruitment lines people's pockets that you're dealing with a pyramid scheme,” said Bonnie Patten, the executive director of the consumer advocacy group, Truth in Advertising.

Patten's organization has received dozens of complaints about Vemma and conducted its own investigation into the company's claims and practices.

Patten argues that much of the consumer demand for the product comes from the affiliates who are recruited to sell the product, rather than from the consuming public. This is an argument Vemma rejects.

In a statement sent to CBS 5 Investigates, company officials wrote, in part, “Vemma is not a pyramid scheme.”

The company asserts that many affiliates are actually just wholesale customers, who have no intention of earning income.

One of the biggest criticism lobbed at Vemma is that its recruitment techniques may persuade some college-bound or students already in college to choose the company over education. Vemma officials deny this accusation, and point to an online video its CEO posted last year, which discusses the importance of staying in college.

But similar complaints persist.

You can find them among the nearly 100 complaints about Vemma filed with the Federal Trade Commission between 2013 and 2014.

The accusations come from consumers, parents, the Better Business Bureau, and brand partners themselves.

They include allegations the company is a pyramid scheme, that it is difficult to get refunds for unused or unsold product, that affiliates lost hundreds or even thousands of dollars, that company representatives made unproven medical claims about what the drinks can do, and that students have dropped out of school to pursue careers with Vemma.

Three parents even referred to what the company does as “brain washing.”

FTC officials told CBS 5 Investigates they cannot discuss whether they have current investigations into any businesses. But to date, the agency has taken no action against Vemma.

In their statement to CBS 5 Investigates, Vemma officials stated that during the years in question, 2013-2014, the company shipped 1.8 million orders, which resulted in just 100 complaints.

“Every one of these that required a resolution was resolved within 24-48 hours of Vemma learning about the issue,” reads the complaint.

“We take all complaints seriously. In fact, approximately half of these complaints were non-actionable, meaning they were just comments and there was nothing we could do to actually respond,” reads the statement.

The complaints do not appear to be slowing Vemma's growth. In 2013, the company listed its total number of affiliates at 105,000.

According to the numbers the company provided to CBS 5 this week, the number of affiliates has risen by 40,000.

CBS 5 Investigates sent two employees with hidden cameras to two of the company's recruiting events.

The video captured the high energy environment. More than 100 brand partners and potential recruits showed up at one of the events, which featured a speech from Royal Ambassador Alex Morton, as well as testimonials from other affiliates.

After the others event, a CBS 5 producer working undercover sat down with two of the company's representatives to ask questions about what it's like to work for Vemma.

“I don't know any other company out there where you can build, essentially, an international empire on a low come-in rate, you know, $500, let's say $500 a month. Sorry, $500 to start your own international business,” said one of the men who identified himself as Joe.

“I actually didn't even have 500 bucks,” said the other man, who identified himself as Anton. “I sold my X Box, I sold my TV. I pawned it to my mom real quick. She gave me money. I went and got the product. I showed three of my friends. And they saw the same opportunity, and I made $700 in what, three days?”

Joe described himself as a platinum leader, referring to his level of achievement within the company.

That puts him within the top 1 percent of company earners.

“I make about $2,800 a month. The company pays me $400 a month for my Mercedes that's sitting outside,” Joe said.

Vemma affiliates refer to themselves as members of the Young People Revolution.

In videos, Twitter posts and Facebook pages and posts, they use the #YPR to identify themselves and build excitement for potential recruits. But critics say the message they are sending is both unrealistic and potentially detrimental.

One video contains two young men in their late teens or early 20s. It appears to be geared toward telling recruits or brand partners how to deal with negative feedback about the company from friends and parents.

“My mom and dad are so F'ing brainwashed by the baby boomer myth about pyramid schemes and scams that there's nothing I can say to undo that,” said one of the speakers.

“My parents still do not talk to me. Do I care? No,” said the other.

In their statement to CBS 5, Vemma officials wrote, “These sound like outdated videos that were created by affiliates. We have worked diligently with affiliates who post non-compliant content that it is contrary to what the company encourages.”

The video in question was posted three months ago.

“They're taking advantage of these young adults who may not be sophisticated in the ways of business,” said Patton. She says the one facet that sets Vemma apart from other multi-level marketing companies is its ability to market itself to young people and to make the company and its lifestyle “cool.”

Todd Searle remembers the #YPR as a big draw to recruits.

“Hey, you don't need your parents. You can do this on your own. You don't need wisdom from anyone. You don't need school. You don't need this. You don't need that,” said Searle, referring to the advice he received during Vemma meetings.

“The big thing is you're going to be driving a brand new BMW at the age of 18,” Searle said.

Vemma is a privately held corporation, so it is not required to submit sales figures to the Securities and Exchange Commission. The company tells CBS 5 its total sales revenue during 2014 was $201 million.

According to a 2014 Disclosure Statement it shared with CBS 5, 93 percent of Vemma affiliates earned less than $6,000 and 79 percent of them earned less than $1,300.

But divorce records filed in April, involving Benson Boreyko, the man who controls Vemma, show he is worth at least $37 million, owns a beach house in San Diego valued at $4 million, as well as two homes in Scottsdale worth more than $1 million each.

The records say he owned three private jets, and that he once threw a birthday party for one of his children, which cost $40,000.

“Well, I think the lesson for young people is that you are much better off being Mr. Boreyko than being one of his distributors,” said Patton from Truth in Advertising.

“I wouldn't call it a pyramid scheme,” said Searle, who no longer works for Vemma. “But if you're not at the top, it's definitely hard to make a positive,” he said.

Searle says he was able to learn about business and networking from the people he met at Vemma.

He is still in school at ASU, pursuing degrees in accounting and finance. But he also says he would not recommend working for Vemma to other young people.

“I wouldn't. Not anymore. You can learn the same things that you do in the company elsewhere,” said Searle.

[READ: Entire statement from Vemma to CBS 5, which includes our questions and the company's answers (PDF)]

Copyright 2015 CBS 5 News (KPHO Broadcasting Corporation). All rights reserved.

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