ftc vs. vemma | initial filing

JONATHAN E. NUECHTERLEIN General Counsel

ANGELEQUE P. LINVILLE, Tex. Bar No. 24058793 JASON C. MOON, Tex. Bar No. 24001188 ANNE D. LEJEUNE, Tex. Bar No. 24054286 EMILY B. ROBINSON, Tex. Bar No. 24046737 Federal Trade Commission 1999 Bryan Street, Suite 2150 Dallas, Texas 75201 (214) 979-9378; [email protected] (Moon) (214) 979-9381 ; [email protected] (Linville) (214) 979-9371 ; [email protected] (LeJeune) (214) 979-93 86; [email protected] (Robinson)

(214) 953-3079 (Fax)

Attorneys for Plaintiff FEDERAL TRADE COMMISSION

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

Federal Trade Commission;

Plaintiff,

v.

Vemma Nutrition Company, a corporation; Vemma International Holdings, Inc., a corporation; Benson K. Boreyko a/k/a B.K. Boreyko, individually and as an officer of Vemma Nutrition Company and Vemma International Holdings, Inc.; and Tom Alkazin, an individual;

Defendants, and

Bethany Alkazin, an individual;

Relief Defendant.

No. ----------------

APPENDIX- VOLUME IV App. 1459-1789

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFF'S EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER WITH ASSET FREEZE, APPOINTMENT OF A RECEIVER, AND OTHER EQUITABLE RELIEF, AND AN ORDER TO SHOW CAUSE WHY A PRELIMINARY INJUNCTION SHOULD NOT ISSUE

UNDER SEAL

Case 2:15-cv-01578-JJT Document 13 Filed 08/17/15 of 140

TABLE OF CONTENTS

Title App.#

VOLUME I

Declaration of Federal Trade Investigator Matthew Thacker 1

• Arizona Corporation Commission Records 31

• Arizona Dept. of Economic Security Records 119

• Wells Fargo Bank Business Records (intentionally omitted, available upon request)

128

• American Express Business Records 440

• Undercover purchase documents 525

0 "This is Vemma" Success Magazine 554

0 YPR Magazine 614

VOLUME II

• Undercover purchase documents - continued 698

0 Vemma FlipBook 698

0 Vemma Affiliate Action Plan 720

0 Vemma Scientific Resource Guide 764

• www.vemma.com web capture 781

0 Vemma Compensation Plan 822

0 Vemma Affiliate Agreement Terms and Conditions 840

• achieve.vemma.com 850

• myroadma,gtosuccess .com 855

• The Vemma Training Bible 879

• www. businessforhome.org 913

• Screenshots from captured videos 918

• Vemma Back Office, www.vemma.com/backoffice 927

• www.vemmanews.com 936 0 New Two & Go Training Video with Tom Alkazin

936 (pdf)

2


0 New Vemma Flipbook 970

• Transcripts of video and audio recordings 997

0 Welcome to Vemma With BK Boreyko 997

0 "Your First 7 Days" - 04 Mindset Number One 1104

0 "Your First 7 Days" - 05 Stepping Around Mindset 1011

Number One 0 Undercover Telephone Contact Between Matthew

1019 Thacker and David Treat

0 Vemma Event - Pleasanton California 1030

VOLUME III

0 "Opportunity and Fast Start" Vemma Training Event, 1047

Dallas, Texas

0 Tom Alkazin-24 Hour Overview Call 1092

0 BK: Our Plan to Exceed Your Expectations 1105

0 Vemma - New Customer 1120

0 Vemma Affiliate Marketing Text Invite - Vemma 1127

App 0 Welcome to Vemma! Your Journey to Success

1133 Begins Here!

0 3 Step Plan - How 8 People Can Change Your Life 1140

0 Darik Alexander 1146

0 Verve Text Invite- Vemma App 1155

0 YPR Radio - Luke Hessler 1160

0 Jed Buenaluz on Leading by Example from Verve 1170

Leadership Academy - Vemma

0 Message of the Month - Blake Stauffer 1181

0 NickPtak 1194

0 YPR Radio - Brad Alkazin Full Length 1204

0 Verve Mobile Text Invitation to Learn How Young 1216

People Are Having Fun and Making Extra Cash 0 Zero to Sixty: a Start-up Business Action Plan for

1222 Young People Self-employment, with Alex Morton

0 How Vemma Pays You 1231

0 Step 1- "Dream Big Dreams" 1238

3


0 Step 4 - "How to Lead with Vemma, Verve, and Bod-1253 e"

0 Step 5 - "Leading with Vemma Business" 1266

0 Step 6 - "Goal Setting - Your First Objectives" 1276

0 Step 8 - "Time for Action: Home Events & Your 1289 Checklist"

0 TK Kubvoruno on YPR Radio Season 2 with Eric Thomas - Learn How TK's Why Drove Him to 1296 Success

0 New Two & Go Training Video with Tom Alkazin 1315

0 BK's Blog Why Now is the Time to Build 1336

0 First Vemma Live Call of2015 video 1343

0 May 2015 Vemma Live Call video 1354


0 New Affiliate Marketing Business Model with 1382 Customer Perks Added

0 BKs Blog CEO of Vemma Nutritional Company 1389

Speaks on Why to Join Vemma

0 February 2015 Vemma Live Call Video 1396

0 Vemma Success Alex Morton 1407

0 Vemma Business Vemma Presentation with Top 1420 Leader Tom Alkazin

0 BKs Blog Interview with Bryce Madjick and Luke 1432 Kish

0 Vemma Nutrition Company Marketing and Sales 1445

Business Plan for Premium Supplement Products

0 BK Boreyko Talks to Parents 1452

VOLUME IV

0 BKs 2014 Halftime Report 1459

0 Why a Game Plan with Ruth Elliott 1483

0 Matt Morrow - Verve in Simple Terms 1490

0 Star Pinnacle Tom and Bethany Alkazin Vemma All 1496 In 2014

0 Darik Alexander - Ambassador Michelle Barnes 1502

Expert Declaration of Stacie A. Bosley, Ph.D. 1522

4


Declaration of Bonnie Patten 1566

• Roadmap to Success 1568

• Italian Decision from the Italian Competition and Markets 1612 Authority (intentionally omitted, available upon request)

• Translation of the Italian Decision 1611

Declaration of Adam Fracassi 1629

• "Everybody Deserves Great Health" Booklet 1631

• Audio Recording of the Michigan Event (intentionally 1651

omitted, available upon request)

• Michigan Event Transcript 1652

• Corrected Michigan Event Transcript 1690

In reNew Vision International, Inc. 1781

"How to Get Paid with Vemma - Vemma Home Event Video Show 1789

This Last" landing page, www.vemma.com

VOLUMEV

• Video and Audio Recordings

0 Welcome to Velllina with BK Boreyko 1790

0 "Your First 7 Days" - 04 Mindset Number One 1791

0 "Your First 7 Days"- 05 Stepping around Mindset 1792

Number One

0 This is V emma 1793

0 Removal of Auto-Delivery 1794

0 Undercover Telephone Contact Between Matthew 1795

Thacker and David Treat 0 Undercover Telephone Contact with Vemma

1796 Customer Service

0 Vemma Event - Pleasanton California 1797

0 "Opportunity and Fast Start" Vemma Training Event, 1798

Dallas, Texas 0 How to Get Paid with Vemma - Vemma Home Event

1799 Video Show This Last

0 Tom Alkazin-24 Hour Overview Call 1800

0 BK: Our Plan to Exceed Your Expectations 1801

0 Vemma - New Customer 1802

5


0 Vemma Affiliate Marketing Text Invite- Vemma 1803 App

0 Welcome to Vemma! Your Journey to Success Begins 1804 Here!

0 3 Step Plan - How 8 People Can Change Your Life 1805

0 Darik Alexander 1806

0 Verve Text Invite- Vemma App 1807

0 YPR Radio - Luke Hessler 1808

0 Jed Buenaluz on Leading by Example from Verve 1809 Leadership Academy- Vemma

0 Message of the Month - Blake Stauffer 1810

0 Nick Ptak 1811

0 YPR Radio- Brad Alkazin Full Length 1812

0 Verve Mobile Text Invitation to Learn How Young 1813

People Are Having Fun and Making Extra Cash 0 Zero to Sixty: a Start-up Business Action Plan for

1814 Young People Self-employment, with Alex Morton


0 Step 1 - "Dream Big Dreams" 1816

0 Step 4 - "How to Lead with Vemma Verve and Bod-1817 e"

0 Step 5 - "Leading with the Vemma Business 1818 Opportunity"

0 Step 6- "Goal Setting- Your First Objectives" 1819

0 Step 8 - "Time for Action: Home Events & Your 1820 Checklist"

0 TK Kubvoruno on YBR Radio Season 2 with Eric Thomas - Learn How TK's Why Drove Him to 1821 Success

0 New Two & Go Training Video with Tom Alkazin 1822

0 BKs Blog Why Now is the Time to Build 1823

0 First Vemma Live Call of 2015 video 1824

0 May 2015 Vemma Live Call video 1825


0 Living the Vemma Lifestyle 1827

6


0 New Affiliate Marketing Business Model with 1828

Customer Perks Added 0 BKs B1og CEO of Vemma Nutritional Company

1829 Speaks on Why to Join Vemma

0 February 2015 Vemma Live Call 1830

0 Vemma Success Alex Morton 1831

0 Vemma Business Vemma Presentation with Top 1832

Leader Tom Alkazin 0 BKs Blog Interview with Bryce Madjick and Luke

1833 Kish

0 Vemma Nutrition Company Marketing and Sales 1834

Business Plan for Premium Supplement Products

0 BK Boreyko Talks to Parents 1835

0 BKs 2014 Halftime Report 1836

0 Why A Game Plan with Ruth Elliott 1837

0 Matt Morrow - Verve in Simple Terms 1838

0 Star Pinnacle Tom and Bethany Alkazin Vemma All 1839

in 2014

0 Darik Alexander- Ambassador Michelle Barnes 1840

7


Dated: August 17, 20 15

Respectfully submitted,

JONATHAN E. NUECHTERLEIN General Counsel

ANGELEQUE P. LINVILLE, Tex. Bar No. 24058793 JASON C. MOON, Tex. BarNo. 24001188 ANNE D. LEJEUNE, Tex. Bar No. 24054286 EMILY B. ROBINSON, Tex. Bar No. 24046737 Federal Trade Commission 1999 Bryan Street, Suite 2150 Dallas, Texas 75201 (214) 979-9378; [email protected] (Moon) (214) 979-9381; [email protected] (Linville) (214) 979-9371; [email protected] (LeJeune) (214) 979-9386; [email protected] (Robinson) (214) 953-3079 (Fax)

Attorneys for Plaintiff FEDERAL TRADE COMMISSION

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OFFICIAL TRANSCRIPT PROCEEDING 1

FEDERAL TRADE COMMISSION 2

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MATTER NO. 1423230 8

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TITLE VEMMA 11

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DATE RECORDED: DATE UNKNOWN 14

TRANSCRIBED: FEBRUARY 28, 2015 15

REVISED: AUGUST 3, 2015 16

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PAGES 1 THROUGH 30 19

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In the Matter of: ) 3

Vemma ) Matter No. 1423230 4

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Date Unknown 7

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The following transcript was produced from a 11

digital file provided to For The Record, Inc. on February 12

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P R O C E E D I N G S 1

- - - - - 2

BK’S 2014 HALFTIME REPORT 3

(Music playing.) 4

MR. BOREYKO: (Inaudible). 5

(Applause.) 6

MR. BOREYKO: Hey, Team. What a -- hey, you’re 7

cutting into my time. What a great day so far. It’s 8

only going to get better. Darren Hardy, is that guy not 9

amazing? 10

(Cheers and applause.) 11

MR. BOREYKO: How many of you guys like Rex 12

Crain? 13


MR. BOREYKO: I’m telling you, I never have 15

booked a speaker before by just meeting with him, and it 16

was like I met with him on Monday or something, and I’m 17

like, damn, you are good; get up in front of those 18

people. But he -- he is -- he is talented. 19

But, hey, guys, I am here. It is June 2014, 20

and as your head coach, it’s halftime, you know, and 21

great coaches, they -- they praise and they point out 22

what you guys have been doing great and -- and, more 23

importantly sometimes, they also show, hey, we need to do 24

this better. We can improve here; we can get to the25

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MR. BOREYKO: You know, I want to -- I want to 1

just take you back six months and -- and talk a little 2

bit about what we have accomplished in the last six 3

months and then what we’re going to accomplish in the 4

next six months. And you know what, we successfully -- 5

we made the decision in the end of 2013, we began the 6

transition to affiliate marketing in 2014; we 7

successfully transitioned 48 countries around the world 8

to our affiliate marketing business model. And -- and 9

how many people believe that’s a good thing? 10


MR. BOREYKO: Just a couple, six, seven weeks 12

ago, 10,000 affiliates in one place celebrating our 13

convention in Las Vegas, and it was -- it was the biggest 14

and best event in my career, in my life, that I have ever 15

been a part of. And I just want to thank you guys for 16

being there and thank you guys for showing up -- 17


MR. BOREYKO: -- because it was -- how many 19

people were there? 20

(Cheers.) 21

MR. BOREYKO: It was -- it was something. It 22

was something. I can’t even -- you know, you experience 23

that and then you think to yourself, what is 16,000 going 24

to be like? You know, because this is sort of25

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exponential growth; it’s not linear growth. And -- and, 1

so, you put another 6,000 people, you’re going to have 2

like ten times the excitement level, especially when 3

they’re all in -- in one room. 4

But, you know, some of the things that we 5

accomplished so far this year is we, at that event, had 6

our most successful product launch. You heard Mark 7

talking about it, ReMIX, half a million cans in, what, 8

six weeks, it’s been? Just crazy. 9

(Applause.) 10

MR. BOREYKO: Half a million cans in six weeks. 11


MR. BOREYKO: You know, this is -- this is live 13

on uStream. This can’t be edited, you guys. So, you got 14

to -- when you feel it, when you feel it, mean it, you 15

know? Don’t just (demonstrating). This is not a golf 16

match, okay? This is your life we’re talking about here. 17

This is your business. 18


MR. BOREYKO: All right. Hey, sometimes -- 20

sometimes great coaches have to yell a little bit. All 21

right. Don’t make me Popovich you. 22

(Laughter.) 23

MR. BOREYKO: I’ll come out there. Anyways, 24

and if -- and if you think back before that, we -- we25

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launched Renew in January, and then what a phenomenal, 1

phenomenal product. The reason I love that Renew is in 2

the variety pack is it’s got like a non-caffeinated 3

version. You got Par-tea, which is a half-caff; and then 4

you got the regular Verve, and then you got the Bold. 5

And -- and when the Mojo comes out in the 6

eight-ounce can, we will add it to that. We’ll take 7

something out and we’ll put something in. So, the only 8

reason it’s not in there is because the can’s like this 9

big (demonstrating). You know, but here’s my problem, is 10

I suck that thing down like it’s an eight-ounce, like 11

it’s a Verve shot, I suck it down so fast. It’s one of 12

my favorite products. Well, actually, they’re all my 13

favorite products. 14

But, anyways, so we launched Mojo; we launched 15

this variety pack. I think that’s going to be absolutely 16

huge. And -- and, you know, you heard Mark talk about 17

the auto-delivery, I’ll talk about that a little bit 18

later because it’s -- it just is like the perfect product 19

for that because, I mean, who doesn’t like options in 20

life? And -- and -- and this is -- you know, you guys 21

invested a weekend of your life to come to Miami. Those 22

of you that are watching on uStream, I -- I want you to 23

walk away from this event with the best chance at success 24

possible.25

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And -- and this is what -- you know, I always 1

think -- you know, I was -- since I was seven years old 2

and my parents got involved in Amway, I mean, I have been 3

conditioned, I have been brainwashed to think like you 4

think. I have been -- it’s just something that is in my 5

DNA to think like you think. And, so, when I’m looking 6

at this business from a business model, and I’m saying, 7

what would I do to get great at this business, what would 8

I do to give myself the best chance at success? 9

This is -- this is what I do. Obviously, you 10

know what, you don’t have to buy an affiliate pack, but 11

you have to buy an affiliate pack. I mean, people, 12

listen to me, if you -- if you just want to be casual, if 13

you don’t want to get serious about this, it’s cool, just 14

go and do your thing, but if you want significant change 15

in your life financially, you need to have some product. 16

Get the affiliate pack. 17

When you’re starting this business out, when 18

you’re talking to people, you’re -- you are crafting, 19

when that -- you get that brand new affiliate started, 20

guess what, it’s like there’s a clock ticking, and guess 21

what that clock is doing, that clock is their story and 22

how fast they build, how much success that you can bring 23

to them. 24

And, so, it’s like a gun goes off and let’s go. 25

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And, so, the way that you want people to get started is 1

with the best chance of success, buy an affiliate pack, 2

whatever one you want to buy, buy an affiliate pack. 3

And, you know, you heard Mark talk about Subway 4

sandwiches. If you opened up a Subway and you didn’t 5

have the meat and you didn’t have the buns, they’d call 6

you crazy. And people get into this business and they 7

don’t have any product. And they’re like, I don’t know 8

why I’m not more successful. The whole foundation of 9

this company is based upon product. We’re a product- 10

driven opportunity. 11

Here’s the great thing. People love our 12

product. Here’s the better thing, if you don’t love it, 13

I’ll give you your money back. This is like just get set 14

up, because one of the things that my dad taught me years 15

ago in this business is you got to work with the people 16

that deserve it, not that need it. 17

And that sounds a little mean, because 18

everybody needs it, everybody says they -- they want it, 19

but -- but you’re looking for -- remember what I said 20

last night, you get paid on results; you don’t get paid 21

on effort? And for those people that raised their hand, 22

say, hey, hey, I’m stepping up, I’m going to get myself 23

an affiliate pack. That is like -- as a leader, that’s 24

like, hey, they just shot a flare gun off and that’s25

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where you need to put your time. Now, if they say, hey, 1

I want to start with this little variety pack and I’m 2

going to be good, you know what, look for the flares in 3

your business, all right? 4

Now, after you’ve done your affiliate pack, you 5

need to get on an auto-delivery order. Do the two -- 6

what I would do is I would get four of those variety 7

packs, two cases, 120 points. That is like your trump 8

card. That makes sure that you’re qualified. And here’s 9

the thing, yes, you can qualify with customers, but you 10

know what, sometimes customers don’t order and they don’t 11

tell you they don’t order, and all of a sudden you’re 12

like, hey, I didn’t get -- I wasn’t qualified. And all 13

of a sudden you take a positive into a negative, but this 14

is why -- besides that, this is why you need to have that 15

-- those four variety packs coming to you every day 16

because you are in business and you need to have a 17

constant influx of product. 18

And the great thing about that variety pack is 19

when you get a brand new person started, typically when 20

somebody buys something, when do they like to receive it 21

approximately? What kind of time frame? Now? Hey, just 22

say, here, this is -- here’s an affiliate -- here’s a -- 23

here’s a variety pack, here’s, you know, a sampling of 24

our six, two of our six top products. That gets them25

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started. 1

They go home with that from your home event. 2

You have it; you can get it replaced. Or you could sell 3

it to them for $35. Hey, for thirty -- and -- and 4

especially, you know, with this business is all about 5

sorting. You know, you just -- you’re just having 6

conversations and sorting. And -- and, you know, how did 7

you guys like the dittoTalk, talking about having 8

conversations? 9


MR. BOREYKO: Well, what Mike didn’t tell you 11

is that I made a six-figure investment into your business 12

to buy the exclusive rights for the energy drink and the 13

weight-loss categories so that you guys will be the only 14

-- 15


MR. BOREYKO: -- that’s (inaudible). 17


MR. BOREYKO: But besides -- you know what, 19

besides all that, besides all that, you know, this -- 20

this -- the first -- the first half of 2014, we actually 21

moved into a brand new home office, and that was a -- 22

that was a big job. We did it over a weekend. We didn’t 23

have any interruption in service. We opened Saturdays. 24

You know, now we have Saturday customer service. And --25

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and anybody that has been through home office, it just 1

has that wow factor. 2

And -- and, you know what, a lot of companies 3

say they’re going to be here the long term, but, you 4

know, my -- my dad used to tell me, what you do speaks so 5

loudly, I can’t hear what you’re saying. And -- and 6

when you look at our investment into our infrastructure 7

with -- with manufacturing, and I’ll talk about that in 8

just a minute here in our home office and in our 9

computers, I mean this is -- and our mobile devices. You 10

know, I’ve spent almost a million dollars on mobile 11

platforms and I give it away to you for free. And, so, 12

that is -- that’s investing in your -- 13


MR. BOREYKO: -- in your -- but when you guys 15

think about it, in the first half of 2014, as your coach, 16

you fricking rocked. You did an amazing job. You 17

deserve to be applauded, but here is what I’m here to 18

tell you today is you can do better. How many people 19

believe they can do better? 20


MR. BOREYKO: Because here is -- here’s what -- 22

here’s what Popovich, when he’s -- when he’s talking to 23

the Spurs and they’re up by whatever number they’re up 24

by, guess what his -- I know, I know, I know, but here,25

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this is the analogy, okay? I wish I could use a Heat 1

analogy, but you lost three games by 55 points. 2

But here, this is what -- hey, you want to 3

learn the secret? You want to learn the secret? This is 4

what Popovich tells his players: play like you’re 5

behind. I don’t care what you’ve done in the first two 6

quarters. Your attitude should be play like you’re 7

behind. And that is -- that is what’s so -- that is 8

what’s so important, because, you know, you know, Darren 9

Hardy, I was listening to his VIP training yesterday, 10

absolutely phenomenal, and when I listened to him, I hear 11

the words from my dad when my dad used to say, Son, the 12

problem with this business is it’s too cheap to get in. 13

It’s too cheap. 14

Darren laid out all of the different options 15

that an entrepreneur has. Now, if you’re an employee, 16

that’s a whole other story, but if you’re an 17

entrepreneur, here are some of the options. You could 18

buy a franchise; you could spend $100,000 after tax; you 19

could spend a couple hundred, $250, $300, $1 million 20

after tax to buy a franchise. 21

Now, let me ask you this question, if I changed 22

the deal and I said the affiliate packs are now 100 grand 23

to get them, how -- how -- how different would your 24

attitude be towards how you approach this business? And25

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that’s all I’m talking about is the attitude. I know 500 1

bucks to a lot of you, that’s a lot of money, but -- but 2

what I’m after is I’m after $100,000 attitude. I’m not 3

after a $500 attitude. 4

And -- and that is the attitude that we need to 5

approach third and fourth quarters with. You know, 6

here’s what we’re up to. Here’s what we’re up to at home 7

office. You heard -- you heard Mark talk about our 8

investment into our infrastructure, manufacturing plant, 9

adding a second canning line, the second -- you know, the 10

first canning line is -- is Italian; the second canning 11

line is German. The second canning line will be up to 12

speed next month and running, 23 cans of Verve a second. 13


MR. BOREYKO: Almost -- this thing can kick out 15

almost a case a second. How am I thinking about what 16

your business is going to be like a couple of years from 17

now? 18


MR. BOREYKO: You know, this dittoTalk, this 20

dittoTalk, Mike was right, it has exploded the -- the 21

whole Bode line. We are putting in -- it will be up next 22

month -- our own shake, powder-fill line. When you guys 23

come for the go -- go to -- Go for Gold, you’ll be able 24

to tour through the manufacturing, and you’ll be able to25

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see this kind of investment into your business because we 1

are partners. 2

And -- and you know what, you heard Rex talk 3

about partners. You want -- you know, you want parasites 4

or you want partners? All you want is -- all you want is 5

partners in this business. And you need to count on me 6

to be making the right decisions for the right reasons, 7

and I need to count on you. I need to count on you to go 8

at this business like you’re going to work so you could 9

set yourself up for the rest of your life. Work hard, 10

two years, three years, four years. It might take you 11

five years. 12

You know, I was -- I was -- you know, people 13

that are in school, they -- they commit four years to 14

an education, and they’re not making any -- they’re 15

paying money; they’re not making money but they’re paying 16

money. And I’m all about staying in school, okay? I 17

don’t want to tell anybody don’t stay in. School is 18

awesome. It’s all about networking; it’s all about 19

taking classes for -- you know, for -- that’ll help you 20

in business. 21

But the analogy I want to give you is the fact 22

that they commit to four years to school; they pay, what 23

do they come out, $25-, $50,000 in debt? Class of 2014, 24

17 percent of them have jobs lined up, 17 -- 83 percent25

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are like, hello, world. 1

On-screen: 2

Source: http://nypost.com/2014/05/11/fewer- 3

college-grads-will-have-jobs-lined-up-this-year/ 4

MR. BOREYKO: And -- and -- and what we want to 5

do with Verve is we just want to give them a Plan B. You 6

know, we just want to say, hey, do this part-time, do 7

this on the side. It could turn into a full-time career 8

income for you. It could turn into an opportunity that 9

pays you more than you’ve ever dreamt or more than that 10

job that you were getting trained for in school would 11

ever pay you. It could. 12

But if it doesn’t, you know what, what you’re 13

going to be able to do is you’re going to be able to do 14

is you’re going to be able to have a nice secondary 15

income coming in and -- and help ease that -- paying off 16

the student loan. We have a bonus that pays off student 17

loans. I mean, that is our message to people that are in 18

school. But when you take a look at what this business - 19

- how this business can -- can change your life 20

financially, relationship-wise, physically, what we’re 21

doing here, it’s a big deal. It’s a real big deal. 22


MR. BOREYKO: All right. So, here I am, 24

continuing to invest in your business. You heard Mark25

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five bucks a month for Tax Bot. 1


MR. BOREYKO: And -- and -- and September, you 3

guys have heard me talk about the surprise announcement 4

in September. You guys will be proud. It’s going to be 5

big, the biggest thing. My -- my goal is to make Vemma a 6

household brand name. This is a huge step towards that, 7

and -- and -- and here’s what I need you to do. We’re 8

doing all of this, but here’s what I need you to do, 9

team, is I need you to get great at -- at this business. 10

You know, I talked about this last night. 11

The best product, the most amazing worldwide 12

biggest market ever product that we have is a product 13

called hope. And -- and that’s what I need you guys to 14

get great on. It’s something that is -- is extremely 15

important to what we do, and when you -- when you think 16

about tapping into that biggest market ever, you think 17

about the fact that there’s people out there struggling, 18

and -- and I know what you guys are about. If you see 19

somebody drowning in financial debt and you’ve got a life 20

preserver, you got to throw it to them. They may not 21

grab it, but that’s not your job. 22

What’s our job? We got to -- we got to give 23

them a chance. We got to give them a shot. And, yes, 24

you know, we’re all about making people healthy with25

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these amazing, innovative products that you can’t find 1

anywhere else, but a big part of the core of this 2

business is that we teach people how to earn part-time 3

and full-time income. How to own their own business 4

without the hassles and pressures of conventional 5

business ownership. 6

And -- and you can run this whole business from 7

your mobile devices. It’s -- it’s an amazing opportunity 8

that we offer people, and, you know, I talked about this 9

earlier, when you -- when you’re talking to people, this 10

business is about conversations, it’s a sorting process. 11

You’re just sorting through people, and you’re 12

discovering that people fall into three groups. There’s 13

people that are into health, and they’d be great 14

customers. And I know with this move to -- to affiliate 15

marketing and a lot of people have been talking about, 16

hey, customers, that’s great. 17

I mean, but we’re mining for gold, and we’re 18

looking for those -- those entrepreneurs. But when you 19

find a silver nugget, you don’t throw it away. You say, 20

hey, that’s great, that’s a byproduct of our business. 21

And -- and, so, those customers are like silvers -- 22

silver, but the -- but the affiliates, man, they are like 23

gold and you got to treat them like gold. 24

And, so, you’re going to find people that are25

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into health make great customers. You’re going to find 1

these nuggets of gold, these people that are 2

entrepreneurial, they’re people that have this desire to 3

-- to get out of their job, pay off their debt, have -- 4

have leverage in their life, time freedom, money freedom. 5

And -- and that is the people that we’re looking for. 6

And then you’re going to find the third group. 7

So, the first group is customers; second group are these 8

entrepreneurs; the third group are these people that 9

think their idea of health is like lite beer and Sweet’N 10

Low. And I can’t really help them, you know? They just 11

think we’re crazy, and they’re just -- that is just what 12

it is. But -- but don’t be surprised when people fall 13

into these three different categories, you know? Because 14

-- because that’s what we’re doing, we’re sorting through 15

people here. 16

So, you know, the biggest thing that we need to 17

work on is the attitude. And I talked to you about the 18

fact that you got to approach this like you’ve invested 19

$100,000 into it. And -- and if you -- if you think like 20

that you’re going to act different. 21

So, let me coach you on -- I’ll put my 22

affiliate hat on, and I want to coach you the best way 23

for you to become successful in Vemma. And -- and with 24

this -- you know, this transition to affiliate marketing,25

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there was some questions that came up and there was a 1

little bit of confusion, and they’re like what do I need 2

to do. And here’s our simple plan. And it’s buy an 3

affiliate pack; get your two case auto-delivery order, 4

because that’s your trump card, that makes sure you’re 5

qualified for everything. 6

And -- and here’s the -- here’s the amazing 7

thing, is when your order comes in, it drives activity. 8

All of a sudden, when you have product, guess what you 9

think about. You think about product. You know, and you 10

saw my blog last -- last week with Jerry Dowd. And Jerry 11

Dowd I got to give it up, I don’t know if he’s still 12

here, he might be taking Rex to the airport. He’s the 13

one that brought Rex into my office and said, hey, you 14

got to meet with this guy -- Rex Crain. 15

And -- and he had that little sampling system. 16

It was so -- it was so easy. And here’s the great thing 17

about when you give somebody a can of Verve, pretty -- 18

pretty much they love it. You know, pretty much, they go 19

this is -- this is great, and this is good for me. And, 20

so, your auto-delivery drives your activity, and, yes, 21

you know, customers can take care of that for you, but 22

don’t miss this point, and the point is, you’re in 23

business. 24

You are the CEO of your own business, and if I25

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ran this business without product in my warehouse, you 1

guys would think I was crazy. And yet we come to a home 2

event and guess what, nobody’s got any product. We ran 3

out of product. We had product backstage. I’m coming, 4

can I have a can of Verve, and they’re like we have one 5

left. And I go, you have one left, are you crazy? We 6

need more product. That’s how I want you guys thinking 7

here. 8

But -- and like I said, I would do -- my two- 9

case auto-delivery would be that four variety packs. I 10

just think those are the coolest thing ever. You never 11

get burned out on the product. You know, maybe -- you 12

know, I was talking to Josh Noble. He goes, I’m going to 13

do two variety packs and a case of Bold because I love 14

Bold. And I said that’s cool, you can do that, do 15

whatever -- just buy. 16

So, here’s our -- here’s our simple -- you 17

know, and -- and -- and here is the great thing about it 18

is when you have a variety pack you can sell it, you can 19

use it, and you can share it, and you can sample, you can 20

do all these kinds of things. But here’s our simple 21

plan. Number one, buy an affiliate pack. Number two, 22

find three people that see what you see in this business 23

in your first week. Remember, you got that 24-second 24

shot clock in a basketball game. That’s what brings25

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excitement. We got this thing called a frenzy bonus and 1

a double frenzy bonus, that all that does is bring 2

excitement to your business here. 3

So, find three people that see what you see in 4

this business. You might find three or four or five 5

customers, but find three affiliates and get them to buy 6

an affiliate pack. And guess what, you’re going to make 7

approximately 700 bucks. Wow, you got your money back 8

for your -- your -- your business, you’re fired up, and 9

you got three great people that have raised their hands 10

saying I want significant change financially in my life. 11


MR. BOREYKO: Third thing, third thing: Get 13

car qualified. If I’m going to give you 400 bucks a 14

month to go get yourself a car so you can feel good, and 15

here’s what’s great about the car is it actually helps 16

your business because people look at you and they go, 17

you’re driving that? What, maybe I should sit down with 18

you. You know, nothing feels better when you go by your 19

friend’s house that laughed at you and honk, at like 2:00 20

in the morning. 21

No, don’t do that. Don’t do that. Don’t send 22

me letters. 23

And then here’s the thing. So, you get 24

yourself in a car and then you help five people get in a25

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car, you’re making $50,000 approximately in residual 1

income. And that is our plan. That’s it. 2


MR. BOREYKO: And the more you do it, the more 4

you get. But here’s the -- here’s the -- here’s the -- 5

here’s the trick. The more you don’t do it, the less you 6

get. It’s easy to do, but it’s also easy not to do. 7

It’s a simple plan. It does take work. But you know 8

what, when you love what you do, you never have to work 9

another day in your life. And I love what I do. I love 10

you guys. And we got to make this thing. 11


MR. BOREYKO: Third -- third and fourth 13

quarters, let’s win this game, guys. Thank you very 14

much. 15


(Music playing.) 17

(The video concluded.) 18

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C E R T I F I C A T I O N O F T Y P I S T 1

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MATTER NUMBER: 1423230 3

CASE TITLE: VEMMA 4

TAPING DATE: DATE UNKNOWN 5

TRANSCRIPTION DATE: FEBRUARY 28, 2015 6

REVISION DATE: AUGUST 3, 2015 7

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I HEREBY CERTIFY that the transcript contained 9

herein is a full and accurate transcript of the tapes 10

transcribed by me on the above cause before the FEDERAL 11

TRADE COMMISSION to the best of my knowledge and belief. 12

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DATED: FEBRUARY 28, 2015 14

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SARA J. VANCE 17

C E R T I F I C A T I O N O F P R O O F R E A D E R 18

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I HEREBY CERTIFY that I proofread the transcript for 20

accuracy in spelling, hyphenation, punctuation and 21

format. 22

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ELIZABETH M. FARRELL 25

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TRANSCRIBED: JULY 20, 2015 15

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WHY A GAME PLAN WITH RUTH ELLIOTT ON VIMEO 24

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- - - - - 2

WHY A GAME PLAN WITH RUTH ELLIOTT ON VIMEO 3

RUTH ELLIOTT: Are you ready for the business 4

of the 21st Century? Can you see the benefits of 5

creating and controlling your own economy? If so, let’s 6

get started. 7

Hi, my name is Ruth Elliott. And several years 8

ago when I was new to this networking industry, I found 9

myself confused by bonus plans. I loved the concept of 10

creating a second income without having to take on a 11

second job, but I got lost in the details. You see, most 12

people ask the question, how does the compensation play? 13

I asked, what do I need to do to earn it and can I do the 14

first step? 15

Simple concepts and following a suggested game 16

plan were the keys to my early success. And I’m here to 17

share what made my success possible with you. 18

With Vemma, building two teams of people begins 19

by finding two people. You’re not limited to two, but if 20

you could only choose two, who would they be? You will 21

probably find their names in your cell phone. There will 22

be a sense of urgency and excitement you feel when 23

looking for your first two brand partners. This creates 24

momentum and duplication is set in motion.25

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of our flagship product Vemma for personal use and a 1

Vemma V2 fridge brick, which is 30 individual servings of 2

our unique formula. This allows you to introduce the 3

flagship formula to those in your life every month rather 4

than a one-time run off prospecting. 5

Keep it simple with an initial interest in our 6

physician formulated, clinically studied nutrition 7

program and encouraging your brand partner to increase 8

their auto delivery to include additional products. 9

Now that you have a game plan, a simple two- 10

step message and concepts that keep you focused on 11

networking, your teams can develop to its fullest. Two 12

brand partners find two brand partners and so on, 13

creating two teams of people and adding depth to the 14

organization. If you begin to build your teams based on 15

product sales rather than on the simple two-step message 16

of “take a shot, tell two,” then your teams may begin to 17

look like a structure that is missing half the message. 18

You can see with this plan you’re also earning 100 19

percent of your own effort. This outcome is more like a 20

penny added every day for 30 days. 21

The duplication, the penny doubled every day 22

and the simple two-step message powers the game plan. 23

You see, the fortune comes from the middle. 24

Today, there are brand partners taking this25

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concept and earning $100, $1,000, $10,000 or more per 1

week. It’s working for them and it can work for you. 2

Timing is right like never before to take 3

advantage of an income tied to word-of-mouth advertising. 4

Some research suggests that Americans are exposed on an 5

average to over 3,000 ads per day. How many do you 6

remember from yesterday? Ad clutter increases every 7

year, through TV, radio, Internet, billboard, print, 8

direct mail, et cetera, with less and less impact. Word- 9

of-mouth, that referral from a friend will be the wave of 10

the future. 11

You’ve found the right company, the right 12

product and the right opportunity to take advantage of 13

this incredible business of the 21st Century. So, what 14

are you waiting for? It’s time to get started. 15

(The recording was concluded.) 16

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CASE TITLE: VEMMA 4


TRANSCRIPTION DATE: JULY 20, 2015 6

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DATED: JULY 20, 2015 13

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SARA J. VANCE 25

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TRANSCRIBED: JUNE 9, 2015 15

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VIDEO -- VEMMA IN SIMPLE TERMS 24

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Video -- Vemma in Simple Terms 4 5

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Date Unknown 7

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- - - - - 2

VIDEO - VEMMA IN SIMPLE TERMS 3

MATT MORROW: All right, world of Youtube. 4

This is Matt Morrow, and I’m driving in my car. And what 5

I decided I was going to do is I’m going to create the 6

single best Vemma presentation in history right now in 7

this t-shirt, with this hat, on Highway 93, on my way to 8

the lakehouse for 4th of July. 9

And this is the thing. In the last two weeks, 10

I have earned $59,500. Results are not typical. But, 11

you know what, they’re results. They’re my results. 12

Your results may vary. But I want to show you a business 13

where those kind of results are possible. Because in 14

most jobs, those results aren’t even possible. How do I 15

do it? It’s the most simple thing in the world. I drink 16

Verve. 17

What’s Verve? Verve is an energy drink. It’s 18

ten times better than anything else out there. It has 19

all the vitamins, all the minerals, antioxidants, aloe 20

vera. It tastes great. It’s about the same price, a 21

little bit more expensive than all the crappy drinks that 22

are its competition. 23

You drink one every single day. You buy 48 of 24

them a month. So that’s 30 that you drink, you’ve got 1825

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to hand out. You get two other people to do the same 1

thing and you repeat that a few times. It’s a network. 2

It’s so simple. Marketing to one’s network. You already 3

know people who drink. You already know people who have 4

$5 a day they piss away on Starbucks or something else. 5

Five dollars a day is all this business costs for your 6

product and for samples. 7

So what we’re trying to get you to do is have 8

people watch this video. Now, it may not be the most 9

friendly video. It may not be the best quality video. 10

But the facts, it’s five bucks a day for a business that 11

gets you healthy. I haven’t been sick in seven fricking 12

years. I used to take antibiotics all the time. It’s 13

good for you, clinically proven to boost immune function. 14

Drink it. It tastes good. It’s good for you. And get 15

two other people, say, hey, dudes, you want to make 16

money? All you gotta do is have people watch this video. 17

You know, if you show this video to ten people 18

and five of them say, yeah, I got five bucks a day, I’d 19

like to make 60 grand in two weeks, who wouldn’t? Oh, it 20

sounds too good to be true. If it sounds too good to be 21

true, it is. No. If it sounds too good to be true, you 22

have no fricking idea how good it can get. That’s how it 23

is. This is the Internet time, baby. Everybody is 24

connected. 25

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CASE TITLE: VEMMA 4


TRANSCRIPTION DATE: JUNE 9, 2015 6

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DATED: JUNE 9, 2015 13

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DATE RECORDED: UNKNOWN 14

TRANSCRIBED: JULY 17, 2015 15

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STAR PINNACLE TOM BETHANY ALKAZIN VEMMA ALL IN 2014 24

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Star Pinnacle Tom Bethany Alkazin 5

Vemma All In 2014 4 6

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- - - - - 2

B.K. BOREYKO: Hey, this next couple, you guys 3

are going to absolutely love this next couple. I had the 4

privilege to pay this couple and their children, in one 5

month, not too many months ago, $900 -- $900,063 in one 6

month. Ladies and gentlemen, our Star Pinnacle leaders, 7

Tom and Bethany Alkazin. 8

(Music.) 9

BETHANY ALKAZIN: Wow. Oh, well, this is 10

amazing. Are you guys excited to be here? 11

(Cheers.) 12

BETHANY ALKAZIN: Yes? Do you just feel the 13

energy? I mean, it just kind of feels like it’s just 14

bouncing off of you, huh? You just want to kind of take 15

it all in. And guess what, it’s just the first night. 16

(Cheers.) 17

BETHANY ALKAZIN: We -- we have two more full 18

days together. How exciting. 19

(Cheers.) 20

BETHANY ALKAZIN: You know, this has been so 21

much fun. Last night, B.K. treated all of us to a magic 22

show. We went to see the Mr. Angel guy. 23

(Laughter). 24

BETHANY ALKAZIN: You know, as I sat there and25

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you -- the great news tonight to share with you is that 1

what it took Bethany and I almost 28 years in our career 2

to find, you have found it tonight in Vemma. 3

(Cheers.) 4

TOM ALKAZIN: This opportunity -- the only way 5

you’d know is if you’d been in the industry a long time, 6

the only way you’d be able to understand how great it is 7

what we have. Is this an amazing feeling tonight? Yes 8

or no? 9

(Cheers.) 10

TOM ALKAZIN: Incredible feeling. And, so, our 11

wish for you this weekend is that what’s going to happen 12

for you is your belief is going to go up and that hope is 13

going to be just ignited inside of your heart, because 14

there are so many great people, so many great leaders. 15

You’re going to have a chance to hear from so many people 16

this weekend. I just hope you take advantage of every 17

encounter out in the hallway, meet as many people as you 18

can, because our message is simple: what’s happened for 19

us can happen for you. 20

The -- one of the most remarkable blessings 21

that, as parents, that happened for us was the fact that 22

-- that our children chose to do this business. It 23

wasn’t always that way in the very beginning. And 24

somebody asked me that question earlier this afternoon. 25

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CASE TITLE: VEMMA 4

TAPING DATE: UNKNOWN 5

TRANSCRIPTION DATE: JULY 17, 2015 6

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TRANSCRIBED: MAY 7, 2015

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VEMMA SEMINAR WITH DARIK ALEXANDER & MICHELLE BARNES 13

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For The Record, Inc. 24

(301) 870-8025 - www.ftrinc.net - (800) 921-555525

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- - - - - 2

DARIK ALEXANDER: I have some people that want 3

to say hi to you. 4

GROUP: Hello. 5

DARIK ALEXANDER: Goodbye. Okay. You ready to 6

go? You can start. 7

UNIDENTIFIED FEMALE: Ready? 8

DARIK ALEXANDER: Yes. 9

UNIDENTIFIED MALE: Ready to rock it out? 10

DARIK ALEXANDER: Ready to rock it out. 11

(Music playing.) 12

DARIK ALEXANDER: How’s everybody doing? 13

(Applause.) 14

DARIK ALEXANDER: Okay. I gotta say, Eric 15

Worre, wow. That put me in perspective for sure. That 16

was wild. So, everybody learned how to prospect. Let’s 17

get down to the nitty-gritty, right? That’s why we’re 18

here. Obviously there’s quite a few people here. And I 19

think it’s because we all are wanting to know how to do 20

that pretty important skill. 21

So, we’re going to try and break through this 22

as quickly as possible. I have a lot to talk about. 23

Michelle has got like 30 slides in, like, 25 minutes. I 24

have no idea how that’s going to work out. But she’s25

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going to be able to pull it off, obviously. 1

So, a few things I want to discuss obviously 2

about prospecting that I think is going to be really, 3

really, really beneficial to everyone here. But before I 4

do that, I want to make sure this clicker actually works, 5

because I’m pressing fast forward -- I don’t know. 6

UNIDENTIFIED FEMALE: I think you have to point 7

it like this. 8

DARIK ALEXANDER: Oh, that’s probably why, I’m 9

pointing at the screen. Nope. You want to just do it 10

and I’ll just queue you? 11

UNIDENTIFIED FEMALE: Sure can. 12

DARIK ALEXANDER: Anyway. So -- okay. A lot 13

of people talk about prospecting as this activity or 14

hobby, right? Like, hey, let’s go prospect, right? 15

Let’s just go do that right now. But what people don’t 16

realize is -- you know what, I’m sorry, guys. I’ve got 17

to take this phone call. It’s really important. It’s 18

actually a prospect of mine that I have. But I’ll let 19

you guys listen. How about that? Hold on. 20

Hello? Hello, you there? Oh, it’s not -- it’s 21

not up all the way. Hey, are you there? Oh, hold on, 22

hold on. Can you hear me? Andrew, are you there? 23

ANDREW: Yes, I’m here. 24

DARIK ALEXANDER: What’s up, buddy? How are25

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you? 1

ANDREW: Nothing much. I’m just relaxing right 2

now. 3

DARIK ALEXANDER: Yeah, yeah. I’m glad you 4

called me, man. Well, hey, things have been well. I 5

know it’s been a few days since we talked. 6

ANDREW: Yeah. No, just taking (inaudible) and 7

everything to talk about, you know. 8

DARIK ALEXANDER: Yeah. 9

ANDREW: (Inaudible) -- about it. 10

DARIK ALEXANDER: Well, you know, we’ve been 11

talking for like two weeks now and I know you’ve been 12

working at Coca-Cola kind of doing your thing. I know 13

you’re a little bit stressed with that. You obviously 14

are working, you know, a lot. You’ve got like 12-hour 15

days sometimes, a few dollars an hour. I can sense, you 16

know, you want more out of life than what you currently 17

have. 18

I wanted to know, you know, we’ve talked a lot, 19

you were kind of ready to get started and get things 20

rolling, and obviously, you know, you had some 21

liabilities you had to take care of, your rent, things 22

like that. But how are you right now? How are you 23

feeling with the whole opportunity? 24

ANDREW: Things are going great. Things are25

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going great right now. Like I said, you know, my goal 1

is, you know, starting to focus on Vemma more, try to 2

learn more about the product. You know, you guys have 3

been really great with me, for me, calling me, checking 4

on me. And, you know, I really appreciate that. That 5

shows a lot that, you know, you guys, you really care, 6

you know, you’re out here to help others and be 7

successful in this business. 8

You know, like I said, you know, just watching 9

you on YouTube and where you are and where you work and 10

where you are today, you know, I can see that. I can see 11

the change, you know, like I’m so happy about it. I’m 12

really pumped about it, joining the team and really 13

learning the business. 14

DARIK ALEXANDER: Oh, absolutely, man. Well, 15

hey, you know, I do have to go pretty soon. But, you 16

know, I think -- I think what I really have seen is that 17

you’re ready to invest in yourself. And I’ve got a whole 18

team of leaders that are ready to invest in you if you’re 19

ready to make that commitment, too. 20

And, you know, that’s kind of what we wanted to 21

see, you’re at that point where you’re ready to get in 22

the system, to lock in some product and actually make 23

that next step to better your future and potentially 24

eventually getting you out of that job with Coca-Cola. 25

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How would you feel about that? 1

ANDREW: Oh, man, that would feel great. 2

DARIK ALEXANDER: Okay. And the other thing I 3

want to ask, too, I know we talked about the different 4

products, right? You can obviously lock in with two 5

cases, you know, grab a case for yourself, another to 6

share, you know, we discussed how the affiliate packet, 7

you qualify for a lot more bonuses. We got the 2 and Go 8

plan coming out. It’s going to be ridiculous. And, you 9

know, obviously the more product you get the better. So, 10

did you take a look at whether you wanted the affiliate 11

or the two? 12

ANDREW: I’m going with the affiliate pack. 13

Man, I think I’m going all in. I think that’s the best 14

way to go. 15

DARIK ALEXANDER: Absolutely. Okay. Well, 16

hey, you remember Jake (inaudible) right, the link that 17

we sent you probably a few days ago? 18

ANDREW: Yes, I do. 19

DARIK ALEXANDER: So, I’ll just make sure that 20

he hits you up, he contacts you. And then we’ll get you 21

through the system, figuring out which affiliate pack you 22

want. We’ll lock you in. We’ll enter the Facebook 23

groups. Within the next few days, our goal is to help 24

you get your goals met as quickly as you want to go. 25

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don’t think you understand the last three years our 1

ability to reinvent the wheel has changed now. We’re not 2

needing to reinvent the wheel. Vemma does it for us. 3

So, that’s all I have. I might have ran over a 4

little bit. I’m sorry about that, guys. But I’m going 5

to let Michelle Barnes come in here and absolutely rip it 6

up, guys. She has 35 (inaudible) so I appreciate it. 7

(Applause.) 8

MICHELLE BARNES: Hello, hello, hello, 9

everybody. 10

(Applause.) 11

MICHELLE BARNES: All right. I want you guys 12

to give Darik Alexander another huge, huge round of 13

applause. 14

DARIK ALEXANDER: Thank you. 15

MICHELLE BARNES: Am I on? 16

UNIDENTIFIED MALE: You’re on. 17

MICHELLE BARNES: All right. All righty. Wow, 18

what a crowd, man. You guys rock. All right, guys. 19

We’re going to cruise through this. We’ve got so much 20

information. I’m so glad that Darik literally set me up 21

perfectly. And I’m going to say repetition is the mother 22

of all learning. So, you might hear a couple things the 23

same. That’s obvious, you know. When it comes to 24

prospecting, if you’re good at prospecting, you’re25

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40

slides available somehow, someway. You guys can take 1

pictures for sure. But we’ll figure out a way to get 2

these slides to you, too, because I know I go fast. 3

All right. So, this is one of my favorite 4

questions I ask people. Every single person I meet I go, 5

who are the two sharpest people you know, who are well 6

connected and who have great relationships with everyone 7

around them? Because how many of you know -- you know 8

someone that’s like that person, man. Man, they’ve got 9

energy for days, they know everybody, everybody loves 10

them, they’re the life of the party, they’re sharp, 11

they’re leaders, they’re total freaking captains. Yes? 12

GROUP: Yes. 13

MICHELLE BARNES: Okay? There’s captains and 14

hanks. We know those -- we know captains. We all know 15

captains. Everyone you know knows a couple captains. 16

So, what if you’re finding out who the two sharpest 17

people that you know are the day they get their business 18

started? Who are the two sharpest people you know? What 19

if you help them contact those people and teach them to 20

invite them properly? All they need is two good ones to 21

get started, right? One on the left, one on the right, 22

boom, they’re bronze. 23

And if there were two people on a scale of one 24

to 10, these people are eights, nines and 10s and you25

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help them or you find a leader in your upline to help 1

them, how quickly is your group going to grow and you 2

recruit who you are? So, if they’re eights, nines and 3

10s, they’re going to recruit more what? Eights, nines 4

and 10s. You’re not limited to two guys, obviously. 5

Most elites have anywhere from 25 to 60-plus personally 6

enrolled. I personally enrolled 417 people in Vemma, and 7

that’s all warm market, no leads, no ads, no nothing, 8

nothing like that. Four hundred and 17 people. Today 9

about 30 to 40 of them are still with me. And it’s 10

turned into about 30,000. Not all of those are active, 11

you know -- 12

(Applause.) 13

MICHELLE BARNES: -- but here’s the reality, 14

guys. Are you willing to enroll 417 people to get 30 15

good ones, who will bring you thousands of amazing people 16

who drink this product every day and ask people to just 17

take a look at the opportunity? Okay? We’ll see. 18

We all do three things, guys. We use the 19

product. That’s easy. That takes up no time. I know 20

the majority of you are probably doing this business 21

part-time and that’s how this business is designed to be 22

built, on a part-time basis until you’re making more 23

money here than you are at your job or whatever. Then 24

you can, you know, kiss it goodbye and fire your boss and25

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say peace out. 1

But we all use the products, right? So, we all 2

use the products. You can do that while you exist. We 3

all recommend the products, okay? We use the products, 4

we recommend the products. That’s another thing that 5

takes up no time. The next thing we do is we invite 6

people to just take a look. To just take a look at this 7

business. Hey, I want you to just take a look at this. 8

If it’s for you, great; if not, great. 9

The guy that I met with, I almost walked out of 10

my first meeting. I was so skeptical, I saw products in 11

the corner, I almost turned around and walked out. I was 12

like, oh, God, here we go again, some of these deals, 13

Amway, Mary Kay, Shockley (inaudible). You know, so I 14

was getting ready to walk out. It was an ego thing. I 15

was like, I’m going to be an attorney. I’m not going to 16

be a vitamin lady. This is stupid. Okay? It was a big 17

ego thing. 18

I was broke. I had three jobs. Life was not 19

that fabulous. Okay? So, I had a really huge ego and a 20

little tiny bank account and I was $80,000 in debt 21

waiting tables and bartending because I was making more 22

money doing that than I could with my degree. Okay? 23

How many people do you know doing that, right? It’s 24

crazy, guys.25

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from the heart. Just -- okay, cool. You get what you 1

ask for. Okay? 2

So many people in my team and other people’s 3

teams and stuff, they go, God, Michelle, you know, I get 4

a lot of people on the products, but I don’t have any 5

business builders. You know, I can’t -- I just cannot 6

enroll people to do the business. I don’t have anyone 7

that wants to run in the business. 8

And I know right away that they’re vitamin 9

salespeople. They’re energy drink salespeople. You get 10

what you ask for. If you ask for people to try the 11

product, that’s all they’re going to do is try your 12

product. If you ask them to just take a look at your 13

opportunity, if you ask them to take a look at the 14

business, after they take a look at the business and then 15

they decide whether it’s for them or not. It’s very 16

simple. Okay? 17

These are the two things that I hear the most 18

from a new person. I bet you the majority of you in this 19

room have probably said it before. I’m just not salesy. 20

How many of you heard that before? How many of you have 21

heard this one: I just don’t want my friends and family 22

to think I’m just trying to make money off them. How 23

many of you have heard that before? 24

Well, when you’re a vitamin pusher, you’re25

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doing the exact two things you didn’t want to do. You’re 1

being salesy and you’re making money off them. So, 2

introduce them to the opportunity so they can get their 3

product for free and make some money. Okay? It will 4

take that pressure right off. 5

All right. I know we’re cranking, guys. Okay. 6

Here you go. Be in a hurry, guys. That’s the first 7

thing you’ve got to do. You know, like Darik was awesome 8

like that. Give them a sincere compliment, okay? 9

Sincere compliments go a long way. 10

The reason for my call is: Just get to the 11

point. If you don’t talk to someone in two years, don’t 12

call and, oh, how are the -- how’s the family, how’s the 13

kids, da-da-da-da-dah. Oh, by the way, crush, I’d like 14

you to take a look at my opportunity. Yes, that’s 15

creepy, okay? Thanks, Ben, appreciate it. 16

So, be straight up right away. Hey, the reason 17

for my call is I started a business on the side that I am 18

really fricking excited about. And you know what, I 19

thought of you because you’re super sharp, you know, 20

you’ve been successful at everything you’ve ever done and 21

I just think you would absolutely kill this thing. Would 22

you be willing to take a look at this? Okay? Would you 23

be willing to just take a look. 24

That’s when you use a tool, you use an event,25

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kids’ names. I find out where they’re from. I find out 1

what they do, what they love about it, what they hate 2

about it, because then I’ve got -- right there, I can 3

hand this business to them on a silver platter. If they 4

hate the fact that they work so many hours and they never 5

get to see their family, those are the exact reasons why 6

I’m going to introduce them to this opportunity. 7

Okay. So, that comes with time. And the more 8

you do it, the better you’re going to get. But you’ve 9

got to find those hot buttons in order to bring them into 10

the business properly and get them to see what you see. 11

Okay? 12

In the beginning, make up in numbers what you 13

lack in skill. When I started at 23 in this business, I 14

sucked. Okay? I was so bad. I was so bad at 15

recruiting. I was -- I was just bad. I would firehose 16

the heck out of everybody. I had a mentor that said if 17

you book 10 people a day to take a look at this business 18

-- okay? If you book 10 people a day, you’ll make 19

$10,000 a month. 20

So, I said, done and done. I said, at 23 years 21

old, I said, I am going to talk to 10 people a day about 22

this opportunity. I’m going to book 10 people a day to 23

take a look at something, a tool, an event or connect to 24

my upline. I’m going to book 10 a day to make $10,000 a25

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month. That was something I had control over. Your 1

recruiting numbers, guys, you have control over that. 2

You don’t have control over whether somebody says yes or 3

no. Thanks. You don’t have control over that. 4

So, I talked to 10 people a day and I made 5

$102,000 my first year. But I was psychotic about 6

talking to 10 a day. I didn’t care whether they said yes 7

or no. I just talked to 10 a day. And, guess what, when 8

you talk to your thousandth person, are you going to be 9

better than when you talked to your 10th? 10

GROUP: Yes. 11

MICHELLE BARNES: I made up in numbers what I 12

lacked in skill. Those 10,000 hours to become an expert, 13

just give me 20 fricking hours of really talking to new 14

people. And you’ll be amazed at what happens. Yeah, 15

they say 10,000 hours to become an expert in anything. 16

Okay? But if I’m talking to 10 a day, am I going to get 17

better before someone who talks to 10 a month or 10 a 18

year? 19

GROUP: Yeah. 20

MICHELLE BARNES: Yeah. So, you have control 21

over that. Okay? 22

All right. Come on. Guys, here’s your daily 23

method of operation, your DMO. At least two exposures a 24

day. I realize a lot of people are part-time. At least25

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two people a day minimum. Income producing activity. Is 1

what you’re doing right now making you money? Chrissy is 2

probably laughing. I used to put stickies -- here’s 3

Presidential Elite Leader Chrissy Guarina (phonetic). 4

Give her a hand. 5

(Applause.) 6

MICHELLE BARNES: We worked in another business 7

together, and so I used to -- she was a little sunny and 8

liked to socialize a little too much. And it used to 9

make me crazy. So, I used to go put a sticky note on her 10

phone, is what I’m doing right now making me money? 11

So, if that’s you, put a sticky note on your 12

desk or wherever, you know, in your car: Is what I’m 13

doing right now making me money? IPA, income producing 14

activity, that’s time spent talking to a prospect or 15

someone in your team’s prospect. That’s income producing 16

activity, guys. 17

So here’s the thing. Are you being productive 18

or are you being active? There’s a big difference 19

between productivity and activity. You know, rearranging 20

your files and organizing your names list and 21

alphabetizing your names list, you know, getting ready to 22

get ready, aggressively getting ready to get ready, how 23

many of you have been aggressively getting ready to get 24

ready? Just do it. Okay? I love this.25

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And schedule it in, guys. If you don’t 1

schedule it, it won’t happen. I’m a total time Nazi 2

because I’m a single mom with two kids that are four and 3

six and they’re fricking nuts, and I’ve got thousands of 4

people in my team and thousands of people that aren’t in 5

my team that I’m trying to help every single day, and 6

plus I need to work out and I’ve got to do all this -- my 7

life is fricking crazy. If you don’t book it, it’s not 8

going to happen. 9

For those of you who have full-time jobs and 10

stuff, you’ve got to schedule this in. You’ve got to 11

make it a priority. I love this quote. Do the thing and 12

you shall have the power. 13

So, what are you inviting them to? To watch a 14

video, to listen to a call, to a three-way call, a one- 15

on-one, two-on-one, with an expert, a private business 16

reception or a home event. You’re inviting them to an 17

online event. You’re inviting them to a hotel event or 18

you’re inviting them to a convention. That’s what you’re 19

inviting them to. It’s an invitation, not a 20

presentation. 21

Okay. The edification promotion. This is 22

everything, guys. The person who edifies the most makes 23

the most. The person who promotes the most makes the 24

most. I was a fricking promoter, man. I was a fricking25

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body dragger, okay? I put more butts in the seats. The 1

more butts you put in the seats at events the more money 2

you’re going to make. Bottom line. And I was a total 3

body dragger. I didn’t care what I had to do. I’d just 4

get in my car, they said if you pick them up, they’ll 5

show up. So, I shoved them all in my little black Geo 6

Metro that had no air conditioning and no radio and we 7

were going. All right? It was crazy. 8

But I edified the heck out of my expert. And 9

when you edify someone above you, you’re introducing your 10

person to that expert. Because they have the respect and 11

credibility you don’t yet. That’s why you’ve got to use 12

your expert. And then you zip it. Okay? And you let 13

your expert do the talking. Otherwise, if you open your 14

mouth, you just de-edified your expert. okay? So, just 15

keep your mouth shut, let your expert do their job and 16

they’ll get people signed up for you. It’s amazing. 17

And you’ll want to say something. Don’t. 18

Okay? Because you get this look from me. Okay? My team 19

is like, yep. And next you keep talking. I go, oh, 20

clearly you’ve got this under control. Peace. Because, 21

look, guys, I mean, there’s a process, there’s a method 22

to the madness here. There’s a reason we do what we do, 23

okay? 24

I’ve only got a couple more. I’ll raid through25

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2


CASE TITLE: VEMMA 4


TRANSCRIPTION DATE: AUGUST 9, 2015 6

7





12

DATED: AUGUST 9, 2015 13

14

15

GEORGE QUADE 16

17


19



format. 22

23

24

SARA J. VANCE 25

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DeclarationofStacieA.Bosley,Ph.D.

1.MynameisDr.StacieA.Bosley.IhaveadoctoraldegreeinAppliedEconomicsfromtheUniversityofMinnesota.InmycapacityasanassistantprofessorofeconomicsatHamlineUniversity,Iresearchmultilevelmarketing,directsellingandpyramidschemes.Ihavewrittenmultipleworkingpapersonthesetopics,rangingfromananalysisofdirectsellingaroundtheworldtoanexaminationoftherelationshipbetweendomesticeconomicconditionsandmultilevelmarketingactivity.IrecentlypublishedapaperintheJournalofPublicPolicyandMarketing1thataddressestheintersectionofmultilevelmarketingandpyramidschemeactivity.Ihavealsopresentedresearchonthesetopicsatnumerouseconomicsconferencesaroundthecountry.MymostrecentresearchpaperanalyzesthespreadofFortuneHi‐TechMarketing,anallegedpyramidschemeandnow‐defunctmultilevelmarketingfirm.Itaimstounderstandconditionsthatsupportordeterschemeadoptionaroundthecountry(includinglocaleconomicconditions,thepresenceofaffinitygroups,andeducationlevel).Ihavebeeninterviewedbymediaoutletsandhaveparticipatedinnationalconversationsonmultilevelmarketingandassociatedpolicyandregulation.Myuniversityteachingfocusesonmicroeconomics,quantitativeanalysis,managerialeconomicsandbehavioraleconomics.Eachoftheseareasisrelevanttotheanalysispresentedinthisdeclaration.Microeconomicsisthestudyofindividualdecision‐makingandresponsestoincentives.Behavioraleconomicsexaminesdecision‐makingwithaspecialfocusoncognitivebiasesanderrorsinjudgment.Quantitativeanalysisprovidesabackgroundinanalyticalapproachestounderstandingdataandpatterns.Lastly,ManagerialEconomicsstudiesdecision‐makinginsidebusinessesandorganizations.Anunderstandingoftheactionsofthefirm(e.g.,insettingcompensationpoliciesandprocedures)andtheactionsoftheindividual(e.g.,injoiningandparticipatinginabusinessopportunity)arehighlyrelevanttotheanalysisthatfollows.AtrueandcorrectcopyofmycurriculumvitaeisattachedasAppendixA.PurposeandMaterials

2.ThepurposeofthisDeclarationistoanalyzetheVemmaprogramtodeterminewhetheritisapyramidscheme.TheSectionsthatfollowsetforthmyanalysisandinclude:1)areviewofthecompanypromotionalandtrainingmaterials(video,audioanddocuments);2)astatementoftheconceptualandlegalframeworkIused,includinglegalassumptionsprovidedtomebyFederalTradeCommissionstaff;3)areviewofthecompany’sterms,conditionsandCompensationPlan(variousiterations);and4)adiscussionoftheavailableempiricaldatathatindicateshowthemarketingprogramworksinpractice,includingthecompany’sIncomeDisclosureStatementsandfindingsfromthe2014UnfairBusinessPracticescaseinItaly.AlistingofallmaterialsreviewedisavailableinAppendixB.CompanyOverviewandPromotion

3.Vemmaofferspeopletheopportunitytopurchaseandconsumevarious“liquidnutrition”products,andalsooffersabusinessopportunitytopeoplewhoseektoearnfullorpart‐timeincome.Thecompanycategorizesparticipantsaseither“Customers”or“Affiliates.”Customerscanonlyearnproductcredit,whereasAffiliateshavetheabilitytoearnfinancialrewards(CompensationPlan,discussedinfra).AllparticipantsbeginasCustomers(policybeginningApril1,2014)andaCustomercurrentlybecomesanAffiliatewhenhe/she(1)buysanAffiliatePackor(2)refersanotherCustomer/Affiliate(WebPageExplainingJan.24TerminologyChange). 1 Bosley,S.&McKeage,K.(2015).MultilevelMarketingDiffusionandtheRiskofPyramidSchemeActivity:TheCaseofFortuneHi‐TechMarketinginMontana.JournalofPublicPolicy&Marketing,34(1),84‐102.

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4.FounderB.K.Boreykopresentsthecompanyastherightopportunityforourcurrenteconomicandsocietalconditions,aspeoplearoundtheworldareseekinghealth,wellness,financialfreedomandtimefreedom.Thecompanyadvertisesaccesstoanentrepreneurialventurewithvirtuallynostart‐upcostsandnorisk.Promotionalvideosstate“nomembershipfees,”“nosignupfees,”“nolong‐termcommitments,”anda100%money‐backguarantee(HowVemmaPaysYou–2&GoandHowtoGetPaid–VemmaHomeEventvideos).TheVemmabusinessopportunityisrepeatedlypresentedasawaythatordinarypeoplecanachievetheirfinancialgoals.Forexample,TomAlkazin2presentsVemmaasanopportunitytobetheCEOandfounderofone’sowncompany,connectedtoafirmwithstrengthandstabilitythathas“changedmylifeandthelifeofmyfamily.”Heasksparticipantstosimplyplaceanorderand“letushelpyou”to“takecontrolofyourfuture”and“makedreamsbecomeareality”(24‐HourOverviewNewBusinessCallwithTomAlkazin).Mr.BoryekosimilarlyspeaksofVemmaas“atransformingjourneyfromanemployeementalitytothemindsetofanentrepreneur”thatwilloffer“full‐timeincomewithpart‐timeeffort”(Vemma–YourFirst7Days,audio).5.Boreykoandotherpromoters/materials(seeVemmaBusinessPresentationwithTopLeaderTomAlkazin,HowVemmaPaysYou–2&Go,andHowtoGetPaid–VemmaHomeEvent)compareVemma’sbusinessmodeltosodamachines.Ifanindividualhadonesodamachine,heorshemightearnmodestincomeontheproductthatissoldthroughthatmachine.Iftheindividualhadaccessto1,000machines,heorshecouldearnlife‐changingmoneybyearningasmallsharefromtheproductpassingthroughthosemachinesallaroundtheworld.Vemmaissaidto“openoutletsthroughpeople.”DarrenHardy(inVemma‐YourFirst7Daysaudio)explainsthatindividualeffortsaremagnifiedthroughthe“magicofduplication.”ByfollowingVemma’ssimplesystemandbytrainingtwopeopletoimitatetheiractions,Hardyexplainsthatultimatelyparticipants“canearn1%from100people’sefforts,ifnot1%from1,000,10,000ormore.”TheduplicationprocesscorrespondstotheVemmaCompensationPlanstructure.BonuseligibilitywithinthebinarystructurerequireseachVemmaAffiliatetorecruittwopeople,whereonepersonisplacedontheleftteamandtheotherontherightteam.Duplicationoccurswhenthosetworecruitsimitatetheactionsoftheirrecruiter,eachmakingpurchasesandrecruitingatleasttwoadditionalVemmaAffiliates.6.WhilerepresentationsofVemma’ssystemmightvaryslightly,theessentialcomponentsinclude(1)purchaseofinitialproduct(typicallyanAffiliatePack),(2)consistentmonthlyproductpurchases(typicallyonauto‐delivery),and(3)recruitmentofotherswhowilldothesame.Forexample,BoreykosuggeststhatsuccessinVemmaisspecificallybestpursuedasfollows:(1)buyanAffiliatePack;(2)order2‐case/monthauto‐delivery;(3)find3AffiliateswhobuyanAffiliatePackinthefirstweektoqualifyforFrenzybonuses;(4)getcarqualified;and(5)help5peoplegetinacar(VemmaNewsBK’s2014HalftimeReportvideo).Boreykosuggeststhatthese5stepsresultinapproximately$50,000inresidualannualincome.TomAlkazinpromotesthisidenticalsetofstepsandoutcomes(24‐HourOverviewNewBusinessCallwithTomAlkazin).Anotherrepresentationofthesystemisarticulatedinthe“TakeaShotandTellTwo”program(seeVemma13MonthCyclePlanandRuthElliottSuccessMadeSimplevideos).“Takeashot”referstotheinitialpurchaseofproductandpersonalmonthlyauto‐deliveryorders.Thesepurchasesarefrequentlyadvertisedasservingthreefunctions:toallowanAffiliatetodrinktheproductdaily;ensuretheAffiliatehasproductonhandforsamples;andtomaintaintheAffiliate’sbonuseligibility.“TellTwo”referstotheactofrecruitingtwonewAffiliateswhoaretrainedtoreplicatetheAffiliate’sactions(order

2 Mr.AlkazinandhiswifeareVemma’shighestearningAffiliates,reportinganestimatedincomeof$4.8millionperyear(http://www.businessforhome.org/2014/04/top‐150‐worldwide‐earners‐in‐mlm‐april‐2014/).Heoperatesawebsite,MyRoadMaptoSuccess,whichcontainsextensivetrainingmaterials.

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productandrecruittwo).Elliot,whoisidentifiedasahighrankingVemmaAffiliate3,arguesthat“yourteamwillbegintogrowthroughthepowerof‘2’,”andyourteamscangrowto“infinity.”AssuggestedintheVemmaPresentationandTrainingdocument,“Ofallthepeopleyouknow,andallthepeopleyou’llmeet,canyoufindtwo?”7.Whilethe“TakeaShotandTellTwo”programisonlyonevariationofthelanguageusedbythecompanyandAffiliates,thefundamentalcomponentsareconsistentwithincentivesintheVemmaCompensationPlan,companypromotionalmaterials,andassertionsofothertopdistributors(seeHowToGetPaid‐VemmaHomeEventvideoasanexample).MattMorrow,ahighrankingVemmaAffiliate,describesthesamesystemforsuccessinhis“VerveinSimpleTerms”video.4HesuggeststhatnewAffiliatespurchaseproducteverymonth(drinking1perdayandgivingtherestaway)andgettwootherpeopletodothesame.Morrowsummarizesthisasa$5/dayinvestmentthatwillconsistentlyyieldsubstantialreturns,delivering“moreinaweekthanmostpeoplemakeinayear.”Morrowclaimedearningsof$59,500inthepriortwoweeks,wherethoseearningswerederivedfromhissimplemodelforsuccess.8.DarrenHardy(inVemma–YourFirst7Daysaudio)alsodescribestheVemmabusinessmodelasproven,havingworkedfor“thousandsofothers.”HearguessuccessisonlyensuredthroughstrictadherencetoVemma’sduplicationsystemforatleastoneyear.Hardynotes,“allitreallyrequiresiscommitmenttoseeitthroughlongenoughfortheVemmabusinessmodeltoworkand…forthecompoundeffecttoignite,whichkickstartsthemoneymachine.”HedescribestimedevotedtoVemmaasanactofwateringthe“newmoneytree.”Hardystressessimplicityanduniversalaccess–anyone,evenwithoutspecificskills,education,experience,ortraining,canreceivethesameoutcomesiftheyarecommitted,trust,usethetools,andfollowthesystem.HefurtherdescribestheVemmabusinessmodelasan“unlimited,infinitelyscalablebusinessandincomethat’srecurringand,eventually,passive.”Failureisattributableonlytolackofcommitmentand/ordeviationfromthesystem.WhiletheAlkazinfamily(parents,sonsanddaughter)arethetopincome‐earnersinVemma,fatherTomAlkazinpromiseseachnewAffiliatethat“youwillbeabletodoexactlywhatourfamilyhasdone”(inBKBoreyko‐ElevateSanDiego2013speech).Ina2014video,BoreykointroducestheAlkazinfamilybymentioningthatherecentlypaidthefamily$963,000inasinglemonth.Later,inthatsamevideo,Tommotivatesthecrowdbysaying“what’shappenedforuscanhappenforyou”(inStarPinnacleTomBethanyAlkazinVemmaAllIn2014video).Hisyoungestson,BradAlkazin5,similarlystatesthat,withthe“simpleplan”andsupportingtoolsandresources,“youreallycan’tfail”(inYPRRadio‐BradAlkazinFullLengthvideo).Bradattributesfailureto“givingup”onthesystem.AtVemma’s2014EuropeanConvention,JamieChiriowentfurthertostatethatitwas“selfishtoquit,”asyouweredenyingyourselfandthousandsofothersthechancetosucceed(inJamieChirioSpeaksatVemma’s2014EuropeanConvention).Thecentralmessage:anyonecandoit,sticktothesimplesystem,andsuccessisassuredifyoudon’tquit.9.Thenotionof“passiveincome”isaconsistentsellingpointinVemmapromotionalmaterials.Mr.Boreyko(forexamples,seeVemmaNewsBK’s2014HalftimeReport,VemmaActionPlan2014,andtheVemmaTrainingBible),referstothelong‐termobjectiveof“passive”or“residual”income.

3 Ms.Elliotandherhusbandreportanestimated$1.8millionperyearinVemmaincome(http://www.businessforhome.org/2014/04/top‐150‐worldwide‐earners‐in‐mlm‐april‐2014/). 4 VerveisaspecificproductlinewithintheVemmacompany. 5 BradAlkazinreportsanestimated$2.64millionperyearinVemmaincome(http://www.businessforhome.org/2014/04/top‐150‐worldwide‐earners‐in‐mlm‐april‐2014/).BradisalsoconsideredaleaderoftheYoungPeopleRevolution(orYPR)group.

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Suchincomeisachievedwhenduplicationresultsinsignificantdownlineteams,yieldingcontinuingmonthlyincomewithoutfurthereffort.BoreykosuggeststhatVemmaparticipantscanearn$500,$5000,oreven$50,000permonthpart‐time(inVemmaNutritionCompanyMarketingandSalesBusinessPlanforPremiumSupplementProductsvideo).Topdistributorssimilarlyemphasizeearningsconnectedtothebusinessopportunity,especiallythoseearningsthatconstitutepassiveresidualincome.AlexMorton,ahighrankingVemmaAffiliate,includedthefollowingcommentsinalivemotivationalspeech(inVemmaSuccessAlexMortonvideo):

“Thisisabouta3‐5yearplan,towhereyouneverhavetoworryaboutmoneyeveragain.”“Youdon’twanttolivelifewithnomoney.Youwanttohavesomuchmoneythatitdoesn’tevenmatter.ThatiswhypeopledoVemma,tohaveenoughmoneytowhereitdoesn’tevenmatteranymore.”“Suncomesup,goesdown,wemakemoneywhileweareasleep.That’showVemmaworks‐youarepaid24hoursaday,7daysaweek,nomatterwhatyouaredoing.”“Yeah,youcanmakeamillionayearoramillionamonth.”

AffiliatesechoMorton’spromisesintheirownvideotestimonials,stating“myfamilywill

neverhavetoworryaboutmoneyagain”andyoucan“retireyourparents,”“havesixSaturdaysandoneSunday,”and“setyourselfupfortherestofyourlife”(examplesincludeJedBuenaluzonLeadingbyExamplefromtheVerveLeadership,LearnWhatDroveEmilyMcCullahtoSuccess–YPRRadioSeason2,andTKKubvorunoonYPRRadioSeason2w/EricThomas–LearnHowTK’sWhyDroveHimtoSuccess).AspromisedintheVemmaPresentationandTrainingdocument,“Ifyouputinamilliondollareffort,you’llearnamilliondollars.”

10.Vemmadocumentsandvideossuggestthattheopportunityremainsthesameforanynewmember,regardlessofeconomicconditions.“Ifyouarededicatedtosuccessandyoufollowallofthesteps,thereisabsolutelynoquestionthatyouwillfindgreatsuccessintheVemmabusiness.”(VemmaWorkbook).Morton(inZerotoSixty:AStart‐upBusinessPlanforYoungPeopleSelf‐EmploymentwithAlexMortonvideo)echoesthatidea,suggesting:“Followourprovensystem,followourprovenmethodguys.Ifyousaywhatwesayanddowhatwedo,yougetwhatwehaveeverysingletime.”Thebusinessopportunityisadvertisedas“easytosetinmotionandeasytoduplicate.”11.Vemmahasspecificrecruitmentmaterialsandproductsaimedatyoungadults.Boreyko(inVemma–YourFirst7Daysaudio)suggeststhat,“intoday’seconomicclimate,goingtoschoolandgettingagoodjobmaynotbethebestpathforfinancialsecurityandtimefreedom.”Mr.Boreyko(inBK’sBlogCEOofVemmaNutritionalCompanySpeaksonWhyToJoinVemmaaudio)citesthe“youthrevolution”asthenumberonereasontojointheorganization.Henotesthatyoungpeoplecan“thinkdifferently,”havea“cleanslate,”andareburdenedwithhighstudentloandebtandanenvironmentofhighunemployment.Thefounderreportedthatofthe28,000‐30,000peoplejoiningVemmapermonth,overhalfareyoungadults.AffiliatesBradAlkazinandAlexMorton,amongothers,mentionthenumberofcurrentcollegestudentsasawaytoidentifythemarketpotentialofVemma.Libraries,fraternities,sororities,anddormsarefrequentlymentionedasplacesofrecruitment.TheYoungPeopleRevolution,orYPR,grouphasdevelopedtailoredmaterials(e.g.,theVemmaTrainingBible)andmeetingsforVemmarecruitment.TheseoftenfocusonVemma’sVervelineofenergydrinks.12.InAlexMorton’stalktoyoungadults(VemmaSuccessAlexMortonvideo),hespeaksdirectlytotheconcernsregardingearnings,autonomyandsecurity.“Youareeitherinoryouareout.Youareeitherin,youwanttomakeenoughmoneytolivelifethewayyouwant…”orgotoschool,getgoodgrades,then“begsomeonetohireyou.”Evenifyoudosecureajob,thatjobwilldictatewhentogo

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tolunch,whentotakevacation,evenwhentousethebathroom.Mortonnotesthatweare“God’sgreatestcreation”andshouldnotbepaidbythehourorbysalary.MortonthenechoesHardy’scommentswhenhespeaksofperseveranceanduniversalaccess.“Theonlywayyoufailinthisisbyquittingordoingnothing.That’sit.Ifyoudosomething,anddon’tquit,yousucceedeverytime.Nomatterwhereyoucomefrom,nomatterwhatyoureducationallevelis.Nomatterwhatguys.”MortonaskstherecruitstoconsiderthepowerofyoungVemmaparticipantstochangethewaybusinessisconductedandthewaypeoplearepaid.ThisnotionofrevolutionarypowerisreflectedinthetestimonialvideosofAffiliateswithintheYPRgroup,asAffiliatesdiscussthevulnerabilitiesoffollowingthetraditional“school,grades,resume,job”track.VideosfrequentlymentionthemomentwhentheAffiliate“sawthevision,”embracingthe“noboss,nojob,nohours”freedomofentrepreneurshipandtheideato“makeyourowneconomy”and“changetheworld”(examplesincludePatrickComeronProspectingLikeaPro–VemmaVerveLeadershipAcademyPowerTalk,ShaneSullivanVervePowerTalkonElevatingYourVemmaBusinesstotheNextLevel,andTKKubvorunoonYPRRadioSeason2w/EricThomas–LearnHowTK’sWhyDroveHimtoSuccess).Thisvisionfrequentlyincludesluxurycars.Forexample,BryceMajdicknoteshisvisionto“put6BMWsinmyhometown”(inBryceMajdick‐ElevateSanDiego2013speech).ThetradeofffornewrecruitsisrepresentedasthechoicetosellyourXbox(presumablytopurchaseinitialproductandmaterials)inordertojoinamovementandinvestinalife‐changingopportunity,yieldingpermanentfinancialandtimefreedom.AffiliateLukeWilbornfurthersuggeststhatacollegedegreemightnolongerhavevalueandthatthereisagapbetweenwhatisbeingtaughtinschooland“whatittakestoearnmoney”(LukeWilborn–ElevateSanDiego2013speech).13.BoreykoevenaddressesparentsofVemmarecruitsdirectly(inBoreykoVideotoParents),askingthemtocongratulatetheirsonordaughterfortakingtheinitiativeto“checkoutthisVerveopportunity.”Henotesthatyoungpeoplecannolongerbeassuredthattheywillfindajobtheyarepassionateaboutbyfollowingtraditionalpaths.BoreykoarguesthatVemmaoffersskill‐buildingthatcan’tbefoundintheclassroom:people‐skills,goal‐setting,motivationalstrategies,andexperienceinrunningabusiness.Healsonotesthatthecompany’sbusinessmodelfitsyoungpeopleastheytendtobeverysociallyconnected.Suggestedearningsrangefromfreeproductto“$500permonth,$500perweek,or$5,000permonthorweek.”Hementionsa26‐yearoldwhowill“make$1millionthisyearwithVemma.”BoreykoconcludesthattheirsonsanddaughterswillbebetterpeopleiftheychoosetojoinVemma.Thefounderdoesaddresspyramidschemeconcernsandassuresparentsthat,inillegalpyramidschemes,theonlyfocusisonsigningpeopleupandthereisnoemphasisonsellingproduct.HefurtherpromisesthatVemmaoffersfreesign‐upandonlypaysbonusesafteraproductissold.Theseassertionswillbeaddressedbelow.14.Companypromotionalmaterialsdevotesomeattentiontoproductattributesbutdonotemphasizesalestoultimateusersasasourceofcompensationanddonottypicallyprovidetrainingorsupportspecificallyaimedatsalestoultimateusers.Theproductdiscussionscontainedinthepresentationsappeartobeprimarilydesignedtolendcredibilitytothebusinessopportunitybeingoffered.ItisrepresentedthattheVemmaproductlinewillallowtheAffiliatetoprofitfromthethreemulti‐billiondollar“mega‐trends”thatwillonlycontinuetogrowinthefuture–healthandfitnessproducts,energydrinks,andweightlossproducts.Mr.BoreykoreferstoAffiliaterecruitsasthe“goldnuggets”whilecustomersarethe“silvernuggets,”sayingthatcustomersare“aby‐productofourbusiness”(VemmaNewsBK’s2014HalftimeReportvideo).AsimilarsentimentisexpressedonavideoonVemma’swebsitetitled,“HowtoGetPaid‐VemmaHomeEvent.”AfterurgingviewerstopurchaseanAffiliatePack,theannouncerconcludesthatifyouareapersonwithoutcleargoalsorarelackingadesireforfinancialimprovement,orjusthavetroublemakingadecision,thentheAffiliatePackisnotforyouandyoushouldjustremainaCustomer.Trainingvideos(AffiliateActionPlan–Steps4and5)fornewAffiliatesreflectthisemphasisonbringingin

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Affiliatesovercustomers.Inthevideocenteredon“LeadingwiththeProduct,”BoreykoandAffiliatesstillrefertocustomersasAffiliatesin‐the‐making,suggestingthat“somewillbecustomersatfirst”andthatmanyofthemostsuccessfulAffiliatesstartedascustomersfirst.Inthevideocenteredon“LeadingwiththeBusiness,”AffiliateRichardBischoffmentionsthathefirstapproachedpeoplewiththeproductandhisbusinessstalledasitdidn’t“duplicate.”15.Insum,itisclearfrommyreviewofVemma’spromotionalmaterialsthatVemmaisprimarilypromotingabusinessopportunitythatcansupposedlygeneratesubstantial,evenlife‐changingincome.Thebusinessopportunityispresentedasawaytocapitalizeonsocialnetworksandword‐of‐mouthadvertisingtopromotetheproduct,buttheemphasisisalmostexclusivelyonpromotionofthebusinessopportunityandincomepotentialratherthantheproductitself.ItisalsoclearthatVemmaemphasizesrecruitmentofdownlineAffiliatesastheprimarymethodofobtainingsubstantialincome,ratherthanretailsalesoftheproduct.AswillbediscussedintheCompensationPlananalysis,thecompensationplanstronglyincentivizesrecruitmentandprovidesfewincentivesforanAffiliatetomakesalestoultimateusers.ScopeofAssignmentandConceptualFramework

16.ForpurposesofmyanalysisoftheVemmaprogram,Ihavebeenaskedtoapplytworelateddescriptionsofapyramidscheme:onebeingageneraleconomiccharacterizationand,theother,adefinitionborneofrelevantcourtfindingsknownastheKoscottest.6

17.Fromageneraleconomicperspective,apyramidschemeexistswhenacompensationplanisstructuredtocreateaperpetualrecruitmentchainthatdoomsthevastmajorityofparticipantstofinancialloss.Itrequiresongoingrecruitmentasnewentrantsmustrecruitothersinordertocovertheirownpersonalinvestment.Whenanewparticipantrecruitsothers,allindividualswhojoinbecomepartofher“downline,”whilethoseaboveherareconsideredher“upline.”Downlineactivity(recruitmentandassociatedpayments/purchases)isneededinordertocoverparticipationcostsandpotentiallyachieveadvertisedearnings.Whilethecompensationplandetailsmayvary,theessenceofthesystemisthatearningsaredependentontheongoingabilityofaparticipanttorecruitothersintothesamesystem.Bydesign,thiscreatesasystemwherethevastmajorityofparticipantscannotrecouptheirpersonalinvestment.Aslongasrecruitmentcontinues,membershipgrowsatanexponentialrate.Atanymomentintime,themostrecententrantsmakeupthevastmajorityofmembership.Thismajorityistheverygroupthatisinapositionoffinancialloss,astheyhavenotacquiredthedownlinerecruitsnecessarytooffsetpersonalinvestments(seeAppendixCformathematicalexpositiononthesepoints).Bynatureofthestructureitself,apyramidschemeisamoney‐transferschemethatsiphonsmoneyfromlaterentrantstocompensateearlierentrants,deliveringeasilyforeseenlosses(fromastructuralperspective)tothevastmajorityofparticipants.

18.Itshouldbenotedthattheoutcomesofexponentialgrowthandwidespreadlosses,articulatedabove,areexpectedatanypointintimeanddonotrequirethatthefirmhasreachedmarketsaturation.AsdemonstratedinAppendixCandbelow,inthecontextofVemma’sCompensationPlananalysis,thepercentageofparticipantsinthelowestlevelsoftheorganizationwillconstitutethemajorityofparticipantsatanymomenttheschemeisanalyzed.Theanalysiswillshowthatloss

6Thedefinitionsusedinthisdeclarationareadaptedfromthedefinitionsinarecentpeer‐reviewedarticlebyWilliamKeepandPeterVanderNat(Keep,W.&VanderNat,P.(2014).MultilevelmarketingandpyramidschemesintheUnitedStates:Anhistoricalanalysis.JournalofHistoricalResearchinMarketing,6(2),188–210).

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ratesarenotaccidentalandcanbeanticipatedgiventherecruitmentincentivesinherentintheCompensationPlan.Asthepromisedrewardsarerealizedonlyifsuccessfulrecruitmentcontinuesindefinitely,positiveearningssuggestionsareinherentlydeceptiveandcannotbefulfilledfortheoverwhelmingmajorityofparticipants.Theabsolutenumberofpeoplewhowillultimatelybeharmed(leftwithlosspositions)growsexponentiallyastheorganizationexpands.Manyparticipantswillexitwhenrecruitmentbecomesmoredifficult.Newrecruitsthentaketheplaceoftherecentdropouts,creatingachurningbase.Mostinthechurningbasewilllosemoneywhileafewadvancetohigherlevelsoftheorganization.Thevastmajorityofoverallparticipantsarenotexpectedtoearnenoughtocovertheirpersonalinvestment.

19.Whilepyramidschemescantakearelativelysimpleform(e.g.,giftingtableorchainemail/lettersolicitation),theycanalsobeembeddedwithinabusinessopportunitythatoffersaproductorserviceforsale.TheKoscottest(1975)addressesthistypeofbusinessstructure.TheKoscotanalysisassumesadirectsellingcontextwhereparticipantsmakepaymentsthatentitlethemtoearnbasedonsubsequentsalesandrecruitment,eitherdirect(salesorrecruitmentbytheparticipanthim/herself)orindirect(salesorrecruitmentbythoseinhis/herdownline).Suchstructuresarecommonlyknownasnetworkmarketingormulti‐levelmarketing(MLM).TheKoscotanalysisappliesthegeneraleconomiccharacterizationofapyramidschemetoaspecificcontext‐thatofmulti‐levelmarketing‐andisusedbythecourtstodistinguishbetweenlegalmulti‐levelmarketingprogramsandpyramidschemes.TheKoscotteststatesthatapyramidschemeischaracterizedbythepaymentbyparticipantsofmoneytothecompanyinreturnforwhichtheyreceive(1)therighttosellaproductand(2)therighttoreceiveinreturnforrecruitingotherparticipantsintotheprogramrewardswhichareunrelatedtosaleoftheproducttoultimateusers.

20.TheKoscottest,whichwasadoptedbytheFTCin1975,hasbeenaffirmedinmultipleFederalcourtopinionsincludingOmnitrition(1998),Gold(1999)andBurnLounge(2014).Iamnotanattorneyandthisdeclarationdoesnotpurporttocontainadetaileddiscussionofthelegalissuessurroundingpyramidschemes.Totheextentthatthisdeclarationdependsuponlegalanalysis,IrelyuponthedeterminationoftheapplicablelawprovidedtomebythestaffoftheFederalTradeCommission.InadditiontotheKoscottest,Ihavebeenaskedtoapplytwoprinciplesfromthe9thCircuit’sdecisioninBurnLoungethatarerelevanttothesecondprongoftheKoscottest.Thefirstprincipleisthatprogramparticipantsmayonlybeconsidered“ultimateusers”iftheparticipantspurchasetheproductsforpersonalconsumptionbasedonconsumerdemand,notprimarilyforthepurposeofparticipatingfullyintherewardsunderthecompensationplanforthebusinessopportunity.Thesecondprincipleisthat,inorderforthesecondprongoftheKoscottesttobesatisfied,itisnotnecessaryforcompensationtobecompletelyunrelatedtosalestoultimateusers.Statedanotherway,theexistenceofsomesalestoultimateusersforpurposesofconsumptiondoesnotpreventaplanfrombeinganillegalpyramidstructure.TheVemmaCompensationPlan

21.Vemmagivespotentialpurchaserswhosimplywantto“enjoytheproducts”theoptiontopurchaseproductswithoutbecomingAffiliates.Forexample,aVemma1‐packcontains2‐32ouncebottlesthatareadvertisedasa30‐daysupplyfor$74.A24‐packof8.3ounceVerveenergydrinkcanscanbepurchasedfor$79.80.Oneachoftheseproducts,upto10%canbesavedbyestablishingamonthlyauto‐deliveryorder.However,ifpotentialpurchaserswantto“succeedbyhelpingotherssucceed”andhaveaninterestinlife‐changingcompensation,theyareencouragedtopurchaseanAffiliatePack(examplesaboundthatdirectthepurchaseofanAffiliatePack,includingtheHowVemmaPaysYou–2&Go,HowtoGetPaid–VemmaHomeEvent,VemmaNewsBK’s

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2014HalftimeReport,andAffiliateActionPlan–Step1videos).7AffiliatePacksaresaidtobereservedforthosewho“seethebigpicture”and“wanttocreatecashflowwiththeirVemmabusiness.”22.A$499.95AffiliatePackincludesavarietyofVemmaproducts,accesstoane‐commercewebsite,andtheVemmaSuccessKit.StatedreasonsforpurchasingtheAffiliatePackincludehavingproductonhandtohandoutassamplesandqualificationforFrenzyandPremierClubbonuses(describedlaterinthissection).ThispurchaseissaidtobenecessarywhetherAffiliateswantalarge,mediumorsmall‐sizedVemmabusiness(HowVemmaPaysYou‐2&GoandHowtoGetPaid–VemmaHomeEventvideos).Whilethe2015CompensationPlandoesnottechnicallyrequirethepurchaseofanAffiliatePack,itisheavilyincentivizedandpromotedasanecessaryinvestmenttopursuethebusinessopportunity.AsBKBoreykostatedataVemmaLeadershipAcademyevent,“Youknowwhat,youdon’thavetobuyanAffiliatePack,butyouhavetobuyanAffiliatePack”(VemmaNewsBK’s2014HalftimeReportvideo).Henotesthatthisisamuchlowerinvestmentthanwouldberequiredforatraditionalfranchiseorothersmallbusiness.23.OnceAffiliateshavemadethisinitialinvestmentinthebusiness,thenextrecommendedstepistoimmediatelyinitiateamonthlyauto‐deliveryorderthatwillensureongoingeligibilityforcompensation,foramonthlycostofapproximately$150.00.AfteremphasizingtheimportanceofanAffiliatePackpurchase,Boreykowentontosay:

“Now,afteryou’vedoneyourAffiliatePack,youneedtogetonanauto‐deliveryorder”as“thatmakessurethatyou’requalified.”“Here’sthething,yes,youcanqualifywithcustomersbut,youknowwhat,sometimescustomersdon’torderandtheydon’ttellyou they don’t order and all of a sudden you’re like, hey, I wasn’t qualified….”(VemmaNewsBK’s2014HalftimeReportvideo)IndividualAffiliatesalsorecognize$150/monthasthecostofdoingbusinessinVemma,

basedontheminimummonthlypurchasethatensuresbonuseligibility.AffiliateNickPtakencouragesnewAffiliatestofocusonthe$5participationcostperday‐“don’tsay$150buckspermonth”(inNickPtakvideo).AffiliateBlakeStaufferalsoreferstobeing“out$150everymonth,”referringtothecostofhismonthlyauto‐deliverypurchase(inMessageoftheMonth‐BlakeStauffervideo).BradSarver,inhisaddresstoVemma’sElevateSanDiegoin2013,challengesthecrowdtobeseriousaboutthebusinessbyasking:“Whoisona2‐packautoshipwithmetothegrave?”Thesepurchaseexpectationsarecodifiedwithinthenew“2&Go”program(discussedfurtherinparagraph38),asthenewAffiliateisdirectedtotaketwostepsondayoneofjoiningVemma:1)buyanAffiliatePackand2)initiatethe$150monthlyauto‐delivery.24.BoreykogoesfurtherintheVemma–YourFirst7Daysrecordingwherehearguesthatcontinualauto‐deliveryprovidestaxbenefits.HesuggeststhatthesemonthlypaymentsdemonstratetotheIRSthattheAffiliateisactivelyengagedina“home‐basedbusinesswiththeintentofmakingaprofit”sinceauto‐deliveryensureseligibilityforallbonuses.Inmakingthisargument,Boreykoisidentifyingthesemonthlyauto‐deliverypurchasesasacostofpursuingthebusinessopportunity.25.IfanAffiliateisfollowingtherecommendedstrategy,theyhavenowpurchasedtheAffiliatePackandsignedupformonthlyauto‐deliveryofproduct.Vemma’scurrentCompensationPlan(asofJanuary1,2015)hasthreewaysto“getpaid,”summarizedinTable1.Iwilldescribeeachoftheseformsofcompensationbelow.

7TheAffiliatePackisalsoreferredtoasanAffiliateBuilderPackorAffiliateStarterPackandwasformerlycalledaBuilderPack.

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Table1:VemmaRewardTypes

PurchaseLoyaltyRewards

ImmediateIncome

Long‐termTeam‐VolumeRewards

VemmaLoyaltyPrograma NewCustomerBonusa CycleCommissionsq FrenzyBonus*q PremierClubBonus*q Double‐FrenzyBonus*qd BalancedTeamBonusq AffiliatePackFlag*q MatchingCommissionq RankAdvancementRewardsq SecondTierMatchingCommissionq GlobalBonusPoolq

*ExplicitlyrequirespersonalpurchaseofanAffiliatePackforeligibilityqRequires“qualified”statusforeligibilityaRequires“active”statusforeligibilitydRequiresauto‐deliveryforeligibility26.AsseeninTable1,nearlyallformsoffinancialcompensationrequireanAffiliatetobe“qualified,”meaningtheymusthave:

1) aminimumof120pointsinpersonalvolumepermonth,and2) atleastone“active”recruitoneachoftwoteams(leftandright).

Toachieve120personalvolumepointsinamonth,onecanpersonallypurchaseproductsworth120qualifyingvolume(QV)points(e.g.,2‐packofVemma2‐ouncebottlesfor$171is120QV)orhaveaminimumof240qualifyingvolumepointspurchasedbyhis/herrecruitedCustomers.Onecanalsohavesomecombinationofthesedirectandindirectpurchases.Fortherecruitstobeconsidered“active,”theCustomerorAffiliatemusthaveaminimumof60personalvolumepointsinamonth.Therecruitcanachieve60personalvolumepointsbypersonallypurchasingproductsworth60qualifyingvolumepoints(e.g.,1‐packofVemma32ozbottlesfor$74is60QV)thatmonth,haveaminimumof120qualifyingvolumepointspurchasedbyhis/herpersonallyenrolledCustomers,orsomecombination.8Asstatedabove,Affiliatesareencouragedtopurchaseproductusingauto‐delivery(or“autoship”),asthisestablishesamonthlypurchasethatwillcontinueautomaticallyunlessterminatedandthus,ensuresuninterruptedeligibilityforcompensation.27.Beforereviewingtheformsofcompensation,itisimportanttoaddresstheseriesofchangesVemmahasmadetoitsCompensationPlanoverthelastfewyears.AppendixDwillpresentasummaryofthechangesmadeinanumberofrecentiterationsbutthisreportwillfocusonthemostrecentplaneffectiveJanuary1,2015.Myanalysis,alongwithstatementsfromVemmafounderBKBoreyko,suggestthattheplanandterminologychangeshavehadnoimpactontheprimaryincentivestructureembeddedinthemarketingprogram.Thoughcertainkeytermshavechangedandsomeadjustmentshavebeenmadetobonuseligibilityrequirements,incentivesarestillalignedwithrecruitmentandpurchases,ratherthanretailsalesbasedonmarketdemand.Companymaterialsalsosuggestthatrecentchangesdonotreflectsignificantchange:“Vemma’scompensationplanwon’tchange;we’lljustdescribeitdifferently…”(WebPageExplainingJan.24TerminologyChange)andthesuggestedsystemforsuccessremainsthesame.28.Indiscussingtheformsofcompensation,Iwillbeginwiththesourcesofimmediateincome:theNewCustomerBonus,FrenzyBonusandDoubleFrenzyBonus.All“active”participantsareeligiblefortheNewCustomerBonusandthisbonusrewardstheparticipantforthefirstpurchasemadeby 8 IfqualifyingforthePlatinumlevelorabove(discussedfurtherbelow),therequirementsfor“active”statusaredoubled(i.e.,aminimumof120personalvolumepoints).

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anewrecruit(e.g.,$10paymentwhenarecruitpurchasesaVemma1‐pack;$100onthepurchaseofanAffiliatePackifmadewithin60daysofenrollment).FrenzyandDoubleFrenzyBonuseligibilityrequiresa“qualified”statusandthepersonalpurchaseofanAffiliatePack.Ifeligible,theFrenzyBonuswillbepaidiftheAffiliaterecruits3peopleinthesameweekthattheypersonallyenrolled,solongasthose3recruitseachhaveaminimumpurchaseof120QVwithinthatweek.Higherrewardsarepaid,intheformoftheDoubleFrenzyBonus,ifeachofthose3recruitspurchaseanAffiliatePackandsignupformonthlyAuto‐Delivery(minimum120pointspermonth).Thisisthecompany’sadvertisedmethodofcoveringinitialcostsofparticipation,astheNewCustomerBonusandDoubleFrenzyBonuscombinedwouldpay$700inthefirstweekofenrollment.NotethatthisrequiresanAffiliatePackpurchasebytheinitialAffiliateandthe3newAffiliateshe/sherecruits,aswellasmonthlyauto‐deliverybythoserecruited.29.Whiletheimmediateincomeishailedasawaytooffsetinitialexpenses,VemmaportraysitsCycleCommissionsastheprimarypathtolong‐termfinancialprosperity.Vemma’sdescriptionofitsCompensationPlanatVemma.com(WebCapture‐www.vemma.comOpportunityCompensationPlanBasics)emphasizesthepowerofCyclerewards.Videosdescribecyclerewardsastheprimarysourceoflong‐termresidualincomethat“haschangedlives”(HowVemmaPaysYou–2&Goand HowtoGetPaid–VemmaHomeEventvideos).30.ThisemphasisonCycleCommissionsisconsistentwithVemma’sincentivestructureasallformsoflong‐termcompensationdependonthenumberofcyclesgenerated.Withtrainingandbonusesemphasizingcycles,Affiliatebehaviorisexpectedtobealignedwithcycleaccumulation.CycleCommissionsarebasedonthetwo‐team(binary)conceptdiscussedinparagraph5,above.TheAffiliate“cycles”ina4‐weekperiodeachtimethereare360pointsononeteamand180pointsontheother(leftorright).Theteamwithhigherpointsisconsideredthe“power”teamwhiletheotheristermedthe“profit”team.Forexample,theparticipant“cycles”1timeandachievesBronzerankifthereare360pointsontheleft(power)teamand180pointsontheright(profit)team(e.g.,$444inpurchasesviathree2‐packVemmapurchasesontheleftteamand$222inpurchasesviathree1‐packVemmapurchasesontherightteam).Theparticipant“cycles”5timesandachievesSilverrankifthereare360*5=1,800pointsonthepowerteamand180*5=900pointsontheprofitteam(e.g.,$2,220inpurchasesviafifteen2‐packVemmapurchasesonthepowerteamand$1,110inpurchasesviafifteen1‐packVemmapurchasesontheprofitteam9).Approximately$20isearnedpercycle.Figure1:CycleCompensationVisual

(https://www.vemma.com/opportunity/compensation‐plan‐basics,accessed2/10/2015)

9 Thisexampledoesnotincludeshippingcostortaxanddoesnotassumeauto‐delivery.

1Cycle≈$20

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31.TheCompensationPlanprovidessuggestedearningsfromCycleCommissions(seeFigure2below).Asanexample,theStarRoyalAmbassadorlevelrequires4,000cyclesina4‐weekperiod(equivalentto$2.664millioninVemma2‐packpurchases).The4,000cyclesyieldapproximately$80,000incyclecompensationfortheAffiliateinthat4‐weekperiod.Thisisfarfromtheendofthecommissionsbasedonthesepurchases,asallthoseabovethisAffiliate(inupline)andbelow(indownline)willsimilarlyearncyclerewardsonthesesamepurchases,dependingontheirpositionwithintheorganizationrelativetopersonwhomadeeachpurchase.Therearenodefinedlimitstothenumberofindividualswhocanbecompensatedbasedonanindividualpurchase‐eligibilitywoulddependonwhetherthepurchasecountsasQV(qualifyingvolumepoints)withinanAffiliate’spowerorprofitteam.Figure2:CycleEarningsLevels

(https://www.vemma.com/opportunity/compensation‐plan‐basics,accessed2/10/2015,downloadedembeddedCompensationPlan)32.Additionalincentivesdirectlytiedtothenumberofcyclesinclude:RankAdvancementAwards,BalancedTeamBonus,BalancedTeamBonusAffiliatePackFlag,PremierClubBonus,MatchingCommission,SecondTierMatchingCommission,andtheGlobalBonusPool.Allaredependentonmaintaininga“qualified”statusandspecificpayoutsarebasedontheQVaccumulatedwithinthepowerandprofitteams(i.e.,basedonnumberofcycles).33.RankAdvancementAwardsareaone‐timebonuspaidwhenanAffiliateachievesanewrank,asdeterminedbythenumberofcyclesinthe4‐weekRankAdvancementPeriod.Inmostcases,thenewrankmustbeachievedforatleasttwoconsecutive4‐weekperiodsinordertoreceivetheRankAdvancementAward.Forexample,ifanAffiliatehasatleast20cyclesinFebruaryandinMarch,he/shewouldreceivetheDiamondRankAdvancementAwardof$500.Forhigherranks,Presidentialandabove,therankmustbemaintainedforsixconsecutive4‐weekperiods.RankAdvancementAwardsareashighas$1millionforanAffiliatewhoreachestherankofLegend(20,000cyclesina4‐weekperiod).34.TheBalancedTeamBonusisalsoaccruedontopofcycleearningsbutcanbepaidinevery4‐weekperiod.If,forexample,anAffiliatehasaminimumof500QVonboththeleftandrightteamsina4‐weekperiod,he/shewillbepaidanextra$100forthatperiod.IftheAffiliatepersonallypurchasedanAffiliatePack,theAffiliatePackFlagpaystheBalancedTeambonusatonehigherlevelthanwouldotherwisebeearnedfor90days(e.g.,wouldbepaid$200inthe4‐weekperiod

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ratherthan$100).Asvolumerisesandthisbonusincreasesto$400,theAffiliateisnowconsideredamemberofthe“PremierClub.”ThePremierClubbonusisnowpaidincash.Suggestedusesincludeleasingaluxurycarorpayingdowncollegeloandebt.10Recallthat,beyondminimumvolumerequirements,qualificationforthePremierClubalsoincludesapersonalpurchaseofanAffiliatePack.35.Matchingand2ndTierMatchingCommissionsactivatewhentheAffiliaterecruitsandmaintainsadditionalactivePEQs(orPersonallyEnrolledQualifiers).TheMatchingCommissionrequires4activePEQseachmonthand,whenactivated,paystheAffiliate10%ofthePEQ’scyclecommissions.TheAffiliatewillearnapproximately$2everytimeaPEQhasonecycle(i.e.,yourPEQearns$20andyouearn$2onasinglePEQcycle).The2ndTierMatchingCommissionrequires6activePEQsandpays10%onelevelfurther,soapproximately$2everytimeaPEQ’sPEQhasonecycle.36.TheGlobalPoolBonusispaidquarterlytothoseatPlatinumlevel(50cyclesper4‐weekperiod)andabove.Payoutsdependonthesizeofthepoolandarebasedon2.25%ofoverallVemmasales.37.Lastly,theVemmaLoyaltyProgramrewardspurchaseconsistencybyprovidingafreecaseofproductintheseventhmonthifaparticipanthasmadepurchasesforsixconsecutivemonths(minimum60QV/monthoverthesixmonths).Thisfreeproductdoesnotconstitutepoints,forpurposesofbonusdetermination.LimitedIncentivesforRetailSales38.Whilethecompanyclaimsanewemphasisoncustomeracquisition,personalstatements,companyliteratureandtheCompensationPlanminimizeretailsalesactivity,whetherthroughre‐saleorthroughdevelopmentofdirect‐salecustomers.Instead,thecompanyfocusesitsguidanceonencouragingAffiliatestopurchaseproductforthepurposesofbonusqualificationandrecruitdown‐lineAffiliatestodothesame(duplication).Thisemphasisonaduplicationapproach,centeredonrecruitmentandbonus‐qualifyingpurchases,isdemonstratedbyMr.Boreyko’srecentannouncementofanew“2&Go”programintheMay2015LiveVemmaCall(BigNewsFromtheMayVemmaCallLive–VemmaNews).11AccordingtoBoreyko,anewAffiliatewillbeabletoearn$320inthefirstweekwith“Get2andGoBronze”ifhe/shepurchasesanAffiliatePack,setsupmonthlyauto‐deliveryandrecruits2newAffiliateswhotakebothofthosesamestepswithin7days.NowatBronze,thisparticipantcan“Help2andGoSilver”byhelpingthese2recruitstoduplicatethoseactions(recruit2whopurchaseanAffiliatePackandsetupauto‐deliverywithin7days)andearnanadditional$330withinthefirstrankadvancementperiod.NowatSilver,this

10 Before2015,AffiliateswererequiredtotakethePremierClubbonusintheformofcollegeloanpaymentsoraluxurycarleaseinordertoobtainthefull$400value,hencethefrequentreferencestoluxurycarsinVemma’smarketingmaterials.Affiliateswhoelectedtoreceivecashreceivedonly$200.Underthecurrentcompensationplan,Affiliatesreceivethefull$400PremierClubbonusincash.11 AdditionalchangestotheCompensationPlaneffectiveJune12,2015andmentionedintheMay2015LiveCall(BigNewsFromtheMayVemmaCallLive–VemmaNews)includethefollowing:1)onlyoneAffiliatePackwillbeavailable,pricedat$599(a$100increase);2)theNewCustomerBonusontheAffiliatePackwillfallfrom$100to$75;pointsontheAffiliatePackwillgofrom250to500,advertisedtoincreasecyclesandrankadvancementswithoutadditionalenrollees;4)AffiliatePackpurchasebyrecruitswillnowberequiredfortheFrenzyBonus(previouslyrequiredonlyfortheDoubleFrenzy);5)theFrenzybonuscannowbeachievedbyenrolling2,ratherthan3,newAffiliateswithanAffiliatePackpurchase(asmentionedinthe“2&Go”Program);6)anewrankofStarDiamondisbeingintroduced;and7)anewBuilderBonusisbeingintroducedwhichprovidesadditionalrewardstoenrolleesforrankadvancements.

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participantcan“Teach2andGoGold”byteachingenrolleestoduplicatewiththeirrecruits,earningatleast$1650withinthefirst2rankadvancementperiods.Programvisualsthatprovidedetailedinstructions(seeFigures3‐6)arecondensedandprovidedtonewrecruitsasasimpleone‐pagehandout(Figure7)thatexplainshowtostarttheVemmabusiness.BKBoreyko,TomAlkazin,andRuthElliotalldescribethisnewprogram,andcorrespondinghandout,asapowerfulwaytosimplifyandduplicate,creatingauniformapproachtostartingthebusiness.Notethatallinstructionscenteronthreeactions:1)BuyanAffiliatePack,2)Startyourpersonalmonthly120QVauto‐delivery,3)recruitandtraintobringinotherswhowilldosteps1and2.Figure3:“2&Go”Program–Day1Instructions

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Figure4:“GetTwoandGoBronze”Instructions

Figure5:“HelpTwoandGoSilver”Instructions

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Figure6:“TeachTwoandGoGold”Instructions

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Figure7:“2&Go”Program–AtaGlance(OnePageHandout)

39.Ifnewentrantsfollowtheaforementionedsystemofduplication,suggestedbythecompany’sfounderandconsistentlyechoedbytopVemmadistributors,firmgrowthwillrestentirelyonongoingrecruitmentandbonus‐qualifyingpurchases.Moneyspaid,derivedfrombehaviorthatfollowsthissuggestedpatternofgrowth,arenotsignificantlyconnectedtosalestoultimateusersandare,instead,effectivelyrewardsforrecruitment.40.NotonlydoVemma’smaterialsheavilyemphasizerecruitment,itsCompensationPlanincentivizesrecruitmentoverretailsales.Wecancontrasttheearningsmadethroughrecruitmentwiththeearningsassociatedwitharetailsale.Tofurtherexploretheincentivesassociatedwithrecruitmentversusretailing,wecancontrasttheearningsmadethroughrecruitmentwiththe

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earningsassociatedwithretailsales.IfanAffiliatesellsfrompersonalinventory,he/shemightbeexpectedtobuywithauto‐deliveryatthe10%discountandsellforfullretailprice.Tomatchthe$700availableinimmediateincomefromrecruitment(throughNewCustomerandDoubleFrenzyBonusesdescribedinparagraph28),theAffiliatewouldneedtosell$7000worthofpersonalinventorytoearn$700throughretailsales.If,ontheotherhand,theAffiliateseeksoutcustomerswhowouldbuydirectlythroughtheVemmawebsite,ahigherlevelofsaleswouldberequiredtoachievethe$700.Ifaretailcustomerpurchasesa1‐packofVemmafor$74(or$67withauto‐delivery),thiscontributes60QVtowardthe540QVneededforacycle.Thismeansthecustomer’sretailpurchasecorrespondswith1/9ofacycle,or$2.22inpotentialcycleearnings.12Toearn$700,theAffiliatewouldneedtosell315Vemma1‐packsforatotalretailvalueofover$21,000(incorporating10%auto‐deliverydiscount).ThedifferentialeffortsupportsanexpectationthattheCompensationPlandrivesrecruitmentoverretailing.41.Affiliatetrainingalsodiscouragesretailsales.RuthElliot(inWhyaGamePlanwithRuthElliotonVimeovideo)contrastsaretailsalesapproachwithasystemofduplicationasarticulatedinher“TakeaShot‐TellTwo”system,describedinparagraph6.Shesuggeststhattheduplicationapproachisanalogoustoapennydoubledeachdaywhiletheretailsalesapproachisanalogoustoapennyaddedeachday.Theresultsaredramaticallydifferentandthecontrastisclearlymeanttodirecteffortstorecruitmentoverretailselling.Withapennyaddedeachday,thehypotheticalretailsellerendsa30dayperiodwith30centswhilethe“duplicator”endsthatperiodwithover$5million.Shearguesthat,ifbuildingthebusinessonproductsales,youare“missinghalfofthemessage.”InacallbetweenDavidTreatandundercoverAffiliateMatthewThacker,Mr.Treatprovidesuplineadvicethatspecificallydiscouragesretailsales.Askedabouthowtoselltheproduct,Mr.Treatrespondsthathedidn’tmakemuchmoneysellingtheproductanddoesn’trecommendthatasastrategy.HealsospeaksofadvicehereceivedfromMattMorrow,saying“Andhe[Morrow]said,hegoes,Idon’tmovemuchproductatall.He’slike,infact,Idon’treallyevermoveanyproductmyself.”Treatcontinues,“Andhesays,so,whathastohappenisyouhavetoforgetabouttraditionalretailingandaboutyoumovingalotofproduct.”Treatthenprovideshisownadvice,suggestingthatcertainVemmaproductsarepricedabovethemarketsoaredifficulttosellwithouttheincomeopportunity.Healsomentionsthatyoumightfindsomewhoaren’tinterestedintheincomeopportunity“becausethey’re,youknow,abazillionaireorwhatever”soyoucanbringthemonasacustomerasafallback.Treatcontinues,“We’renotreallyinthebusinessofsellinganything.We’reinthebusinessofshowingpeoplethatiftheyshiftexistingbehaviorthatsomeincredibleresultscanshowup.”

42.InadditiontoincentivizingAffiliaterecruitmentoverretailsalesanddiscouragingretailsalesinAffiliatetraining,theVemmaAffiliateAgreementTermsandConditions(effectiveJanuary1,2015)placesignificantlimitationsonAffiliates’abilitytore‐selltheproductstoultimateusers.Itprohibitssalesinbusiness/retailoutlets,offices,onlineoutlets(e.g.,ebay,Craigslist,etc.),orhomeshoppingnetworks.InvideosofVemmameetings,littletimeisdevotedtohelpingdistributorslearntoretailtheproducttothoseoutsidetheorganization.Pricingissuesalsomakere‐sellingtoretailcustomersdifficult.Theimagesbelowdemonstratethechallengeinfindingretailcustomerswhowillpayabovethedistributor’scost.RegardingthefirstexampleinFigure8,a2‐packofVerve(48cans)isofferedfor$145(including10%auto‐deliverydiscount)+shippingwhenpurchasedfromVemma.comwhilethesameproductretailsfor$100+$36shippingonebay.com(BuyitNowprice,2016expiration).Assumingaconservativeshippingcostof$15forthe2‐packproductpurchasedthroughVemma,thistranslatestoapriceof$3.33/canfromVemmaandapriceof$2.83/canfromeBay(aminimum18%pricepremium,evenwhentheebayproductsellsatthefull

12 Assuming$20percycle.

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BuyitNowpriceandwhenVemmaproductispurchasedunderauto‐delivery).ThesecondexampleshowstheidenticalpricingdifferenceforVemma’sPARTEAproduct.Thispricingissuewouldmakeevendirect,authorizedsalesofVemmaproductstoultimateuserschallenging.Figure8:ebay.comPricingforVemmaProducts

(eBay.com,capturedon6/12/2015)43.EvidenceoflimitedsalestoCustomerscomesfromtherecentdiscontinuationoftheCustomerReferralProgram.Thisprogram,knownasthe“3forFreeProgram,”allowedCustomersorAffiliatestoearnfreeproductiftheymaintainedapersonalauto‐deliverypurchaseandhad3buyingCustomersinthemonth(specificdetailsprovidedinAppendixD).IntheFirstVemmaCallLiveof2015,Mr.BoreykostatedthattheCustomerReferralProgramwasdiscontinuedbecausefewerthan1,700membersqualifiedforfreeproduct.TheVemmaLoyaltyProgram,whichreplaces“3forFree,”canbesatisfiedsolelywithpersonalpurchases.TheVemmawebsiteindicatesthepurposeofthenewprogramasfollows:“ThenewVemmaLoyaltyProgramfocusesonrewarding

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youfortherightactionsthatfuelthisbusiness:consistentordersandAuto‐delivery.”(WebCapture‐www.vemma.comOpportunityCompensationPlanBasics).Thesetwoactionscanbesatisfiedwithoutseekingretailsales.IllustrationofaDownlineandRelatedEarnings

44.TodemonstratetheimplicationsofVemma’sbusinessmodel,Iwillillustrateascenarioinwhicheachentrantfollowsthepromotedsystemforsuccess.EachentrantisassumedtopurchaseanAffiliatePack,makepersonalpurchasesof120QVpermonth(foreverymonthafterthemonthofenrollment),andrecruittwoindividualswhodothesame.AssumethatthefirstentrantisJane,whereJanerecruitsBillandTomwithinthefirstmonth.FurtherassumethatBillandTomtheneachrecruit2individualswithinamonthaftertheirenrollment,those4individualsrecruit8withinamonth,andsoon.Figure9depictsJane’sgrowing2‐teamorganization.Figure9:DownlineIllustration

Period0

Jane

1

Bill Tom

2

Susan Dave Walt Kelly

3

Cathy

Laura

Amanda

Joe

Matt

Eli

Rick Zoe

4

5

45.Table2depictstheadvertisedoutcomesforJaneafter13monthsofongoingrecruitment.Thisscenarioismodeledafterthe“TakeaShot‐TellTwo"approach,promotedinRuthElliot'sSuccessMadeSimpledocumentandintheVemma13MonthCyclePlanvideo.Asdescribedinparagraphs6and7,thisillustrationisconsistentwiththeadvicethecompanyoffersinthevastmajorityofthetrainingmaterials.AsintheVemma13MonthCyclePlanvideo,Iamtreatingmonthsasequivalentto4‐weekRankAdvancementPeriods.Table2followsthe13MonthCyclePlanvideoandassumesthatthefirstAffiliate(Jane)purchasesanAffiliatePackandinitiates120QVmonthlyauto‐deliverywhileallsubsequentrecruitsimitatethe120QV/monthauto‐deliverybutdonotpurchaseanAffiliatePack.13NotethatthisillustrationincludesCycleearningsbutalsoincludesRankAdvancementAwards,NewCustomerBonusandBalancedTeam&PremierClubBonus.ThisscenariodemonstratesthatJaneexperiencesacumulativelossformultiplemonths,untilmonth6,atwhichtimegainsovercomethecumulativelossexperiencedfrompriormonths.14 13 TableE1inAppendixEalsodepictsa13‐monthcompensationscenariobutassumesthatallrecruitspurchaseanAffiliatePack,asrecommendedinthe“2&Go”(discussedfurtherinparagraph38)andothercompanymaterials(seediscussioninparagraphs21‐22). 14Thenetprofitcalculationsintheseillustrationsdonotincludepossiblegainsfromresaleofproductfrompersonalinventory(likelytobelimited,seeparagraphs40‐42)oradditionalexpensessuchastraining,tools,travel,oropportunitycostoftimewhichwouldfurtheraggravatelosses.Forexample,brochuresare$0.80eachandActionPlanhandoutsare$2.75each.SuchtoolsarewidelyadvertisedasnecessaryforsuccessandVemma’sTermsandConditionsbarAffiliatesfrompreparingtheirownsellingtools.

J1 J2 M1 M2 A1 A2 L1 L2 C1 C2 E1 E2 R1 R2 Z1 Z2

X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X

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Table2:13‐MonthCompensationScenariowithMonthlyAuto‐delivery(2‐recruitduplicationoccurswithintheenrollmentmonth,withoutAffiliatePackpurchasesbyrecruits)15

Month

New Recruits

Cumula‐tive

Recruits

120QV orders in month

60QV (initial

orders) in month

Total QV in

month

Cycles in

month

Cycle Payout in month

Left‐over QV

New Customer Bonus

Rank Advance‐ment Award

Balanced Team & Premier Club Bonus

Total Earnings in Month

Monthly Expenses

Jane’s Net Profit in Month

Jane’s Cumulative Net Profit

0 ‐ ‐ ‐ ‐ ‐ ‐ $0 ‐ $0 $0 $0 $0 $532 ‐$532 ‐$532

1 2 2 ‐ 120 120 ‐ $0 120 $40 $0 $0 $40 $150 ‐$110 ‐$642

2 4 6 240 240 600 1 $22 60 $0 $0 $0 $22 $150 ‐$128 ‐$770

3 8 14 720 480 1,260 2 $44 180 $0 $0 $100 $144 $150 ‐$6 ‐$776

4 16 30 1,680 960 2,820 5 $110 120 $0 $0 $200 $310 $150 $160 ‐$616

5 32 62 3,600 1,920 5,640 10 $220 240 $0 $100 $300 $620 $150 $470 ‐$146

6 64 126 7,440 3,840 11,520 21 $462 180 $0 $250 $400 $1,112 $150 $962 $816

7 128 254 15,120 7,680 22,980 43 $946 0 $0 $500 $400 $1,846 $150 $1,696 $2,512

8 256 510 30,480 15,360 45,840 85 $1,870 0 $0 $0 $400 $2,270 $150 $2,120 $4,632

9 512 1,022 61,200 30,720 91,920 170 $3,740 120 $0 $1,750 $400 $5,890 $150 $5,740 $10,372

10 1,024 2,046 122,640 61,440 184,200 341 $7,502 60 $0 $1,500 $400 $9,402 $150 $9,252 $19,624

11 2,048 4,094 245,520 122,880 368,460 682 $15,004 180 $0 $2,000 $400 $17,404 $150 $17,254 $36,878

12 4,096 8,190 491,280 245,760 737,220 1,365 $30,030 120 $0 $0 $400 $30,430 $150 $30,280 $67,158

13 8,192 16,382 982,800 491,520 1,474,440 2,730 $60,060 240 $0 $0 $400 $60,460 $150 $60,310 $127,468

15 Modelassumptionsincludethefollowing:‐thefirstparticipant(Jane)isanAffiliatewhopurchasestheAffiliatePack(withapproximately$32inshippingcost),buys120QVmonthly(Vemma2‐pack,with10%discountforauto‐deliveryandapproximately$15inshippingcosts),andallrecruitspurchase120QVpermonth(followingtheillustrationinthe"Vemma13MonthCyclePlan"videowhichdoesnotaddresssubsequentAffiliatePacks),‐personallypurchasedproductisnotincludedinQVcalculationsforcyclebonus(followingtheillustrationinthe"Vemma13MonthCyclePlan"videoanddescriptionincompensationplan),‐cycleearningsare$22/cycle(followingtheillustrationinthe"Vemma13MonthCyclePlan"video),‐recruitmentisnotassumedtooccurwithintheweekofenrollment,meaningJaneisnoteligibleforFrenzyBonuses,‐itisassumedthatPEQ's(PersonallyEnrolledQualifiers)donotexceed2,meaningJaneisnoteligibleforMatchingBonuses,‐theVemmaLoyaltyProgramisnotincluded,thoughthisconstitutesaverysmallbenefitintheformoffreeproductevery7thmonth,‐theBalancedTeamBonusAffiliatePackFlagisnotincluded,thoughthiswouldhavenosignificantimpactontheseresults,‐theGlobalPoolBonuswasnotincludedasthepayoutsizevariesbasedonPoolsize‐notethateligibilitywouldnotbeginuntilPlatinumrank,and‐BalancedTeamandPremierClubbonusamountsareassumedpaidinthefirstRankAdvancementPeriodthattherankisachieved.

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46.ItcanbeassumedthatmembersofJane’sdownlinewillalsonotreachprofitabilityformanymonths.Accordingly,theoverwhelmingmajorityofparticipantsareinalosspositionatanypointinthelifeoftheorganization,sinceparticipantsinthelowestlevelshaveyettoreachapositivecumulativenetprofit.Thoughcompanypromotionalmaterialsusethisillustrationtoshowthatapersoncanreceiveresidualincomeof$60,000permonthbymonth13,thematerialsdonotdisclosethat,atanygivenpointintime,theoverwhelmingmajorityofparticipantswillnothaveachievedthisresultandwillhaveactuallylostmoney.1647.Thepoorresultsformostparticipants,asillustratedinTables2,E1andE2(inAppendixE),arepredictablebecausetheCycleCommission’sincentivesarebaseduponrecruitmentintoabinarymatrix.TableC1inAppendixCcontainsamathematicalanalysisofagenericbinaryprogression,whichisapplicabletoanybinarycompensationplan.TableC1showsthatthepercentofAffiliatesinthebottom5levelsofabinarystructureconvergesto96.9%after10periods.GiventheestimatedexpensesinTable2,whichpreventparticipantsfromacquiringcumulativenetprofituntilmonth6,thismeansthatatanytimeinthelifeoftheorganizationaminimumofnearly97%ofparticipantswillneedadditionalrecruitmenttocoverpersonalinvestments.Additionalrecruitmentwillbeincreasinglydifficulttoachieveascumulativerecruitshavealreadygrownexponentially.ItisimportanttostressthatIamnotcontendingthatallbinarycompensationplansareinherentlydeceptiveorthatanyMLMthatusessuchaplanisnecessarilyapyramidscheme.Abinarycompensationplanthatsufficientlyemphasizesretailsalesmaynotbeapyramid.Tables2,C1,E1andE2assumenoretailsalesandillustratetheeffectsonparticipantswhencompensationisbasedsolelyonrecruitment.48.ItshouldbenotedthatTables2,C1,E1andE2arealltheoreticalmodelsanddonotdeterminehowtheprogramactuallyoperatesinpractice.Avarietyoffactorsmayaffecttheactualresults.Forexample,someparticipantsmayrecruitmorethantwonewparticipantsandothersmayrecruitnoneanddropoutoftheprogram.However,itshouldbenotedthatVemma’s2013and2014IncomeDisclosures(discussedinparagraphs59‐61,infra),whichshowthatthemajorityevenofActiveAffiliatesmademinimalincome,aregenerallyconsistentwiththepredictedresultsfromthesemodels.Themodelsillustratethatthestructureoftheprogramitselfpredictablyleadstopoorresultsforthevastmajorityofparticipants,regardlessofaccidentalorexternalfactors.Whilemanynewbusinessesfailbecauseofadversebusinessconditions,poormanagement,badluck,oranynumberofotherreasons,withthistypeofprogram,failureformostparticipantsisinherentinthesystem.Thesemodelsprovideausefuleconomiccontexttoexplainwhycourtshavecondemnedpyramidschemes.49.Vemma’sclaimsthatsubstantialwealthisavailableforparticipantsaredeceptive.Thisistruewhethertherepresentationsinvolvespecificincomeclaims(e.g.$60,000inresidualincome),oraremoregeneral(e.g.the“sodamachine”analogy,orclaimsthatVemmacanprovideretirementincome).Thepayplandependsoncontinuousrecruitment,whichresultsinthevastmajorityofparticipantsnothavingsufficient“downline”activitytomakeanysignificantamountofmoney.Vemma’s2013and2014DisclosureStatements(discussedbelow)confirmthatwhileitispossibleforsomeparticipantstomakelargeamountsofmoney,thevastmajoritydonot.

16 VemmaadvertisestheNewCustomerBonusandtheFrenzyBonusasthesourceofimmediateincomethatcanoffsetinitialinvestments.Forpurposesofcomparison,TableE2inAppendixEdepictsa13‐weekscenariowhereAffiliateswouldrecruit3newAffiliateswithintheweekoftheirenrollment,therebyqualifyingforalargerNewCustomerBonusandtheDoubleFrenzyBonus.Thisillustrationdoes,infact,showthatJanecoversherinitialinvestmentafterthefirstweekthroughrapidrecruitmentactivity.However,weseethatthenumberofrecruitsneededtosatisfythispromiseisincrediblyhigh–nearly2.4millionrecruitsneededwithinonly13weeks.

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50.Itisclearfromtheillustrationssetforthabovethatearningsreceivedarerewardsforrecruitment,ratherthanrewardsforsalestoultimateusers,andthatanequivalentpromisecannotbemadeandsatisfiedforeachnewVemmaAffiliategiventhedramaticexponentialrecruitmentrequired.TheabilityforthemostrecentAffiliatestoreachapositivecumulativenetprofitreliesuponanongoingandconsistentabilitytorecruitnewVemmaAffiliates.Returningtotheeconomicdefinitionofapyramidscheme,theVemmabusinessmodel,marketingmaterials,andCompensationPlandoappeartocreateaperpetualrecruitmentchainthatdoomsthevastmajorityofparticipantstofinancialloss.Asdemonstrated,thebusinessmodelrequiresongoingrecruitmentasnewentrantsmustrecruitothersinordertocovertheirownpersonalinvestment.IntermsoftheKoscottest,IconcludefrommyanalysisthatVemma’sbusinessmodelandcompensationplancreateasystemthatpermitsparticipantstoreceiverewardsthatareunrelatedtoactualsalestoultimateusers.IalsofindthatVemma’sprogram,includingitsmarketing,encouragesandincentivizesparticipantstoseekrewardsthroughrecruitmentratherthansalesofproducttoultimateusers.Safeguards51.HavingfoundthatVemma’sprogramgrantsrewardsthatareunrelatedtoactualsalestoultimateusers,andencouragesandincentivizesparticipantstoseekthoserewards,Inextconsiderwhetherthecompanyhas“safeguard”policiesandproceduresthataresufficienttoensurethatadequateretailsalestoultimateusersexistandinventoryloading17isprevented.AsnotedinOmnitrition(1996):“Where,ashere,adistributionprogramappearstomeettheKoscotdefinitionofapyramidscheme,theremustbeevidencethattheprogram'ssafeguardsareenforcedandactuallyservetodeterinventoryloadingandencourageretailsales.”Suchsafeguardsarenecessary,asastructurewithinsufficientretailsaleswillinevitablygenerateapyramidschemethatreliesonongoingrecruitmenttofundcommissionpayments,matchingthegeneraleconomiccharacterizationofaschemedescribedinparagraph17.Asestablishedinparagraphs19‐20,theKoscottestalsohingesontheexistenceofsignificantsalestoultimateusers.InAmway(1975),theFTCfoundthatAmwaywasnotoperatingapyramidschemebecauseithadadoptedandenforcedcertainprocedurestopreventinventoryloadingandtoinsurethatactualretailsalesexisted.AsnotedinOmnitrition(1996),thesafeguard“policiesadoptedbyAmwaywereasfollows:(1)participantswererequiredtobuybackfromanypersontheyrecruitedanysaleable,unsoldinventoryupontherecruit'sleavingAmway,(2)everyparticipantwasrequiredtosellatwholesaleorretailatleast70%oftheproductsboughtinagivenmonthinordertoreceiveabonusforthatmonth,and(3)inordertoreceiveabonusinamonth,eachparticipantwasrequiredtosubmitproofofretailsalesmadetotendifferentconsumers.”Thesesafeguardsmustbestated,enforced,andeffective.52.IntheAmwaycase,thecompany’sretailsaleswereintheformofre‐salesbydistributors.InVemma’smodel,mostretailsalesoutsidetheorganizationwilllikelynotcomefromAffiliates’inventory,butwillbeintheformofdirectsalestonon‐Affiliates(“Customers”),inducedbyandcreditedtoAffiliates.18Becauseofthisdifferenceinbusinessmodels,aneffectiveAmway‐typesafeguardforVemmamaylookslightlydifferentthanthespecificrulesinAmway.However,theobjectivewouldbethesame—toencouragesalestoultimateuserswhopurchaseforthepurposeofpersonalconsumption.Iseenoevidenceofanysafeguardsinplacethatwouldbeeffectivetodeterinventoryloadingandencourageretailsalestoultimateusers.

17 KeepandVanderNat(2014)defineinventoryloadingas“purchasesofinventoryjusttomeetvolumetargetsthatgrantmultilevelrewards.”Seefootnote6forfullcitation. 18SalestoAffiliatesforpersonalconsumptionareaddressedinparagraphs56‐57,below.

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53.Vemmahasa70%rulewithinits“VemmaAffiliateAgreement‐TermsandConditions”document.Itstates,“Placinganeworderisyourcertificationthat70%oftheproductspreviouslypurchasedhavebeensoldtoorconsumedbyendusers.”Whileitwarnsthatthecompanywill“callonrandomorderstoverifythattheproductshavebeenconsumedorsold,”thispolicydependsonself‐verificationandtherearenoexplicitsanctionsforviolation.EvenifVemmaweretotakestepstoverifythisimpliedcertification,presumablyanAffiliatecouldmeetthestandardbyconsumingtheproductpersonally,evenifthepurchasewasmotivatedbythebusinessopportunity.Forthisreason,evenifenforced,thisrulewouldnotbeeffectivetoencourageretailsalestonon‐Affiliatesorotherultimateusers(seediscussionofinternalconsumptioninparagraph56,infra.VemmaalsohasnoAmway‐like“10customerrule”orsimilarpolicyrequiringAffiliatestoprovethatasubstantialportionoftheproductpurchasescreditedtotheAffiliateweremadebynon‐Affiliatesforthepurposesofpersonalconsumption.Trainingandpromotionmaterials,includingthenew“2andGo”program,donotincentivizeorencourageretailsalestonon‐Affiliatesand,insomecases,suchsalesareexplicitlydiscouraged(seefurtherdiscussioninparagraph41).54.Vemmadoeshaveareturnpolicybutthecompanyrequiresallreturnstooccurwithin30daysofpurchase(AffiliateAgreement‐TermsandConditions,datedJune12,2015).Thereisanadditional1‐yearreturnpolicyforAffiliateswholeavethebusiness.Abilitytoreturnislimited,however,bypotentialexpirationofproductand,moresignificantly,bythe70%certificationassumedineveryAffiliatepurchase.Ifthepurchaseitselfcertifiesthat70%willbesoldtoorconsumedbyanend‐user,abilitytoreturnisassumedtobelimitedbythatcertification.Returnsalsoreverseanybonuspaymentsbasedonthereturnedpurchaseandtheremaybeuplinepressuretolimitreturns.55.Tosummarize,thereisnoevidencethatVemmahasenforcedandeffectivesafeguardsthatwouldensuresufficientsalestoultimateusersandpreventinventoryloading.TheabsenceofenforcedandeffectivesafeguardscompoundsanexistingproblemwithintheCompensationPlan,namelythatcompensationisbasedonpurchasevolume,regardlessofwhetherthepurchasesrelatetoretailsalestoultimateusers.Byencouragingparticipantsthroughitsmarketingmaterialstopurchaseproductforthepurposesofbonuseligibility,andbybasingitscompensationonpurchasevolume,Vemmahascreatedasystemthatincentivizesinventoryloading.SalestoAffiliatesforpersonalconsumption

56.ItispossiblethatVemmaAffiliatessometimesbuyproductsforthepurposesofpersonalconsumption.InBurnLounge,the9thCircuitCourtnotedthatdistributorscouldbe“ultimateusers”forpurposesoftheKoscottestunderanarrowsetofcircumstances;namely,iftheypurchasedtheproductsforpersonalconsumptionbasedonconsumerdemand,notprimarilyforthepurposeofparticipatingfullyintherewardsunderthecompensationplanforthebusinessopportunity.IconsideritunlikelythatmanyAffiliateswouldqualifyas“ultimateusers”underBurnLoungegiventhecriteria.

57.Vemma’smarketingmaterialsspecificallyencourageAffiliatestopurchaseproducttomaintaineligibilityforrewardsandtouseassamplesinconnectionwithrecruitment,andVemma’scompensationplanstronglyincentivizesthisbehavior.PeoplewhoareinterestedinpurchasingVemmaforpersonalconsumption(includingAffiliates)canobtainitcheaperfromalternativeoutlets(seediscussioninpara42,above).AffiliatestatusdoesnotappeartoentitlepurchaserstoanyproductdiscountsthatarenotavailabletoCustomers,sopurchasershavenoincentivetobecomeAffiliatessimplytoobtainproduct.Asdiscussedbelow,theItalianCompetitionandMarketsAuthority,analyzingVemma’sverysimilarItalianprogram,foundthat80%ofVemma’srevenuecamefromAffiliatePackandauto‐shipsales,whicharebest

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viewedasexpensesforthebusinessopportunityandarerepresentedassuchbyBoreykoandothertopAffiliates(seeparagraphs22‐24).AnypurchasesbyVemmaAffiliatesforthepurposesofinternalconsumptionarelikelyincidentaltothemainmotivationofmaintainingeligibilityforrewards.

Datafromactualoperations58.Atthistime,theavailableevidenceabouthowtheVemmaprogramworksinpracticecomesfromtwosources:Vemma’sDisclosureStatementsfrom2013and2014,andfindingsbytheItalianCompetitionandMarketsAuthority,whichinvestigatedaverysimilarVemmaprograminItaly.TheinformationfromthesesourcesisconsistentwithmyfindingthatVemmalikelyoperatesasapyramidscheme. A.USDisclosureStatement59.The2013U.S.DisclosureStatementshowedthatmostparticipantsachievedpoorresults,aswouldbeexpectedbasedonthetheoreticalmodelspreviouslydiscussed.TheStatementshowsthat78%ofactiveAffiliates(participantswhomaintainedaminimumof60PVpointspermonthandpurchasedanAffiliatePackorenrolledaCustomer/Affiliate)receivedgrosscompensationoflessthan$1,600in2013,orlessthan$133permonth.GraphsfromthedisclosurearerepresentedbelowinFigure10.TheStatementlikelyunderstateslossesbyparticipantsbyexcludingallparticipantswhowerenotconsidered“active”(didnotmaintain60PVpermonth).Also,theStatementdoesnotfactorinexpensesassociatedwithmaintainingbonuseligibility(oranyothercostsofdoingbusiness),anticipatedtobeatleast$532+$150*12=$2,332fortheyear,ifitisassumedthatallactiveparticipantsweremaintainingqualifiedstatus.19Thismeansthat,ataminimum,78%ofparticipantsin2013whopursuedthebusinessopportunityexperiencedanetlossifallweremaintainingqualifiedstatus.Iftheparticipantsmaintainedonlyactive(butnotqualified)status,minimumannualexpenseswouldbe$532+$75*12=$1,432.Thismeansthatthe40%inAffiliatestatuswouldhaveanegativenetprofitandthe38%inBronzewouldhaveapotentialannualnetprofitof$165.Itseemsunlikelythatparticipantswouldincuronlytheexpensesassociatedwith“activestatus,”sinceunderVemma’scompensationplanparticipantscannotrankadvanceorearncycle‐relatedincomewith“active”status.60.Whilethe2013disclosurereports246,388activeCustomers(ascomparedto105,250activeAffiliates),thecompanyapparentlyassumesthatallCustomerswerenotinterestedinthebusinessopportunity.20Itseemsfarmorelikely,givenVemma’smarketingandtheabovediscussionoftheincentivestructure,thatmany,ifnotmost,oftheseindividualswereinterestedinthebusinessopportunitybutchosenottopurchaseanAffiliatePackandwereunabletorecruit.Inotherwords,theyarebestviewedasdistributorswhowereunsuccessfulinthebusinessopportunity,buthavebeenredefinedbyVemmaasCustomers.

19 TheannualexpensecalculationsinthisparagraphassumethatitisthefirstyearoftheAffiliate’sparticipationinVemma,asthecalculationsincludetheone‐timepurchaseofanAffiliatePack.Theseexpensestheoreticallycouldbeoffsetbyprofitfromresellingpersonalinventorybutthisislikelytobeaverysmalloffset,ifany(seediscussionofretailsellinginparagraphs38‐43). 20Thecompanyrecentlystatedthat64%ofrecruitsarecustomers(inVemmaResponsetoCBS5).

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Figure10:U.S.AverageAffiliateEarningsin2013

61.Vemma’s2014IncomeDisclosureoutcomes21(depictedinFigures11and12)aresimilartothosein2013,thoughsomewhatworseforlow‐levelparticipants.IntheU.S,aminimumof79%wouldbeexpectedtohavenegativenetprofit,givenaverageearningsof$1,232orless.Worldwide,aminimumof80.2%ofparticipantswouldbeexpectedtohaveanegativenetprofit,givenannualearningsforBronzeandbeloware$1,212orless,againassumingthatparticipantsweremaintainingqualifiedstatus.62.Asdiscussedinparagraph18,above,pyramidschemesareoftencharacterizedbyaconstantchurningofthebase,asunsuccessfulparticipantsatthelowestleveldropoutandarereplacedbynewrecruits.CompanystatementsprovidedatathatindicateVemmaisexperiencingahighdrop‐outrate.Whilethe2013disclosurereports105,250Affiliates,theVemmaResponsetoCBS5reports145,348Affiliates(documentcreatedinMay,2015).Ifweassumethatthe2013disclosurenumberrepresentsthenumberofAffiliatesattheendof2013,thesenumberssuggestanetincreaseof40,098Affiliatesoverapproximately16months.BoreykohasstatedthatVemmarecruitsbetween28,000and30,000eachmonth,translatingtoanestimated464,000peopleovera16‐monthperiod(inBK’sBlogCEOofVemmaNutritionalCompanySpeaksonWhytoJoinVemmaaudio).Evenifitisassumedthatthatasubstantialnumberoftheover450,000newparticipantsVemmaclaimstohaveenrolledinthepast16monthsareproperlydefinedascustomers,the

21 Whilenotexplicitlystated,itisassumedthatthe2014disclosurecontinuestodepictonly“active”participantsgiventhesimilaritybetweenthe2013and2014disclosurepercentages.

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numberofnewAffiliatesrecruitedwouldbesubstantiallygreaterthanthestated45,000netincreaseinAffiliates.Thisindicatesthatsubstantialnumbersofaffiliateshavedroppedoutduringthisperiod.Factoringindropouts,participantswhofailtomaintainactivestatus,andcustomerswhoarereallyfailedAffiliates,IbelievethatthetrueoutcomesaresubstantiallyworsethaneventhedismalresultsdepictedbyVemma’s2013and2014IncomeDisclosures.ThedatafromtheItalianinvestigation(discussedbelow),whichshowedthatonly27percentofItaliandistributorswereconsidered"active,"supportsthisconclusion.InternaldatawouldsupportamorethoroughanalysisofparticipantoutcomesandwouldbeusefulincalculatingthefullextentoftheconsumerlosscausedbyVemma’sprogram.Figure11:U.S.AverageAffiliateEarningsin2014

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Figure12:WorldwideAverageAffiliateEarningsin2014

B.FindingsfromItalianinvestigation63.Inearly2014,theItalianCompetitionandMarketsAuthorityfoundthatVemmawasoperatingasapyramidschemeandengaginginunfairbusinesspractices(PS7621VemmaItalia,2014).TheCompensationPlanevaluatedintheItaliancaseiscomparabletoearlier(pre‐2014)versionsofthepayplanintheUnitedStates.Participationandconsistentbonuseligibilityrequiredpurchaseofastarterpackandmonthlyauto‐delivery(60QV/monthfor“active”and120QV/monthfor“qualified”status).AppendixDreviewschangestotheCompensationPlanthatlikelycameinresponsetoincreasedpressurefromthiscaseandgeneralscrutinyofthemultilevelmarketingindustry(seeTruthinAdvertising,“VemmaDeemedPyramidSchemeinItaly”).AsdiscussedaboveandspecificallyoutlinedinAppendixDtables,thesechangesdonotchangethefundamentalincentivesorthesuggestedapproachtothebusinessopportunity.AppendixtablesD1‐D4showthatthechangesmadebetween2013and2015areessentiallychangestothebonusnamesandrequirementsfor“qualifiedstatus.”Thecompanydidremovetheauto‐deliveryrequirementtobeactiveandqualifiedbutminimumvolumerequirementsaremaintainedandauto‐deliveryisheavilyrecommendedbyBoreykoandotherstoensureongoingbonuseligibility(seeparagraphs23‐24).Auto‐deliveryisstillrequiredforDoubleFrenzyBonuseligibility.GiventhatthechangestotheVemmaCompensationPlanareminoranddonotaffectthefundamentalincentivesorcompensation,thecurrentU.S.planisexpectedtoresultinoutcomessimilartotheItalianmarket.Internaldatawouldallowforevaluationofthisassertion.64.TheItalianauthorityfoundthat20percentofVemma’srevenuecamefromBuilderPacks(AffiliatePacks),over60percentwasfromauto‐ship(auto‐delivery),andonly16percentwasattributabletoexternalsales.Aspreviouslydiscussed,bothAffiliatePacksandauto‐deliveryordersarebestviewedasexpensestoparticipateinthebusinessopportunity.ThisfindingsupportsmyconclusionthatVemma’scompensationplanandmarketingstronglyincentivizeparticipantstopurchaseproductforthepurposeofrewardeligibilityinconnectionwiththebusinessopportunity.

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65.TheItalianauthorityalsofoundthatonly27%ofItalian“associates”(i.e.Affiliates)were“active.”Asdiscussedinpara59above,the2013U.S.DisclosureStatementwaslimitedto“active”Affiliates,anditcanbedeterminedbyapplyingestimatedexpensestotheincomefiguresintheStatementthatanestimated78%of“active”U.S.participantsexperiencedanetloss.Ifthepercentageof“active”AffiliatesintheU.S.in2013wassimilartothepercentageof“active”Italianassociates,thepercentageoftotalU.S.participantsexperiencingalosswouldhavebeenmuchhigherthan78%.66.TheItalianCompetitionandMarketsAuthorityultimatelyfoundthatVemmawasapyramidscheme.Inadditiontothefactualfindingsdiscussedabove,theAuthorityfoundthat:‐Vemma’sincomeclaimswereclear,specificandexaggeratedincomparisontothecompensationplan,whichwasextremelycomplex;‐thecombinationofincentivizedmonthlyautoshipandstarterpackpurchaseconstituted“thetypicalelementsofapyramidscheme,inwhichthepurposeofthemanufacturerorbusinessorganizationistoreceiveasignificantcontributionfromconsumers,bothinitiallyandintheformofsubsequentpurchases….;‐“personal”orders(BuilderPacksandauto‐shiporders)played“anabsolutepredominaterole”intheprogram,asopposedtosaletothirdparties;‐mostassociatesachievedonly“paltrycompensation;”and‐associates’promotionaleffortsfocusedonconstantlyenrollingnewassociates,ratherthanproductsales.

Conclusion

67.TheKoscottestanalysisiscriticaltothedeterminationofapyramidscheme,setwithinamarketingprogramwithmultilevelcompensation.Thefundamentalquestion,asarticulatedinthesecondprongoftheKoscottest,iswhetherparticipantcompensationplansgrantparticipantstherighttoobtainrecruitmentrewardsthatareunrelatedtosalestoultimateusers.ItismyjudgmentthatVemma’smarketingprogramandbusinessmodelmeetsthisnecessarycomponentofapyramidschemeandislikelytoleadtowidespreadparticipantlosses.Allformsofcompensationaredrivenbyrecruitmentorpurchasevolumeandthereisnodirectconnectionbetweenthiscompensationandretailsalesormarketdemand.Thisstructureincentivizesparticipantstopurchaseproductforthepurposesofmaintainingeligibilityforrecruitmentrewards(inventoryloading)andtoencouragetheir“downlines”todothesame.Companyrepresentatives(includingfounderBoreyko)continuetostresstheimportanceofpersonalminimummonthlypurchases,AffiliatePackpurchase,andrecruitmentofnewAffiliates.PremiumpricingandalternativeretailoutletsundermineAffiliates’abilitytoresellproductsorinduceotherstopurchaseproductdirectlyfromVemmaforpersonalconsumption.Companysafeguardsappearinsufficienttoensureaminimumlevelofretailactivityandpreventinventoryloading.68.TheanticipatedresultofVemma’sprogramisanendlessrecruitmentchain,withastrongemphasisonrecruitmentoversalestoultimateusers.Atanymomentthattheschemeisanalyzed,analysisindicatesthatthevastmajoritywillbeinalossposition.U.S.disclosuresandItaliandatacorroboratestheseconclusions.InternaldatafromVemmawouldprovideadditionaldetailonhowtheprogramoperatesinpracticeandwouldassistincalculatingthescaleofconsumerinjury,butIamconfidentitwouldconfirmmyjudgmentthatVemmaisapyramidscheme.

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AppendixA–CurriculumVitae

STACIEA.BOSLEY AssistantProfessorofEconomics [email protected] HamlineUniversity 651‐523‐2436 SaintPaul,Minnesota EDUCATION Ph.D.inAppliedEconomics– UniversityofMinnesota(2001)GPA3.95/4.0

BBAinFinance–UniversityofWisconsin‐Madison(1994)GPA3.74/4.0

TEACHINGEXPERIENCE

HamlineUniversity: AssistantProfessor,Economics(2011‐present)HamlineUniversity:VisitingAssistantProfessorandAdjunctInstructor(2002‐2011)MacalesterCollege:VisitingAssistantProfessor(2003‐2005)UniversityofWisconsinRiverFalls:AdjunctProfessor(1999‐2000)

COURSESTAUGHT

MacroeconomicPrinciples,MicroeconomicPrinciples,IntermediateMicroeconomics,IntermediateMacroeconomics,ManagerialEconomics(forundergraduateandMBAstudents),Statistics,QuantitativeAnalysisandDataManagement,BehavioralEconomics,FirstYearSeminar–“OurWal‐MartWorld”

HONORSANDAWARDS

HamlineUniversityFacultyAdvisoroftheYear(2013)Dean’sLeadershipAward(2013)HamlineOracle(studentnewspaper):NamedinTop10HamlineProfessors(2010)InductedasFacultyMemberinOmicronDeltaKappa(2008)UniversityofMinnesotaDoctoralDissertationFellow(2000‐2001)USDANationalNeedsDoctoralFellow(1997‐2000)

COLLABORATIVERESEARCH(competitiveresearchprogramwithundergraduatestudents)

AffinityFraudinMultilevelMarketing:ThecaseofFortuneHi‐TechMarketingintheU.S.DirectSellingandEconomicGrowthBitcoin,BehavioralEconomics,andtheAustrianSchoolTheMinimumWageandCommunityCollegeEnrollmentintheU.S.WhyHereandNotThere?AlookatparticipationandgrowthindirectsellingacrosscountriesImplicationsofLightRailTransitinMinnesotaCollegeGreekParticipationandLong‐termOutcomesDivisionIIIIntercollegiateAthleticsandEnrollmentTheConservationReserveProgramandHuntingExpendituresinMinnesota

HONORSPROJECTS

Primaryadvisorfor“GameTheoryAnalysisoftheNFLLockout”byRyanHable(2012)Committeememberforadditionalhonorsprojects

PRESENTATIONS Bosley,S.(2015).NetworkAnalysisofaPyramidScheme.PaperpresentedattheannualmeetingoftheMidwestEconomicsAssociation,Minneapolis,MN.

Bosley,S.(2015).NetworkAnalysisofaPyramidScheme.PaperpresentedattheHamlineSchoolofBusinessFacultyResearchForum,SaintPaul,MN.

Bosley,S.(2015).BusinessOpportunities(“BizOpps”)onCollegeCampuses.PresentationtotheHamlineODKStudentChapter,SaintPaul,MN.

Bosley,S.(2015).BusinessOpportunities(“BizOpps”)onCollegeCampuses.PresentationtotheHamlineUniversityStudentCongress,SaintPaul,MN.

Bosley,S.(2014).LearningthroughExperimentation:CreatinganAuthenticExperimentwithBehavioralEconomicsStudents.PaperpresentedattheannualmeetingoftheWesternEconomicAssociation,Denver,Co.

Bosley,S.(2014).CreatingCustomStudent‐DrivenExperimentsinBehavioralEconomics:TheSimulationofaPyramidScheme.PaperpresentedattheHamlineSchoolofBusinessFacultyResearchForum,SaintPaul,MN

Bosley,S.(2013).ParticipationandGrowthinDirectSellingacrossCountries.PaperpresentedattheSouthernEconomicAssociationConference,Tampa,FL.

Bosley,S.(2013).TheViralityofaPyramidScheme.PaperpresentedattheEastern

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EconomicAssociationConference,NewYork,NY.Bosley,S.(2013).TheViralityofaPyramidScheme.PaperpresentedattheHamline

SchoolofBusinessFacultyResearchForum,SaintPaul,MN.Bosley,S.(2013).ProgramAssessment:ProcessandProgressintheHamlineSchoolof

Business.PresentedtotheHamlineUniversitySchoolofEducation,SaintPaul,MN.Bosley,S.(2013).ProgramAssessment.PresentedattheFacultyDevelopmentDay,Saint

Paul,MN.Bosley,S.(2012).LaborSupplyandPyramidSchemes–EvidencefromaStateSettlement.

PaperpresentedattheEasternEconomicAssociationConference,Boston,MA.Bosley,S.(2012).LaborSupplyandPyramidSchemes–EvidencefromaStateSettlement.

PaperpresentedattheHamlineSchoolofBusinessFacultyResearchForum,SaintPaul,MN.

Bosley,S.(2011).MultilevelMarketing:LiberationorEntrapment.PresentedattheNationalWomen'sStudiesAssociation2011Conference,Atlanta,GA.

Bosley,S.(2011).LaborParticipationinMulti‐levelMarketing:IsitaCounter‐cyclicalIndustry?PaperpresentedattheEasternEconomicAssociationConference,NewYork,NY.

Bosley,S.(2011).LaborParticipationinMulti‐levelMarketing:IsitaCounter‐cyclicalIndustry?PaperpresentedattheAnnualConferenceoftheSocietyforAdvancementofBehavioralEconomics,SanDiego,CA.

Bosley,S.(2004).Dead–EndJobsorSteppingStones?TheLong‐RunConsequencesofEarlyIndustryandOccupation.PaperpresentedattheAnnualMeetingoftheMidwestEconomicsAssociation,Chicago,IL.

Bosley,S.,KeilJ.&AzizF.(2003).InnovativePedagogyintheEconomicsMajor:InteractiveLearningTechniquesThatBuildCriticalBasicSkills.PresentedattheCollaborationFacultyDevelopmentConference,Bloomington,MN.

Bosley,S.(2003).EmploymentMobilityAmongLess‐SkilledWomenandMen–AreThereLong‐RunConsequences?PaperpresentedattheAnnualMeetingoftheIllinoisEconomicsAssociation,Chicago,IL.

Bosley,S.(2001).ComplexJobMobilityandLong‐RunOutcomesforthe‘EconomicallyAt‐Risk.PaperpresentedattheAnnualMeetingoftheMidwestEconomicsAssociation,Cleveland,OH.

Bosley,S.(2000).TheEmploymentStabilityofLess‐SkilledRuralWorkers.PaperpresentedattheAnnualMeetingoftheAmericanAgriculturalEconomicsAssociation,Tampa,FL.

Ben‐Ner,A.,KongF.&Bosley.S.(1998).WorkplaceOrganizationandHumanResourcesPractices:TheRetailFoodIndustry.PaperpresentedattheWharton“UnderstandingtheServiceWorkplace”Conference,Philadelphia,PA.

King,R.,AshmanS.&BosleyS.(1998).Store‐LevelInnovationintheRetailFoodIndustry:TheECRInitiativeandBeyond.PaperpresentedattheSixthJointConferenceonFood,AgricultureandtheEnvironment.Minneapolis,MN.

PAPERS/PUBLICATIONS

Bosley,S.&McKeageK.(2015).MultilevelMarketingDiffusionandtheRiskofPyramidSchemeActivity:TheCaseofFortuneHi‐TechMarketinginMontana.JournalofPublicPolicy&Marketing,34(1),84‐102.

Bosley,S.(2015).“PyramidSchemesandAttractionReciprocity:Student‐CraftedEconomicexperiments,”WorkingPaper.

Bosley,S.(2013).CommentsRegardingtheFederalTradeCommission’sRuleConcerningCooling‐OffPeriodforSalesMadeatHomesoratCertainOtherLocations,ProjectNumberP087109.

Bosley,S.(2013).GlobalDirectSelling.WorkingPaper.Davis,E.,&BosleyS.(2007).TheImpactofthe1990sEconomicBoomonLess‐Educated

WorkersinRuralAmerica:DidtheRisingTideLiftAllBoats?JournaloftheCommunityDevelopmentSociety,38(1),59‐73.

Bosley,S.(2004).Dead‐EndJobsorSteppingStones?TheLong‐RunConsequencesof

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EarlyIndustryandOccupation. WorkingPaper04‐03. TheRetailFoodIndustryCenter,UniversityofMinnesota.

Bosley,S.(2001).ComplexJobMobilityandLong‐RunOutcomesforthe‘EconomicallyAt‐Risk’.Ph.D.Dissertation,DepartmentofAppliedEconomics,UniversityofMinnesota.

Honadle,B.W.,HonadleG.,BosleyS.&CurrieE.(2000).RedefiningLocalGovernmentRolesinPublicServices:AResearch‐InformedProcessModel.PublicManagement,2(4),457‐475.

Ben‐Ner,A.,KongF.,andBosleyS.(1999).WorkplaceOrganizationandHumanResourcesPractices:TheRetailFoodIndustry.WorkingPaper00‐01.TheRetailFoodIndustryCenter,UniversityofMinnesota.

SELECTPRESSSELECTSERVICEOTHERWORKEXPERIENCE

GuestonAirTalkwithLarryMantel,SouthernCaliforniaPublicRadio“Tweensgetintothedirectsalesmarket,”June19,2014.“TheAvonLadyalwaysringstwice:directsales,MLM’s,pyramidschemesandthe

wisdomtoknowthedifference,”January15,2013.“Moneybetweenfriends:SiliconValley’sembraceofMultilevelMarketing,”Pacific

Standard,September19,2014byHelaineOlen.“HasyourcollegestudentbeenrecruitedbyaquestionableMLM?”

TruthinAdvertising.org,August26,2014.“ZeekRewardsscamleavesN.C.townmillionspoorer,”USAToday,March30,2013by

MitchWeiss.“Federal,stateregulatorsshutdownFortuneHi‐Tech,”USAToday,January28,2013by

JayneO'Donnell.HamlineCommitteeonLearningOutcomesandAssessmentMember(2011‐present)HamlineCommitteeonLearningOutcomesandAssessmentDirector(2013‐2015)HamlineUniversityInstitutionalReviewBoard(2010‐present)HamlineUniversityStudentProgressCommittee(2012‐2013)HamlinePlanRevisionTaskforceChair(2012‐2013)StandingCommitteeonSustainabilityMember(2014‐present)HamlineSchoolofBusinessUndergraduateCurriculum&AssessmentCommittee(2011‐present)

ConsultantandSystemsAnalystforAccenture(thenAndersenConsulting),1994‐1997

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AppendixB–MaterialsReviewedTitle Type24‐HourOverviewNewBusinessCallwithTomAlkazin audio3StepPlan‐‐How8PeopleCanChangeYourLife videoAdamWenig‐ElevateSanDiego2013 videoAffiliateActionPlan–Steps1‐8 videosAffiliateActionPlanBooklet pdfAffiliateAgreement–TermsandConditions(7.12.15) pdfAffiliateAgreement–TermsandConditions(4.1.15) pdfAffiliateAgreement–TermsandConditions(11.1.14) pdfAffiliateAgreement–TermsandConditions(3.28.14) pdfAffiliateAgreement–TermsandConditions(7.15.14) pdfAmbassadorLukeHesslerspeaks…(https://www.youtube.com/watch?v=YloYvcYcMuM) videoAmwayvFTCFinalOrder(1979) docAnnouncementofNewBizStructure(4.1.14) pdfAskDr.OzTheLightningRound pdfBigNewsFromtheMayVemmaCallLive–VemmaNews videoBKBoreyko‐ElevateSanDiego2013 videoBKOurPlantoExceedYourExpectations videoBK’sBlog–UpcomingVemmaEventsandNewTerminology videoBK’sBlogCEOofVemmaNutritionalCompanySpeaksonWhytoJoinVemma audioBoreykoVideotoParents videoBradSarver‐ElevateSanDiego2013 videoBryceMajdick‐ElevateSanDiego2013 videoBurnloungevFTCDeclaration–PeterVanderNat(2007) pdfBurnloungevFTCNinthCircuitCourtofAppealsOpinion(2014) docBurnloungevFTCRebuttalDeclaration–PeterVanderNat(2008) pdfBurnloungevFTCSecondSupplementalDeclaration– PeterVanderNat(2007) pdfBurnloungevFTCSupplementalDeclaration– Peter VanderNat(2007) pdfCBS5articleandembeddedVemmaResponsetoCBS5(http://www.kpho.com/story/29118697/parents‐complain‐drink‐company‐turning‐their‐kids‐away‐from‐college)

webpageandpdf

CompensationPlan(1.31.14) pdfCompensationPlan(2013) pdfCompensationPlan(2015) pdfCompensationPlan(7.25.14) pdfCompensationPlan(9.4.14) pdfDarikAlexander videoDarikAlexanderonthePowerofPositiveThinking videoDarikAlexanderspeaksatVemma’s2014EuropeanConvention videoDiegoAvila videoEuropeTalkwithMattiasHovbrandt videoEuropeTalkwithStarRoyalAmbassadorBradAlkazin videoEuropeTalkwithVemmaAffiliateStarAmbassadorJedBuenaluz videoEuropeTalkwithVemmaAmbassadorAndreasGrenthe videoFirstVemmaCallLiveof2015 audioGaryVaynerchuk videoGINvFTCDeclaration–PeterVanderNat(2013) pdfGoldUnlimitedvFTCSixthCircuitCourtofAppealsOpinion(1999) docHowto‐VemmaFlipbookTraining videoHowtoGetPaid–VemmaHomeEvent videoHowtoMakeitBiginVemma,Part1(https://www.youtube.com/watch?v=wAChT9Y1J9g) videoHowVemmaPaysYou–2&Go(atvemmavideo.com) videoHowVemmaPaysYouTrailer videohttp://www.businessforhome.org/2014/04/top‐150‐worldwide‐earners‐in‐mlm‐april‐2014/

pdf

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IanNicholson‐ElevateSanDiego2013 videoIncome‐Disclosure2014 pdfJamieChirioSpeaksatVemma’s2014EuropeanConvention videoJasonRussell videoJedBuenaluzonLeadingbyExamplefromtheVerveLeadership videoKaileyWarren‐ElevateSanDiego2013 videoKoscotInterplanetaryvFTCFinalOrder(1975) docLearnHowtoPresenttheNewVemmaFlipbookwithRuthElliott(atvemmavideo.com) videoLearnWhatDroveEmilyMcCullahToSuccess– YPRRadioSeason2 videoLivingtheVemmaLifestyle(atvemmavideo.com) videoLukeHessler videoLukeHessler02/06/14(https://www.youtube.com/watch?v=_Cx0XafOgxg) videoLukeHesslerathomeevent09/04/14(https://www.youtube.com/watch?v=9pUimopXlT0)

video

LukeWilborn‐ElevateSanDiego2013 videoMaggieDePippoonHerSuccesswithVemma– YPRRadioSeason videoMeettheYoungProfessionals#youngprosofVemma videoMen'sJournalNutritionSuperjuicesonTrial pdfMessageoftheMonth–BlakeStauffer videoMultilevelMarketingandPyramidSchemesintheUnitedStates:AnHistoricalAnalysis–KeepandVanderNat(2014)

pdf

NewCollegeCashBonus(10.4.13) pdfNewPolicyBanningUnder18(8.19.13) pdfNickPtak videoOmnitritionvFTCNinthCircuitCourtofAppealsOpinion(1996) docPatrickComeronProspectingLikeaPro–VemmaVerveLeadershipAcademyPowerTalk videoProductpricing(Vemma,Verve,Bodescreenshotsasof1.29.15) pdfPromotionalvideosregardingphilanthropy,productplacement,products,companytools(includingJennyMcCarthyEvent,HomeOfficetour,Sundance,NASCAR,PhoenixSuns,FeedMyStarvingChildren,productintroductions,rewardtrips,dittoTalk)

videos

RichardBischoffJr‐VerveLeadershipAcademy videoRuthElliotSuccessMadeSimple2015 pdfScientificResourceGuideBooklet pdfShaneSullivanVervePowerTalkonElevatingyourVemmaBusiness totheNextLevel videoStarPinnacleTomBethanyAlkazinVemmaAllIn2014 videoTheYoungPros–YPRAllAccess(https://www.youtube.com/watch?v=3D9iBETn7ic) videoThisisVemma pdfThisisVemmavideocollection(includingVemmaFormula,VerveHealthyEnergyDrink,VemmaBodePlan,ThisisVemma,HowVemmaPaysYou,VemmaProductsTrailer,VemmaPremierClub,LivetheVemmaLifestyle,Vemma#LadyBoss,YPRVoice,VemmaConventionHighlights,VemmaHomeOfficeTour,andVemmaManufacturingPlanTour)

videos

TKKubvorunoonYPRRadioSeason2w/EricThomas–LearnHowTK’sWhyDroveHimtoSuccess

video

TopCanadaYPRFelipeGabriele–VerveLeadershipAcademy videoTranscriptoftelephoneconversationbetweenMatthewThackerandDavidTreat docTranscriptofVemmaEventinPleasanton,CA docTruthinAdvertisingarticle,“HealthClaimsCouldCostVemmaanditsCEOMillions,”andembeddedVemmaHealthClaimsDatabase(published1.20.15‐https://www.truthinadvertising.org/health‐claims‐cost‐vemma‐ceo‐millions/)

articlewithembeddeddatabase

TruthinAdvertisingarticle,“VemmaDeemedPyramidSchemeinItaly”(published4.24.14‐https://www.truthinadvertising.org/vemma‐deemed‐pyramid‐scheme‐italy/)

article

UnfairBusinessPracticesRulingfromItaly(PS7621VemmaItalia,2014) pdfVemma–NewCustomer videoVemma–YourFirst7Daysaudiocollection(includingWelcometoVemmawithBKBoreyko,IntrototheEntrepreneurMindset,TheShifttotheEntrepreneurMindset,MindsetNumberOne,SteppingaroundMindsetNumberOne,MindsetNumberTwo,StartPartTime–JimRohn,MindsetNumberThree,RobertKiyosakionWhytoCommit,MindsetNumberFour,TwoPhilosophiestoEmbrace–JimRohn,HistoryofDirectSelling‐NetworkMarketing,MindsetNumberFive,HowtoBecomeMore,BolsteringaPositiveAttitude,CompletingtheShifttoEntrepreneurialism,PuttingtheEntrepreneurMindsetintoAction,SuccessBookSummary–TheCompoundEffect)

audiofiles

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Vemma#LadyBossAWomanShouldBeTwoThings videoVemma13MonthCyclePlan videoVemma2013 videoVemmaActionPlan2014 pdfVemmaActionPlanLaunchForm pdfVemmaAffiliateMarketingTextInvite–VemmaApp videoVemmaAmbassadorBrockMortonPowerTalkatVerveLeadership videoVemmaBusinessPresentationwithTopLeaderTomAlkazin videoVemmaCompensationPlan2015withJesseBurke videoVemmaExecutiveAffiliateAlainaThomasPowerTalk videoVemmaNewsBK’s2014HalftimeReportandembeddedvideo(http://vemmanews.com/2014/06/19/bks‐2014‐halftime‐report,6.19.14)

pdfandembeddedvideo

VemmaNutritionCompany‐2013IncomeDisclosureStatement pdfVemmaNutritionCompanyMarketingandSalesBusinessPlanforPremiumSupplementProducts

video

VemmaOpportunityTrailer videoVemmaPresentationandTrainingfromverveworks.org pdfVemmaPresidentialAffiliateEmilyMcCullahPowerTalk videoVemmaPresidentialAffiliateStuMassengillPowerTalk videoVemmaPresidentialAntonNeugebauerandEricThomasonYPRRadio videoVemmaProductsTrailer videoVemmaSuccessAlexMorton videoVemmaWorkbook‐VemmaPresentationandTrainingfromverveworks.org pdfVemma/VerveHomeEventfeat.JeremyBishop#YPR(https://www.youtube.com/watch?v=bVgfV59qtZs)

video

VerveinSimpleTerms(https://www.youtube.com/watch?v=gGO‐WBIYv7Y) videoVerveLeadershipAcademySpeakersProvideKeystoSuccess videoVerveMobileTextInvitation videoVerveopportunityexplained‐LukeKishJuly20,2013(https://www.youtube.com/watch?v=7TUQhnAVjwQ)

video

VerveTextInvite–VemmaAppMortonRoyalAmbassador videoVerve!Magazine pdfWebCapture‐leadlinepro.comVemmaWBTraining‐ VemmaTrainingBible pdfWebCapture‐vemmanews.com‐2&Go–60DaystoGold pdfWebCapture‐vemmanews.com‐RuthElliotTrainsontheNewTwo&Go pdfWebCapture‐vemmanews.com‐UpdatestoThreeKeyPrograms(12.22.14) pdfWebCapture‐www.vemma.comOpportunityCompensationPlanBasics(1.21.15) pdfWebPageExplainingJan.24TerminologyChange(1.31.14) pdfWhyaGamePlanwithRuthElliotonVimeo videoYPRRadio–AmyAlkazinFullLength videoYPRRadio–BradAlkazinFullLength videoYPRRadio–AdamWenig videoYPRRadio–ColoJacab videoYPRRadio–IanLenhart videoYPRRadio–LukeHessler videoYPRRadio–NickCarreiro videoYPRRadio–StuMassengill videoYPRRadio–TylerSmall videoZerotoSixty:AStart‐upBusinessPlanforYoungPeopleSelf‐EmploymentwithAlexMorton

video

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AppendixC‐MathematicalAnalysisofaPyramidSchemeThefollowingmathematicalanalysisofabinarycompensationschemeistakenfromtheDeclarationofPeterVanderNat,formerlyasenioreconomistwiththeFederalTradeCommission,filedinsupportofamotionforpreliminaryinjunctionandotherreliefinBurnLounge.IhavereviewedandagreedwithDr.VanderNat’smethodology.ThissectiondiscussesthemathematicalimplicationsofarecruitmentsystemwheneachentrantrecruitsXnewmembersandXissomefixedpositiveinteger(e.g.,X=2).Itwillbedemonstratedthat,asrecruitmentcontinues,theorganizationgrowsatanexponentialrate(solongassuchrecruitmentcanbesustained)andthepercentageofparticipantsatthebase(i.e.,thelowestleveloftheorganizationalstructure)willconvergequicklytoadefinitevalue.Itisalsothecasethatthepercentageatthetwolowestlevelsofthestructurewillalsoquicklyconvergetoaknowndefinitevalue.Thesamecanbesaidforanychosennumberoflevels.Thisknowledgeallowsustopredictthelossrateatanyperiodintimeinthelifeofthescheme.Todemonstratethemathematicalpropertiesofsucharecruitmentsystemanditsresultingimplications,analysisbeginswithaninitialentrantwhoisplacedat“level0.”Thisinitialmemberrecruitstwonewmembers,whoconstitute“level1.”Wheneachoftheselevel1participantsrecruits2newmembers,therearenow1+2+4=20+21+22=7membersintheorganization.

Iteration

Level

NumberofParticipantsin

Level

TotalNumberofParticipants

0 Level0 1=20 1=201 Level1 2=21 3=20+212 Level2 4=22 7=20+21+223 Level3 8=23 15=20+21+22+23… n Leveln 2n Tn=0+21+22+23+…+2n

IfTn=20+21+22+23…+2n‐1+2nisthetotalnumberofparticipantsintheschemeafterniterationswhenX=2(i.e.,eachparticipantrecruitstwopeople),thiscanbegeneralizedto:

(1) Tn=X0+X1+X2+X3…+Xn‐1+XnforanypositiveintegerX.Thepercentageofparticipantsatleveln(i.e.,theshareofoverallparticipantswhoconstitutethenewestclassofentrants)isgivenby:

(2) Xn/Tn=Xn/(X0+X1+X2+X3…+Xn‐1+Xn). Dividingthenumeratoranddenominatorof(2)byXnresultsin:

(3) Xn/Tn=1/[(X0/Xn)+(X1/Xn)+(X2/Xn)+(X3/Xn)…+(Xn‐1/Xn)+(Xn/Xn)]andtherefore(4) Xn/Tn=1/[(1/Xn)+(1/Xn‐1)+(1/Xn‐2)+(1/Xn‐3)…+(1/X)+1].

Equation(4)canberearrangedandexpressedas:(5) Xn/Tn=1/[1+(1/X)+(1/X2)+(1/X3)+…+(1/Xn‐1)…+(1/Xn)]=1/ ∑ 1/ ].

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IfeachnewentrantcanrecruitXadditionalmembers,nincreaseswithoutbound(i.e.,theschemecontinuestogrowindefinitelyaseachparticipantisabletoduplicatetherecruitingsuccessofthepersonwhorecruitedhimorher).Sincethedenominatorof(5)isaconvergentgeometricseries,asngrowsthedenominatorhasadefinitelimitingvalue.Thegeneralformulaforageometricseries(c.f.Apostol,T.M.MathematicalAnalysis(1957),AddisonWesleyPubl.Company)identifiesthelimitingvalueas:

(6) ∑∞ , | | 1.

Bysettingb=(1/X),Xn/Tn(i.e.,thepercentofparticipantsatleveln)convergestothevaluegivenby

(7) 1/( 1/ 1‐(1/X).

WhenX=2,(7)yieldsavalueof1‐½=½=Xn/Tn.Fromthisweknowthat,wheneachentrantrecruits2newparticipants,thepercentageofparticipantsatthelowestlevel(leveln)convergesto50%.Thepercentageofmembersatthelowesttwolevels(nandn‐1)canbefoundasfollows:

(8) (Xn+Xn‐1)/Tn=[(Xn)(1+1/X)]/Tn=[(1+1/X)(Xn)]/(X0+X1+X2+X3…+Xn‐1+Xn).Dividingthenumeratoranddenominatorof(8)byXnandapplying(7)yields

(9) (Xn+Xn‐1)/Tn=[1+1/X]/[(X0/Xn)+(X1/Xn)+(X2/Xn)+(X3/Xn)…+(Xn‐1/Xn)+(Xn/Xn)]=[1+1/X]/[(1/Xn)+(1/Xn‐1)+(1/Xn‐2)+(1/Xn‐3)…+(1/X)+1]=[1+1/X][1‐1/X]=1–(1/X2).

ForX=2,thepercentofparticipantsatthetwolowestlevels(nandn‐1)is1‐(1/4)=75%.Extending(9)toincludethreelevelsyields:(10) (Xn+Xn‐1+Xn‐1)/Tn=[1+1/X+1/X2][1‐1/X].

WhenX=2, it followsfrom(10)thatthepercentofparticipants inthe lowest3 levelswillbe[1+1/2+1/4][1‐1/2]=87.5%.Table2illustratestheresultsforn=1,2,…,20iterationsandshowsthattheconvergentvaluesareachievedafter10iterations,whenjustover2,000individualshavejoined the scheme. Suppose, for example, that duplication is achieved for 12 iterations (i.e., thefounderrecruits2,eachlevel1participanteachrecruits2,andsoon,untileachofthe2,048level11 recruits each recruit 2). This brings a total of 8,191 individuals into the scheme where4,096/8,191 = 50% of those people are at the “base,” the lowest level of the organization;(4,096+2,048)/8,191 = 75% are in the lowest 2 levels of the organization; and(4,096+2,048+1,024)/8,191=87.5%areinthelowest3levelsoftheorganization.

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TableC1:SchemeGrowthWhenX=2(Eachparticipantrecruits2newmembers)

Enrollment level (n)

Participants in level n

Total participants (level n + all

levels above)

% of participants at base level

n

% of participants at base +1 levels above (bottom 2 levels)




0 (founder) 1 1 100%

1 2 3 66.7% 100%

2 4 7 57.1% 85.7% 100%

3 8 15 53.3% 80.0% 93.3% 100%

4 16 31 51.6% 77.4% 90.3% 96.8% 100%

5 32 63 50.8% 76.2% 88.9% 95.2% 98.4%

6 64 127 50.4% 75.6% 88.2% 94.5% 97.6%

7 128 255 50.2% 75.3% 87.8% 94.1% 97.3%

8 256 511 50.1% 75.1% 87.7% 93.9% 97.1%

9 512 1,023 50.0% 75.1% 87.6% 93.8% 97.0%

10 1,024 2,047 50.0% 75.0% 87.5% 93.8% 96.9%

11 2,048 4,095 50.0% 75.0% 87.5% 93.8% 96.9%

12 4,096 8,191 50.0% 75.0% 87.5% 93.8% 96.9%

13 8,192 16,383 50.0% 75.0% 87.5% 93.8% 96.9%

14 16,384 32,767 50.0% 75.0% 87.5% 93.8% 96.9%

15 32,768 65,535 50.0% 75.0% 87.5% 93.8% 96.9%

16 65,536 131,071 50.0% 75.0% 87.5% 93.8% 96.9%

17 131,072 262,143 50.0% 75.0% 87.5% 93.8% 96.9%

18 262,144 524,287 50.0% 75.0% 87.5% 93.8% 96.9%

19 524,288 1,048,575 50.0% 75.0% 87.5% 93.8% 96.9%

20 1,048,576 2,097,151 50.0% 75.0% 87.5% 93.8% 96.9%

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AppendixD‐ChangestoCompensationPlanandTerms&ConditionsTableD1:TerminologyandQualificationRequirements CompensationPlanVersion

2013January2014

July2014

January2015

TermsandAccess

BrandPartners,thosewhowanttopursuethebusinessopportunity,mustplaceanauto‐deliveryorder(min60QV)toaccesstheBackOfficeandmarketingwebsite;canenterimmediatelyasaBrandPartner

CustomersandAffiliates(previouslycalledBrandPartners)–allstartasCustomersandbecomeanAffiliatewithpurchaseofAffiliatePackORenrollmentof1person;need60QVorderandAffiliatestatustoaccesswebsite

NeedonlyAffiliatestatus(nopurchase)toaccesswebsite

Nochanges

QualifyingVolume(QV)

Numberofpointsbasedonpurchases;pointvaluevariesbetweenproducts(alsoknownas“rewardpoints”orCommissionableVolume,CV)

Nochanges Nochanges Nochanges

PersonalVolume(PV)

Notyetintroduced Notyetintroduced NumberofpointsbasedonpersonalpurchasesplushalfofQVfrompersonallyenrolledCustomers

Nochanges

DefinitionofActive

60pointsinpersonalQVviaauto‐deliverypermonth(doublerequiredforPlatinumorabove)

60pointsinpersonalQVpermonth(doublerequiredforPlatinumorabove)

60pointsinpersonalvolume(PV)permonth(doublerequiredforPlatinumorabove)

Nochanges

DefinitionofQualified

120pointsinpersonalQVpermonthANDanauto‐deliveryorderonfileANDatleastone“active”BrandPartneroneachoftwoteams(leftandright)

120pointsinQVpermonthANDatleastone“active”Affiliateoneachoftwoteams(leftandright)

120pointsinpersonalvolume(PV)permonthANDatleastone“active”Customer/Affiliateoneachoftwoteams(leftandright)

Nochanges

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TableD2:PurchaseLoyaltyandImmediateIncomeRewards CompensationPlan Version

2013January2014

July2014

January2015

PurchaseLoyaltyReward

Nopurchaseloyaltyrewardprogram

CustomerReferralProgram(“3forFree”program)–musthave30QVminimummonthlyauto‐deliveryorderAND3personallyenrolledCustomerswhopurchaseinmonth(overallCustomerQVmustbe3timespersonalauto‐deliveryorder);paymentisfreeauto‐shipproductinmonth,max600QVfreeorder

Max600QVfreeorderreducedto120QV

VemmaLoyaltyProgram(replacesCustomerReferralProgram)–CustomerorAffiliatemusthaveminimum60QV/monthpurchasefor6consecutivemonths;paymentisfreeproduct(max120QV)receivedin7thmonth

ImmediateIncome

FastStartBonus‐mustbeactive;receivebonusonfirstpurchasemadebyeachpersonallyenrolledBrandPartner(approx.15%ofordervalue)Noadditionalshort‐termrewards

NewCustomerBonus(formerlyFastStartBonus)–mustbeactive;receivebonusonfirstpurchasemadebyeachpersonallyenrolledCustomerorAffiliate(approx.15%ofordervalue)FrenzyBonus–mustbequalifiedANDpurchaseAffiliatePackANDenroll3Affiliatesand/orCustomerswhoordermin120QVinweekofenrollment;paysupto$200pershareDoubleFrenzyBonus‐mustbequalifiedANDpurchaseAffiliatePackANDenroll3Affiliatesand/orCustomerswhopurchaseAffiliatePack($500)ormoreandhaveminauto‐deliveryorderof120QVinweekofenrollment;paysupto$400pershare

ForNewCustomerBonus‐Customerscannowearnthebonus,paysoutasproductcreditForFrenzyandDoubleFrenzyBonus–canreplaceAffiliatePackpurchasewithenrollmentof6customerswithmin60QVordereachwithin60daysofenrollment

NochangesForFrenzyandDoubleFrenzyBonus–cannolongerreplaceAffiliatePackpurchasewithCustomerrecruits(revertingbacktoJanuary2014version)

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TableD3:Long‐termTeam‐VolumeRewardsPart1CompensationPlan Version

2013

January2014

July2014

January2015

CycleCommission–mustbequalifiedANDcyclewith180QVononeteamand360QVontheotherteam;paysapproximately$20percycleMatchingBonus–mustbequalifiedANDhave4activepersonallyenrolledBrandPartners(atleastoneoneachteam);pays10%ofCycleCommissionsearnedbypersonallyenrolledBrandPartnersSecondTierMatchingBonus‐mustbequalifiedANDhave6activepersonallyenrolledBrandPartners(atleastoneoneachteam);pays10%ofCycleCommissionsearnedbypersonalenrollees’personallyenrolledBrandPartnersMomentumBonus‐mustbequalifiedANDminimumBronzelevel(1cycle)AND500pointsofauto‐deliveryorBuilderPackordersoneachteam;paymentvariesbylevelandisbasedon3%ofsalesfromparticipatingcountries(e.g.,firstbonuslevelisupto$100pershare/month)

CycleCommission,MatchingBonus,SecondTierMatchingBonus,andBalancedTeamBonus(formerlyMomentumBonus)–nochangesotherthantodefinitionof“qualified”

ForCycleCommission –added3newearningslevels(StarPinnacle,RoyalPinnacleandLegend)ForMatchingBonus–canenroll4Customersand/orAffiliates,earningsstillbasedonAffiliatecyclesForSecondTierMatchingBonus–canenroll6Customersand/orAffiliates,earningsstillbasedonAffiliatecyclesNootherchanges

Nochanges

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TableD4:Long‐termTeam‐VolumeRewardsPart2CompensationPlanVersion

2013

January2014

July2014

January2015

MomentumBonusBuilderPackFlag–mustbequalifiedANDpurchaseBuilderPack;paysMomentumBonusatonehigherlevelfor90days(e.g.,$200/monthratherthan$100/monthfor90daysfromenrollment)PlatinumClub‐mustbequalifiedANDpurchaseBuilderPackwithin60daysofenrollmentANDreachDiamondrank(minimum20cycles)ANDhaveGoldBrandPartner(minimum10cycles)oneachteamAND500pointsinmonthofauto‐deliveryCustomerorBuilderPackordersoneachteam;paysCarBonusorCollegeBonusorCashBonus(50%ofCar/CollegeBonusvalue),bonusdependsonlevel(e.g.,$400per4‐weekperiodifDiamondlevel)GlobalBonusPool–mustbequalifiedandmaintainminimumofPlatinumrank(50cycles/month)for12‐weekperiod;paymentvariesbasedonlevelandpoolsizeRankAdvancementBonus‐mustbequalifiedandreachnewrank(i.e.,newlevelofmonthlycycles)foratleasttwoconsecutive4‐weekrankadvancementperiods(in2012couldqualifyafteronlyone4‐weekperiod,higherranksofPresidentialandaboverequireranktobemaintainedforsix4‐weekperiods);one‐timepaymentdependsonlevelchange(e.g.,fromSilver(5cycles)toGold(10cycles)pays$250;movingtoPinnacle(6,000cycles)pays$250,000)

BalancedTeamBonusAffiliatePackFlag(formerlyMomentumBonusBuilderPackFlag)–nochangesotherthanbonusnameanddefinitionof“qualified”PremierClub(formerlyPlatinumClub‐nochangesotherthanbonusnameanddefinitionof“qualified”GlobalBonusPool‐nochangesotherthanbonusnameanddefinitionof“qualified”RankAdvancementBonus–nochangesotherthanbonusnameanddefinitionof“qualified”

NochangesForPremierClubBonus–canreplaceAffiliatePackpurchasewithenrollmentof6customerswithmin60QVordereachwithin60daysofenrollment.NochangesForRankAdvancementBonus–introductionofnewranksmeansRankAdvancementone‐timepayoutcanreach$1millionformovementtoLegend(20,000cycles).

NochangesForPremierClubBonus–cannolongerreplaceAffiliatePackpurchasewithCustomerrecruits(revertingbacktoJanuary2014version);nowreceivefullcashawardratherthancar/loanpayment.Nootherchanges

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AppendixE–AdditionalCompensationScenarios

TableE1:13‐MonthCompensationScenariowithMonthlyAuto‐deliveryandAffiliatePack(2‐recruitduplicationoccurswithintheenrollmentmonth,withAffiliatePackpurchasesbyallrecruits)22

Month

New Recruits

Cumulative Recruits

120QV + Affiliate Pack

orders in month

Cycles in

month

Cycle Payout in month

Left‐over QV

New Customer Bonus

Rank Advance‐ment Award

Balanced Team & Premier Club Bonus

Total Earnings in Month

Monthly Expenses

Jane’s Net Profit in Month


0 ‐ ‐ ‐ ‐ $0 ‐ $0 $0 $0 $0 $532 ‐$532 ‐$532

1 2 2 500 ‐ $0 500 $200 $0 $0 $200 $150 $50 ‐$482

2 4 6 1,240 2 $44 160 $0 $0 $100 $144 $150 ‐$6 ‐$488

3 8 14 2,720 5 $110 20 $0 $0 $200 $310 $150 $160 ‐$328

4 16 30 5,680 11 $242 0 $0 $100 $300 $642 $150 $492 $164

5 32 62 11,600 21 $462 260 $0 $250 $300 $1,012 $150 $862 $1,026

6 64 126 23,440 43 $946 220 $0 $500 $400 $1,846 $150 $1,696 $2,722

7 128 254 47,120 87 $1,914 140 $0 $0 $400 $2,314 $150 $2,164 $4,886

8 256 510 94,480 175 $3,850 0 $0 $1,750 $400 $6,000 $150 $5,850 $10,736

9 512 1,022 189,200 350 $7,700 200 $0 $3,500 $400 $11,600 $150 $11,450 $22,186

10 1,024 2,046 378,640 701 $15,422 100 $0 $3,000 $400 $18,822 $150 $18,672 $40,858

11 2,048 4,094 757,520 1,403 $30,866 0 $0 $15,000 $400 $46,266 $150 $46,116 $86,974

12 4,096 8,190 1,515,280 2,806 $61,732 40 $0 $15,000 $400 $77,132 $150 $76,982 $163,956

13 8,192 16,382 3,030,800 5,613 $123,486 0 $0 $0 $400 $123,886 $150 $123,736 $287,692

22 Modelassumptionsincludethefollowing:‐eachparticipantisanAffiliatewhopurchasestheAffiliatePack(withapproximately$32inshippingcost),buys120QVmonthly(Vemma2‐pack,with10%discountforauto‐deliveryandapproximately$15inshippingcosts),andrecruits2whodothesame,‐personallypurchasedproductisnotincludedinQVcalculationsforcyclebonus(followingtheillustrationinthe"Vemma13MonthCyclePlan"videoanddescriptionincompensationplan),‐cycleearningsare$22/cycle(followingtheillustrationinthe"Vemma13MonthCyclePlan"video),‐recruitmentisnotassumedtooccurwithintheweekofenrollment,meaningJaneisnoteligibleforFrenzyBonuses,‐itisassumedthatPEQ's(PersonallyEnrolledQualifiers)donotexceed2,meaningJaneisnoteligibleforMatchingBonuses,‐theVemmaLoyaltyProgramisnotincluded,thoughthisconstitutesaverysmallbenefitintheformoffreeproductevery7thmonth,‐theBalancedTeamBonusAffiliatePackFlagisnotincluded,thoughthiswouldhavenosignificantimpactontheseresults,‐theGlobalPoolBonuswasnotincludedasthepayoutsizevariesbasedonPoolsize‐notethateligibilitywouldnotbeginuntilPlatinumrank,and‐BalancedTeamandPremierClubbonusamountsareassumedpaidinthefirstRankAdvancementPeriodthattherankisachieved.

App. 1564


44 | P a g e

TableE2:13‐WeekCompensationScenariowithMonthlyAuto‐deliveryandAffiliatePackPurchases(3‐recruitduplicationoccurswithintheenrollmentmonthwithAffiliatePackpurchasesbyrecruits)23

Week

New Recruits

Cumulative Recruits

Affiliate Pack QV in week

120QV + Affiliate Pack orders in week

Cycles in week

Cycles in Month

New Customer Bonus

Double Frenzy Bonus

Rank Advancement

Award

Jane’s Total Earnings in

Week

Jane’s Monthly Expenses

Jane’s Net Profit in

Month


0 ‐ ‐ ‐ ‐ ‐ $0 $0 $0 $0 $532 ‐$532 ‐$532

1 3 3 750 750 1 $300 $400 $0 $722 $0 $722 $190

2 9 12 2,250 2,250 4 $0 $0 $0 $88 $0 $88 $278

3 27 39 6,750 6,750 13 $0 $0 $0 $286 $0 $286 $564

4 81 120 20,250 20,250 38 56 $0 $0 $0 $836 $150 $686 $1,250

5 243 363 60,750 61,110 113 $0 $0 $0 $2,486 $0 $2,486 $3,736

6 729 1,092 182,250 183,330 340 $0 $0 $0 $7,480 $0 $7,480 $11,216

7 2,187 3,279 546,750 549,990 1,019 $0 $0 $0 $22,418 $0 $22,418 $33,634

8 6,561 9,840 1,640,250 1,649,970 3,056 4,528 $0 $0 $1,600 $68,832 $150 $68,682 $102,316

9 19,683 29,523 4,920,750 4,950,270 9,167 $0 $0 $0 $201,674 $0 $201,674 $303,990

10 59,049 88,572 14,762,250 14,850,810 27,502 $0 $0 $0 $605,044 $0 $605,044 $909,034

11 177,147 265,719 44,286,750 44,552,430 82,505 $0 $0 $0 $1,815,110 $0 $1,815,110 $2,724,144

12 531,441 797,160 132,860,250 133,657,290 247,514 366,688 $0 $0 $37,500 $5,482,808 $150 $5,482,658 $8,206,802

13 1,594,323 2,391,483 398,580,750 400,972,230 742,541 $0 $0 $0 $16,335,902 $0 $16,335,902 $24,542,704

23 Modelassumptionsincludethefollowing:‐eachparticipantisanAffiliatewhopurchasestheAffiliatePack(withapproximately$32inshippingcost),buys120QVmonthly(Vemma2‐pack,with10%discountforauto‐deliveryandapproximately$15inshippingcosts),andrecruits3whodothesame,‐personallypurchasedproductisnotincludedinQVcalculationsforcyclebonus(followingtheillustrationinthe"Vemma13MonthCyclePlan"videoanddescriptionincompensationplan),‐cycleearningsare$22/cycle(followingtheillustrationinthe"Vemma13MonthCyclePlan"video),‐recruitmentisassumedtooccurwithintheweekofenrollment,meaningJaneiseligibleforFrenzyBonuses,‐itisassumedthatPEQ's(PersonallyEnrolledQualifiers)donotexceed3,meaningJaneisnoteligibleforMatchingBonuses,‐theVemmaLoyaltyProgramisnotincluded,thoughthisconstitutesaverysmallbenefitintheformoffreeproductevery7thmonth,‐theBalancedTeamBonusandBalancedTeamBonusAffiliatePackFlagarenotincluded,thoughthiswouldhavenosignificantimpactontheseresults,and‐theGlobalPoolBonuswasnotincludedasthepayoutsizevariesbasedonPoolsize‐notethateligibilitywouldnotbeginuntilPlatinumrank.

App. 1565


DECLARATION OF BONNIE PATTEN PURSUANT TO 28 U.S.C. § 1746

I, Bonnie Patten, hereby declare as follows:

1. My name is Bonnie Patten. I am a United States citizen over twenty-one years of

age and am fully competent to give this Declaration. 1 am the Executive Director of Truth in

Advertising, Inc. (TINA). My business address is 111 5 Samson Rock Drive, Madison,

Connecticut 06443.

2. TINA's mission is to be the go-to online resource dedicated to empowering

consumers to protect themselves and one another against false advertising and deceptive

marketing. We aim to achieve our mission through investigative journalism, education,

advocacy, and the promotion of truth in advertising. We are independently funded and do not

accept any advertising dollars to support our work.

3. As part of its mission, TINA has investigated Vemrna Nutrition Company

(Vemma). TINA's investigation included collecting documents and other information relating to

Vemma. In the course of TINA's business practices, I have acquired personal knowledge and

information about the facts stated herein, and, if called, would testify to the same.

4. Based on information and belief, the website www.myroadmaptosuccess.com is

operated by Tom and Bethany Alkazin. In May or early June 2014, TINA purchased a copy of a

training manual called "Roadmap to Success" by clicking on a link on

www.myroadmaptosuccess.com. The Roadmap To Success is written by Tom and Bethany

Alkazin. A true and correct copy of the Roadmap to Success is attached as Attachment A.

Page 11

App. 1566


[

5. In February 2014, the Italian Competition and Markets Authority issued a

decision (Italian Decision) against Venuna ltalia, finding that Vemma was operating as an illegal

pyramid scheme in Italy. TINA obtained a copy of the Italian Decision from the Italian

Competition and Markets Authority website at www.agcm.it. A true and correct copy of the

Italian Decision against Vemma Italia is attached as Attachment B.

6. In spring 2014, TINA contracted with The Italian Translations Company, LLC to

translate the Italian decision. A ttue and correct copy of the cettified translation of the Italian

decision is attached as Attachment C.

etjury that the foregoing statement is true and correct.

Page 12

App. 1567


te

VISUALIZATION"

BE COACHABLE,

A17TITUDE ,

COMMITMENT

STAY PLUGGED IN

I 'DAILY ACTIVITY

................ ~ FREEDOM

YOUR VEMMA ACTION PLAN ~· · · · · · · · · · ·

App. 1568


erobinson

Typewritten Text

erobinson

Typewritten Text

erobinson

Typewritten Text

erobinson

Typewritten Text

erobinson

Typewritten Text

erobinson

Typewritten Text

Attachment A

TABLE OF CONTENTS

Welcome Letter .................... .... ............................. .. ........ ... ...... .... .. .. ..... ... .... 4

Step 1: Your Dreams- The Foundation of Your Vemma® Business ............. 6

Step 2: Attitude- Setting Yourself up to Succeed .................................... 1 0

tep Create a List- Your Most Valuable Asset ...................................... 12

Step 4: Leading with the Vemma Products ............... .. .............................. 20

Step 5: Leading with the Vemma Business Opportunity ........................... 24

Step 6: Goal Setting- Your First Objectives ..................... .. ... .................... 28

Step 7: Counsel Upline- Everyone Needs a Coach ...................... .. .. .. ...... 31

r... "" Get Started Now- Time for Action! ......... .. ............ .. ..................... 32

Stay Plugged In ........................ .. ... ......... ..................... ...... .. ...... ......... ........ 37

The Enrollment Process ........... ........................................... ... ... .. .......... ...... 38

New Affiliate Checklist ....... ...... .. ............... ......... ..................... .... ............. .. 39

App. 1570


Welcome!

Congratulations on your decision to become part of the Vemma® Team!

You have just taken a positive step in your life that can truly change the

future for you and your family. You now have an opportunity to design your

own life. You now own your own business and have the opportunity to make

your dreams and goals a reality by helping other people. Our mission is to

make a positive impact in people's lives by providing unique products and

a business opportunity that can help individuals improve their physical and

financial health. We are proud of you for making a committed decision and

stepping out in faith. This training and development program was created

to set you up for success and give you a track to run on. You now have the

opportunity to build a business and pay yourself what you are worth. Your

income will match your efforts and commitment because you are in control.

Every new Affiliate in Vemma has one thing in common: every one of us was a beginner

at one time. Often the excitement and enthusiasm is high, but the knowledge is low. This

program has been developed to help accelerate you through the learning curve. Keep

your excitement and enthusiasm high, and we will equip you with the knowledge and

tools that you need to succeed. The rest is up to you. Many of our Affiliates have gone on

to achieve success beyond their wildest dreams.

Success in Vemma is not a mystery. The Roadmap to Success removes all mystery and

doubt because these principles are a proven pathway to success. The Roadmap to Success

is the EXACT roadmap that helped us make our dreams and goals a reality. This proven

plan for success is simple and something you can do. This proven plan of action is built

on a few simple fundamentals that, when repeated over and over, create momentum

and can lead you to the success and results you are seeking. Your job is to learn these

principles and fundamentals and put them into action consistently. Please do not try

to reinvent the wheel. The plan works; it is your responsibility to work the plan!

It has been said that success comes from doing the correct things consistently. We are

going to teach you how to do the correct things. In other words, once you learn how to

do the correct things, your success is dependent upon your PERSISTENCE. You must

stay consistent and stay the course. Do not allow yourself to get off track or deviate from

this proven plan.

4 ROADMAP TO SUCCESS

App. 1571


As you learn these principles and fundamentals, you will begin to make progress when

you consistently apply them. Then, as you begin to assemble a winning team, you will

need to teach others these same principles and fundamentals. Teach and train your team

that as soon as they enroll a new Affiliate that wants to build a business, they must hand

them the Roadmap to Success workbook so they too can learn what to do and how to

do it. It is all about duplication, so remember these three words: LEARN, APPLY, and

TEACH.

As you move forward with your Vemma• business, you will find that activity always comes

before results, and income follows the correct activity. As you learn, apply (by taking

consistent action), and teach these proven principles and fundamentals over the next

few months. You have the opportunity to succeed beyond your wildest dreams.

We recognize that everyone who enters our business has different levels of time, energy,

self-confidence, desire, and talent. That is why we created this program to be adaptable to

every Affiliate. You can go at your own pace. You can build your Vemma business

as big as you can dream!

Finally, we suggest that you review the Roadmap to Success audio CD and workbook

several times. Each time you listen to the CD or review a step, you will pick up something

new. We also encourage you to review the CD and workbook every 60 - 90 days to stay

plugged into the key principles and fundamentals that will lead you to success.

Remember, Vemma is SIMPLE, it's FUN, and it's SOMETHING YOU CAN DO!! May

God bless you on your journey, and we look forward to seeing you at a Vemma event in

the near future.

Tom & Bethany Alkazin

Star Pinnacle Leaders

'

Vemma LS stmp(e, tt's fun, and it's somethtng you can do!!

ROADMAP TO SUCCESS 5

App. 1572


Learning to dream again

means that you spend some time

identifying what you want out of

life AND what you want out of

your Vemma business.

. . . . . . . . . . . . . ~


Step 1: Your Dreams-The Foundation of your Vemma® Business

Your first step in the Roadmap to Success is to learn to dream! Your dreams will truly provide the foundation for your Vemma business.

Think about it ... most of us as children were natural dreamers. One day we wanted to be a doctor, the next day an astronaut or veterinarian or teacher or explorer. Anything was possible, and there were absolutely no limitations! Unfortunately, as we grew up, we all had our share (or more than our share) of disappointments and heartaches. As part of the life experience, we felt personal and professional rejection and disappointment. We had many hopes and aspirations and, of course, many of them did not become a reality. As a result, most people lose the desire and ability to dream. Most people begin to settle for mediocrity for whatever life will give them as opposed to achieving an extraordinary life of their dreams. In fact, it has been said that most people work just hard enough to not get fired, and most employers pay people just enough so they don't quit. Many people go through their adult lives having never given their ABSOLUTE BEST to anything.

Well, here is the good news ... it does not have to be that way! By choosing Vemma and the Roadmap to Success training, you can truly break out of this pattern, break away from mediocrity, and design the life of your dreams.

Learning to dream again means that you spend some time identifying what you want out of life AND what you want out of your Vemma business. Vemma is the vehicle that can take you where you want to go. It has been our experience that Affiliates who clearly identify and envision their dreams are more excited, consistent, and persistent. You will consistently take the steps necessary for success as long as you have enough REASONS why you want to succeed.

Now, we want to take a few minutes to help you begin to shape your dreams. Remember, this is IMPORTANT! Your dreams will fuel your desire, motivation, and efforts as you launch and grow your Vemma business. Take some time with these simple exercises so your business will have a rock-solid foundation .

First, take 5 to 10 minutes for a "Dream Big Dreams" exercise. In the space provided, fast forward 3 years and write down the details of your ideal life. Here's a question: How big would you dream if you knew you could not fail? Where would you live? How would you live? How would you spend your time? Who would you spend your time with? Would you travel? Where would you go? What would your personal income be? How much money would you have in the bank? What would you do for fun? What charities or philanthropic causes would you support with your time, money, and resources? Who would you help? What would a typical day look like and feel like?

App. 1573


"DREAM BIG DREAMS" EXERCISE

Thoughts become things. lf you see it in your mind, you wiH ho(d it in your hand. Bob Proctor

Please look at a watch or clock and keep your

pen moving for at least 5 minutes.

Don't worry about spelling and grammar ...

just have fun and get started!


App. 1574


Now that you have completed this initial dreaming exercise, remember that you can modify and rewrite at any time. These next several exercises will help you begin to get specific with your dreams and the reasons why you are going to build a successful Vemma'" business.

Next, write down your specific income goals. In other words, what would you like your monthly residual cash flow to be? Don't be afraid to dream big dreams! Remember, we are engaging in "possibility thinking" with no limits. After you identify this income target, write down your top three dreams that this residual cash flow will make possible.

• • • • • • • • • • • • • ~ 3 Year Monthly Residual Cash Flow Goal

$ ________ _

1.

2. ________________________________________________________ __

3. ________________________________________________________ __

............ ·~ 1 Year Monthly Residual Cash Flow Goal

$ ________ _

1 0

2. ________________________________________________________ __

3. ________________________________________________________ __

............. ~ 6 Month Residual Cash Flow Goal

$ ________ _

1.

2. __________________________________________________________ __

't I 3. ________________________________________________________ __

• • • • • • • .• • • • • • ~ Your First 30 Days

$ ________ _ (See Step 6, page 29)


App. 1575


Now that you have completed your initial "Dream Big Dreams" exercise, it is important that you continue to focus on them. Visualize with emotion your 3-year dreams. Imagine yourself living the life you have dreamed about. This will fuel your desire, consistency, and persistence.

One final thought on your dreams ... PROTECT THEM! Protect them with a passion because they will be attacked. There are many negative people in the world, and they are

trained recruiters! They are focused daily on recruiting others into their world of negativity, pessimism, and complaining. We call them "dream stealers." Sometimes, it is a well-meaning friend or family member who has settled for mediocrity, and they "don't want to see you disappointed." More often, it is someone who does not have the desire or discipline to change their circumstances (they would rather talk and complain than actually do something), and so they don't want to see anybody else step out in faith and make something positive happen.

Remember the saying, "misery loves company"? Well, it is true. Protect your dreams with a vengeance. After all, this is YOUR life, and it is NOT a dress rehearsal. We have always been amazed how often it is that the individual who is unhappy, negative, and financially broke, is also the person that claims to have all the answers!

Do not be swayed. Don't follow them and their chosen path. Remember your REASONS. Visualize yourself achieving your dreams and stay away from negative people. Protect your dreams by focusing on them. Each day when you do something positive with your Vemma"' business, imagine yourself one step closer to achieving your dreams.

It has been said that the journey of a thousand miles begins with the first step. You have just completed the first step in the Roadmap to Success workbook. Now let's build on the foundation of your dreams!

•

Dream btg dreams! SmaH dreams have no magtc!

- Dottte Boreyko

Each day, after you do

something positive with your Vemma

business, imagine you rself one step closer

to achieving your dreams.


App. 1576


............ ·~

10 ROAD MAP TO SUCCESS

Step 2: Attitude-Setting Yourself Up To Succeed You may have heard the phrase, "Attitude is everything" or "Your attitude determines your altitude!" These statements are so true. To set yourself up for success, you must recognize that your personal attitude is a choice. Each day, we have a choice as to what kind of attitude we will have for that day. Your responsibility is to choose to be positive and to expect good things to happen! The law of expectation teaches us that we typically get from life what we expect. Expect your Vemma'" business to grow! Expect people to have a positive experience with this tremendous product! Expect people to be interested in learning how to create additional income through the Vemma opportunity!

You will find that the top performers in the world of Vemma have challenges too. They have good days, and they have challenging days. They experience obstacles, setbacks, and disappointments, but they do not let themselves get down. They maintain a positive attitude and a positive expectancy. You must do the same. Expect good things to happen to you each day. If you have a challenge or problem, focus on the solution and ask yourself, "What am I supposed to be learning here?''

In addition, you must have a coachable attitude. Please recognize that we really want you to succeed in a big way! That is why we created this Roadmap to Success training program. These principles and this plan of action are a proven formula for success. Don't get creative and try and reinvent the wheel. Commit to being coachable and learn and apply these proven principles and fundamentals. You will be glad you did!

How do you cultivate and maintain the right attitude? First, re111ain positive and enthusiastic by continuing to focus on your dreams. (Remember Step 1!) Fuel your dreams with a daily commitment to reading good books, listening to audio programs, and associating with positive people. Log in to your Vemma website and subscribe to SUCCESS Club! In addition, you must commit to the following two key success principles:

I. STAY PLUGGED IN

• Stay plugged in and connected to your upline success coaches.

• Listen to the weekly conference calls.

• Attend Local Area and Regional Events.

• Attend the Annual Leadership Weekend and Annual Convention.

• Listen to the marketing and training tools and stay connected.

Never allow yourself to become isolated because this business is all about the TEAM.

You have a team of people and a support system in place, but it is your responsibility

to stay plugged in.

App. 1577


Following these two key principles of staying plugged in and doing something positive every day will help you cultivate and maintain a positive, winning attitude. This will put you in a position to succeed. As you begin to build a team and they stay plugged in and do something positive every day, your business will begin to grow and duplicate. Over time, you will create an organization of positive people who are plugged in and focused on consistent daily activity. With persistence and time, you will build a massive organization as duplication continues and leaders emerge in your group.

One final thought on the importance of the right attitude. Most people like to associate with positive individuals. Therefore, by cultivating a positive, winning attitude, you will attract the right people. As you continue to attract bright, talented people who have a positive winning attitude, you will put your Vemma business on the fast track!

Your menta[ attitude is something you can controt outright,

and you must use self-disciptine u.ntit you create a positive

menta[ attitude - your menta[ attitude attracts to you

everything that makes you what you are. - Napoleon Hilt

~· ........... .

Your dreams and your

attitude will determine your altitude in life.


App. 1578


............ ·~

. . . . . . . . . . . . ·~

Create a List Your Most Valuable Asset Creating your Contact List is one of the most important exercises in building a successful Vemma" business. Remember, this is an "exposures business" and your results will depend on the number of new people that you share Vemma with on a daily and weekly basis. Keep in mind that you are sharing a product and a business that could have a tremendous impact in helping people with their physical and financial health. Your mindset should be "share and expose," NOT "sell and recruit." We call it SHARING AND CARING! As you share the Vemma products and the Vemma business with individuals, realize that we are in the sorting business, not the convincing business. Simply lighten up, have fun, and say less to more people! We will coach you on exactly what to do and how to do it.

Now, before you begin sharing and caring, you must first create your Contact List. If you discovered a gold mine with an unlimited supply, who would you tell first? Always remember that you are offering people the gift of health and wealth. You are doing something FOR them!

The DOs and DON'TS of Making a List

1. DO make your list as long as possible.

• It's your game plan - your greatest asset when starting your business.

• The longer your list, the more confidence you will have. If you have a list of 10 people and the first 5 say no, you will feel pressure to sponsor the next 5, and this can put you into the "begging mode" and will greatly reduce your effectiveness. However, if you have a list of 100, and the first 5 say no, you have 95 other people to contact and a game plan over the next 30 days. Remember, say less to more people .

2. DO NOT pre-judge anyone.

• You never know who will do this business. You never know the timing in someone's life.

• If you fail to contact someone, they could end up in someone else's organization.

• Sift and Sort- Do not try and talk people into doing the business against their will. Simply giv~people enough information so they can decide ifVemma is right for them.

BelLeve Lt! HLgh expectatlons aYe the key to everythLng. - Sam Wa{ ton

12 ROADMAPTO SUCCESS

App. 1579


Steps to Developing your Warm Market Contact List

1. Use the MEMORY JOGGER in this section to make a list of at least 75 to 100 people that you know on a first-name basis. If you have e-mail addresses, that is even better. In addition, you can use the internet or various social media networks as a MEMORY JOGGER. Start with the letter A and ask yourself, "Who do I know who is an Accountant, a Banker, or a Carpenter?"

2. In the left column (the 'Code' column), identify those people on your list who:

Are "Successful" (S)

Are "People" Persons (P)

You have strong influence with or they have a strong influence with others (I)

Have a special Vemma• product need (V)

These are the people you will contact first. Keep in mind, the ones that are geographically closer to you will be the best ones to start with because you will be able to PLACE the product with them sooner.

Sometimes, simply based on your personal credibility, you will find that you have the ability to influence others to join you.

People In Who Is Who Sold Your Life ... Your .. . You Your ... Relatives Doctor House

Parents Dentist Car/Truck

Grandparents Optometrist Furniture

Brothers Dry Cleaner Boat

Sisters Barber Office Supplies . Aunts Supervisor Business Clothes

Uncles Pharmacist Vacuum Cleaner

Cousins Chiropractor Computer

Hairdresser Dietitian Carpets/Tile

Doctor Pediatrician Curtains

Attorney Neighbor Storm Windows Mechanic Day Care Provider Aluminum Siding

Vacation Package

Air Conditioner

~· ............


App. 1580


. . . . . . . . . . . . . ~


Who Do You Know ...

Golf Pro Tennis Pro Physical Therapist Chemical Engineer Entrepreneur Accountant Electrical Engineer Bartender Bank Manager Computer Programmer Fire Chief Business Manager Administrative Assistant Word Processor Pol ice Officer Car Salesperson Flight Attendant Business Owner Network Marketer Printer Baseball Player Video Store Owner Attorney

Who ...

Pediatrician Football Player Chiropractor Bank Teller Real Estate Agent Insurance Agent Nurse Receptionist Musician Pastor/Minister Actor/ Actress Police Chief Carpenter EMT College Professor Podiatrist Plant Foreman Salesperson Airline Pilot Politician Teacher Social Worker Financial Planner Graphic Artist

Was in your Fraternity/Sorority Is on your Christmas card List Did you go to high school with Is the life of the party Is considered a leader Is looking for a new profession Is on your Facebook page Is dissatisfied with their current career Is a Cqnsultant or Trainer Was in your wedding party Is in a high profile job Runs a local deli Runs a local bagel shop or coffee shop Do you play cards with Are your college friends Is active in your church Is a prominent business owner Do you respect a great deal Are your parents' friends Recently had children Already takes nutritional supplements Has influence with others

Veterinarian Dancer Lab Technician Telephone Repair Surgeon Architect Company Executive Secretary Radio Announcer Anesthesiologist Contractor Electrician Office Manager T.V. Reporter Plumber Restaurant Owner Journalist Photographer Artist Working Student

Is from your old job Teaches your children Is a fashion model Are your golf partners Has a booming business Is in a new job Wants more out of life Has a very stressful job Is from civic activities Is President of PTA Rides to work with you Edits a newspaper Is a friend of the family Is health conscious Exercises frequently Hikes or rock climbs Jogs Skis (water or snow) Often seems tired Wants to lose weight Is active in local politics

App. 1581


- ~

I CODE NAME PHONE EMAIL

- -

'


App. 1582


.- - I

CODE NAME PHONE EMAIL -

.. '


App. 1583


,- -

I CODE NAME PHONE EMAIL 1- -

' '


App. 1584


. . . . . . . . . . . . . ~


Now that you have created your initial Contact List, keep in mind that continually updating and adding to it is very important. You are always meeting new people; therefore, you should be adding new people to your list everyday. In addition, you will think of individuals that you left off your initial list. Therefore, keep your list handy so you can add to it daily!

As you created your list, we coached you NOT to pre-judge. Now, we do want you to prioritize who you contact first.

From the initial Contact List that you created, prioritize the

top 20 people that are having a health challenge:

1 0

2.

3.

4.

5.

6.

7.

8.

9.

10.

11 0

12.

13. t

14.

15.

16.

17 0

18.

19.

20.

App. 1585


From your in itial Contact List, prioritize and write down the top 20 people who are very successful, good at what they do, and real influencers.

These are the people who have a high degree of credibility and influence with people who know

them.

VERY IMPORTANT! List a specific financial need or desire the person has. This will be vety

useful when setting an appointment with them. •.

Name Financial Need or Desire

1. ________________________ __

2. ________________________ _

3. ________________________ __

4. __________________________ _

5. ________________________ __

6. ________________________ __

]. __________________________ _ 8. __________________________ _

9. ________________________ __

10. ____________ _

11.-------------------------

12. _______ _____ _

13. ___________ _

14. ______________________ ___

15. ______________________ ___

16. ____________ _

17. ______________________ ___

18. ____________ _

19. ______________________ ___

20. ____________ _

~ . . . . . . . . . . . . . When you :mplement

Step 3, plus teach and train your team this

importa'lt step, you will never run out of people to

share Vemma w:th, and your

bl.lsiness will continue to grow

and expand!


App. 1586


Step 4: Building Your Business-Leading with Vemma®/ Verve/ and Bod•e Are you ready? It's time for action! The most important thing we can now do is to get you into ACTION and help you achieve some immediate SUCCESS! The scripts that we are going to teach you in this step are simple and effective. They WORK, and they WILL WORK FOR YOU!

First, let us look at why Vemma is growing so quickly:

1. There is tremendous acceptance to the Vemma products. This simply means that people know that they need to supplement their diet, but most do not know what to do!

2. Vemma is "the most complete liquid nutrition program available anywhere!" 3. Verve is "the world's healthiest energy drink!" 4. Bod•e "incorporates the new science of healthy weight loss." 5. It tastes great! 6. It's affordable! 7. It delivers results!

With these points in mind, let's get ready for action:

• • • • • • • • • • • • • ~ WHAT YOU NEED TO KNOW! We want you to remember just three key words that will act as talking points when you are in a conversation with someone:

• SIMPLE • CONVENIENT • COMPLETE

• • • • • • • • • • • • • ~ WHAT YOU NEED TO HAVE! We want you to become tremendously successful! You must make the commitment to have the tools necessary to succeed: • Vemma products- to grow quickly, be certain you have an Affiliate Pack available. • Tools- you need tools for credibility and duplication!

Go to www.myroadmaptosuccess.com and www.vmatools.com and wwW.vemmatoolsstore.com

• ' Clinical Studies- go to www.vemma.com/science • Stories- the results people are enjoying are remarkable!

The common denominator of success - the secret of success of every person who has eve-r been successful - ties in the fact that he or she formed the habit of doing things th.at faltures don't like to do. -Albert E. N. Gray


App. 1587


\ ,

WHAT YOU NEED TO SAY! The following are simple conversations that you can have every day with anyone, at any time, especially when the subject of health comes up!

Vemma® Approach • "Hey, Amy, I know your health is important to you. What are you doing to supplement these • days?"

OR, if you know of a health challenge she is having say, "If there was a natural way to help you with the symptoms of what you are dealing with, what would you say?"

• "The reason that I arn asking is that I arn wrious- what are you doing to avoid and prevent disease?" If you are talking to a younger person, say, "What are you doing to reduce stress and increase energy?"

• "I have to tell you about an 'amazing nutritional discovery' called Vemma!"

Most will ask: "What's Vemma?"

• "The most complete liquid nutrition program that you can find anywhere-you will not believe how GREAT this tastes-you have to taste it!"

Take out a cold V2, shake it up, and open it for them and allow them to taste it! Be certain that you have the Nature's Miracle brochure or other product literature with you.

Verve Approach

• "Hey, Jackie, isn't it crazy how stressed out and tired people are these days?"

• "What are you doing for yourself to reduce stress and increase energy?"

• "I have to tell you about an amazing energy discovety called Verve!"

Most will ask: "What's Verve?"

• "It's the world's healthiest energy drink - you will not believe how great it tastes -you have to taste it!"

Take out a chilled Verve, open it for them, and let them taste it!

• "Jackie, I know you are going to LOVE what Vemma or Verve will do- if I give this Vemma or Verve to you today, will you PROMISE ME that you'll take it everyday?"

I,

I'

~· ........... .

Important! When you ask

a question, be quiet

and listen to the response!

~· ........... .


App. 1588


. . . . . . . . . . . . . ~


Bod•e Approach • "Lisa- If you've ever said to yourself, no more fad diets ... they don't work, then you've got

to see the new Vemma• Bod•e Transformatioll system. You're going to absolutely love the taste."

• "Dave, if you know anyone who struggles with weight loss, then you've got to taste the new Bod•e shakes. Do you prefer vanilla or chocolate?"

• "I have to tell you about the new Bod•e transformation system. It's the simplest weight management program that fits into your lifestyle."

Most will ask: "What Is Bod•e?"

• "Bod•e is the new Chis Powell approved, healthy weight solution from Vemma. It won the 2012 People's Choice Stevie Award for Favorite Consumer Product! The plan is easy to follow, it tastes great, and people are getting amazing results!"

• "jenny, let me buy you breakfast. If I give you this Free Shake and DVD by Chris Powell, the TV Celebrity Transformation specialist, will you promise me to try it in the moming and give me your feedback?"

NOTES

II

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1:

I I'

II

App. 1589


Here is another tremendously successful dialogue that you can use:

I. Taste - Let the prospect taste the product.

The conversation begins with "I want to share an incredible product with you!

It tastes great! I want to tell you all about it, but you have to see how great it tastes first!"

Let the prospect taste the product before you go any further.

If they agree it tastes good/great, then you go to Number 2. If they have an adverse reaction to the taste, then let them know that most people love the taste. Tell them the taste is not as important as the benefits of the product. Go to Number 2.

2. Tell them what it is -Tell the prospect what VEMMA e stands for.

Use the Nature's Miracle Brochure or the Vemma Product Brochures to show them the product ingredients. If they have their arms crossed or are standing off from you, they will draw closer to see the tool and be drawn into the conversation. Go to Number 3.

3. Ask them what they are doing to avoid and prevent disease or to reduce stress and increase energy.

If they tell you they are taking pills, tablets, or capsules, let them know that until now, those delivery systems were the best, but now there is Vemma! "The most complete liquid nutritional program that you can find anywhere." Go to Number 4.

4. Tell your story or the story of someone close to you. You must make it personal and not say, "this guy or this girl," but use their names. Connect the prospect to real stories from real people (BY NAME) you know in Vemma. Go to Number 5.

5. Ask the prospect to "try Vemma" and enroll. If they have any objections, then answer the objections and ask them again to "try Vemma." If at any point during the dialogue they ask for price, tell them, "That's the best part - it's

a little over $2.00 a day for the BEST nutritional insurance you can find!"

Conclusion What we want you to know is that this IS SOMETHING THAT YOU CAN DO!

Every day, hundreds of Vemma Affiliates are adding new people to their group

by simply using the simple conversations above!

Try it- it WILL work for you!

~· ...... .

~ . . . . . . . . . . . . .

~ . . . . . . ~ . . . . . .

~· ........... .

~· ........... .


App. 1590


ftc vs. vemma | initial filing

Government & Nonprofit