Verve Energy Drink Lawsuit: FTC Settlement, Refunds, and Private Suits

The Verve energy drink lawsuit was a Federal Trade Commission enforcement action filed in August 2015 against Verve’s maker, Vemma Nutrition Company of Tempe, Arizona, alleging that the company operated an illegal pyramid scheme. It ended in a December 2016 settlement carrying a $238 million judgment, a permanent ban on recruitment-based compensation, and, three years later, roughly $2.2 million in refund checks mailed to former Vemma affiliates who lost money.¹

What the FTC Alleged

Vemma sold Verve energy drinks and other wellness beverages through a multi-level marketing structure. Participants, called affiliates, earned money by selling products and by recruiting new affiliates beneath them. The company pushed affiliates to buy products themselves, often through a $150 monthly autoship subscription, as a practical condition of qualifying for bonuses.

The FTC’s core allegation was that Vemma’s revenue came from its own salesforce rather than from ordinary consumers. A court-appointed receiver found that 78 percent of the company’s sales went to affiliates and only 22 percent to end-user customers.² Company data showed affiliate purchases had accounted for 86 percent of revenue in 2013 and 71 percent in 2014.³

The agency also charged Vemma with false earnings claims. Marketing materials advertised potential earnings of $50,000 per week, and top distributors told recruits they could earn $50,000 to $80,000 per month. Company disclosures told a different story: nearly 80 percent of affiliates earned less than $1,600 per year, and more than 97 percent earned $12,000 or less.⁴ By the time the FTC sued, 94 percent of affiliates were earning less than $500 per year, and the vast majority lost money.³

The College Recruitment Angle

A large part of the FTC’s concern was Vemma’s targeting of college students and young adults through a campaign called the “Young People Revolution,” promoted under the hashtag #YPR. Recruitment videos featured nightclubs, luxury cars, and pulsing music, and presented Vemma as an alternative to college or a traditional job. CEO Benson K. Boreyko publicly called the college system a “pyramid scheme” and, in one video blog, acknowledged that a goal of recruiting young people was for them to “hit up their parents and grandparents to buy the products.”⁴ Some students dropped out of college to pursue Vemma and ended up in financial trouble.

How the Case Unfolded in Court

The FTC filed its sealed complaint on August 17, 2015, in the U.S. District Court for the District of Arizona (Case No. CV-15-01578-PHX-JJT), naming Vemma Nutrition Company, Vemma International Holdings, Boreyko, and top affiliate Tom Alkazin.⁵ Four days later, Judge John J. Tuchi granted a temporary restraining order, froze Vemma’s assets, and appointed Robb Evans & Associates LLC as receiver.⁶

The receivership hit hard. Within a day of taking control on August 24, 2015, the receiver terminated all but five of Vemma’s 110 U.S. employees and shut down operations across every international market. International assets worth more than $10 million were effectively wiped out as overseas entities defaulted and entered liquidation. Vemma’s payment processor, Propay, terminated the company’s merchant account and held back over $800,000 in revenue, placing Vemma on a blacklist that made securing a new domestic merchant account impossible.⁷

On September 18, 2015, Judge Tuchi issued a preliminary injunction allowing Vemma to resume limited operations under heavy restrictions. The judge stated that “the evidence before the Court leaves little doubt that the FTC will ultimately succeed on the merits in demonstrating that Vemma is operating a pyramid scheme.”⁸ The injunction barred Vemma from recruiting new sales members and from linking affiliate bonuses or qualifying points to the affiliate’s own purchases. Affiliates could earn commissions only if the majority of their compensation came from sales to real customers rather than fellow affiliates. A permanent monitor replaced the receiver and was granted access to all company records.⁹

In its reasoning, the court focused on how Vemma actually operated rather than on its written policies. Although buying an Affiliate Pack or keeping a $150 monthly autoship order was not technically required, both were strongly encouraged and were conditions for receiving bonuses. The court found “no way to unbundle” an affiliate’s desire to consume products from the motivation to remain qualified for compensation, and refused to treat affiliates as genuine end users. It also found Vemma’s inventory-loading safeguards “neither effective nor enforced,” with audits running five months behind.²

The Settlement

On December 15, 2016, the FTC and Vemma reached a settlement, approved unanimously by the Commission in a 3-0 vote. The stipulated final orders were filed in the District of Arizona.¹⁰

The order imposed a $238 million judgment against Vemma and Boreyko. That amount was partially suspended on the condition that Boreyko pay $470,136 and surrender specified real estate and business assets, including his personal residence and the assets of San Marcos Properties Limited Partnership. Boreyko personally paid the $470,136.¹¹ A separate order imposed a judgment of more than $6.7 million against top affiliates Tom and Bethany Alkazin, partially suspended upon payment of more than $1.2 million and the surrender of assets.¹⁰

The settlement permanently banned Vemma from:

Paying anyone for recruiting new participants.
Tying an affiliate’s compensation or eligibility for compensation to their own product purchases.
Paying compensation related to sales in any pay period unless the majority of revenue generated by the affiliate and their recruits in that period came from sales to non-participants.
Any involvement in a pyramid, Ponzi, or chain marketing scheme.
Making false income representations or unsubstantiated health claims about its products.

Vemma also had to provide compliance reports from an independent auditor for 20 years and disclose, for any future earnings claims, the number and percentage of participants who achieved a profit, the dates covered, and the average and median profit amounts.

Boreyko denied wrongdoing throughout the case. He stated that the settlement “contains no admission of fault or any finding that Vemma operated unlawfully or as a ‘pyramid scheme,'” and said the terms would allow Vemma to continue operating as it had over the prior year under the injunction.¹¹

Refunds to Former Affiliates

In September 2019, the FTC announced that it had mailed 28,224 refund checks to former Vemma affiliates who lost money, totaling more than $2.2 million. The average check was $78.93.¹ The gap between the $238 million judgment on paper and the $2.2 million actually returned reflected the limited assets the FTC was able to collect from the defendants. The refunds went to affiliates identified from company records, not to retail buyers of Verve who never joined the sales network.

Private Lawsuits Against Vemma

Consumers who bought Verve without becoming affiliates were not covered by the FTC refund program, but two private class actions did target Vemma’s dealings with ordinary buyers and with health-claim marketing.

In 2013, a San Diego resident named Gregory Montegna filed a class action in the U.S. District Court for the Southern District of California alleging that Vemma enrolled consumers in automatic renewal programs for Verve without their knowledge or consent. Montegna said he purchased 12 cans of Verve for $50 in January 2013, and the company kept charging his credit card in later months without authorization, in violation of California consumer protection laws requiring explicit consent for auto-renewals.¹²

In October 2014, a New York resident named John Horanzy filed a federal class action in the Northern District of New York alleging that Vemma made illegal health claims and relied on “worthless” clinical studies that were “biased, unreliable, and unsound.” The suit named Boreyko and Vemma’s chief scientific officer, Yibing Wang, and alleged that “clinically studied” and “physician formulated” marketing labels were fraudulent and violated a 1999 FTC consent order.¹³

That 1999 order came from an earlier FTC case against Boreyko and his brother Jason over their prior company, New Vision International, for unsubstantiated claims that a supplement regimen called “God’s Recipe” could treat Attention Deficit Disorder as an alternative to Ritalin.¹⁴ The consent order, finalized in March 1999, barred the Boreykos from making health claims without competent scientific evidence for 20 years and applied to any later Boreyko-owned company, including Vemma.¹⁵

1
Federal Trade Commission. FTC Returns More Than $2.2 Million to Vemma Affiliates Who Lost Money
2
Arizona Republic. Vemma Pyramid Scheme Case Federal Judge Ruling
3
Truth in Advertising. Vemma to Pay Millions in Settlement With FTC
4
USA Today. Firm Targeting College Students Draws Scrutiny
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Federal Trade Commission. Vemma Nutrition Company Case Page
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CourtListener. FTC v. Vemma Nutrition Company Docket
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Truth in Advertising. Vemma Defendants Quarterly Report
8
Cronkite News. Judge Bars Vemma Nutrition From Resuming Full Business Operations
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Truth in Advertising. Vemma Frenzy Ends as Judge Limits Operations
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Federal Trade Commission. Vemma Agrees to Ban on Pyramid Scheme Practices to Settle FTC Charges
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ABC15 Arizona. Tempe-Based Vemma Settles Pyramid Scheme Lawsuit With FTC
12
Truth in Advertising. Vemma Facing Class Action Lawsuit in California
13
Truth in Advertising. New Class Action Suit Alleges Vemma’s Clinical Studies Worthless
14
Federal Trade Commission. Multi-Level Marketing Company Settle FTC Charges It Made Unsubstantiated Claims for Its God’s Recipe
15
Federal Trade Commission. New Vision International Consent Order