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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 Kelly3

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 sbosley@hamline.edu 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) 

% of participants at base +2 levels above (bottom 3 levels) 

% of participants at base +3 levels above (bottom 4 levels) 

% of participants at base +4 levels above (bottom 5 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)

App. 1561

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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

App. 1562

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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–AdditionalCompensationScenariosTableE1:13‐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 

Jane’s Cumulative Net Profit 

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. 

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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 

Jane’s Cumulative Net Profit 

0  ‐  ‐  ‐  ‐ ‐ $0 $0 $0  $0 $532 ‐$532 ‐$5321  3  3  750  750 1 $300 $400 $0  $722 $0 $722 $1902  9  12  2,250  2,250 4 $0 $0 $0  $88 $0 $88 $2783  27  39  6,750  6,750 13 $0 $0 $0  $286 $0 $286 $5644  81  120  20,250  20,250 38 56 $0 $0 $0  $836 $150 $686 $1,2505  243  363  60,750  61,110 113 $0 $0 $0  $2,486 $0 $2,486 $3,7366  729  1,092  182,250  183,330 340 $0 $0 $0  $7,480 $0 $7,480 $11,2167  2,187  3,279  546,750  549,990 1,019 $0 $0 $0  $22,418 $0 $22,418 $33,6348  6,561  9,840  1,640,250  1,649,970 3,056 4,528 $0 $0 $1,600  $68,832 $150 $68,682 $102,3169  19,683  29,523  4,920,750  4,950,270 9,167 $0 $0 $0  $201,674 $0 $201,674 $303,99010  59,049  88,572  14,762,250  14,850,810 27,502 $0 $0 $0  $605,044 $0 $605,044 $909,03411  177,147  265,719  44,286,750  44,552,430 82,505 $0 $0 $0  $1,815,110 $0 $1,815,110 $2,724,14412  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 $8,206,80213  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

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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

Case 2:15-cv-01578-JJT Document 13 Filed 08/17/15 Page 116 of 140

[

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

Case 2:15-cv-01578-JJT Document 13 Filed 08/17/15 Page 117 of 140

te

VISUALIZATION"

BE COACHABLE,

A17TITUDE ,

COMMITMENT

STAY PLUGGED IN

I 'DAILY ACTIVITY

................ YOUR VEMMA ACTION PLAN · · · · · · · · · ·

App. 1568

Case 2:15-cv-01578-JJT Document 13 Filed 08/17/15 Page 118 of 140

A Working Plan For Creating Wealth Through the Vemma® Opportunity

Your Persona/ Success Coaches: Tom and Bethany Alkazin

© 2014/March www.myroadmaptosuccess.com All Rights Reserved

App. 1569

Case 2:15-cv-01578-JJT Document 13 Filed 08/17/15 Page 119 of 140

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

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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

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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

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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.

. . . . . . . . . . . . .

6 ROADMAP TO SUCCESS

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

Case 2:15-cv-01578-JJT Document 13 Filed 08/17/15 Page 123 of 140

"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!

ROADMAP TO SUCCESS 7

App. 1574

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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)

8 ROADMAP TO SUCCESS

App. 1575

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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.

ROADMAP TO SUCCESS 9

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............

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.

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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.

ROADMAP TO SUCCESS 11

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............

. . . . . . . . . . . .

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 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

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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

............

ROADMAP TO SUCCESS 13

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. . . . . . . . . . . . .

14 ROADMAP TO SUCCESS

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

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-

I CODE NAME PHONE EMAIL - -

'

ROADMAP TO SUCCESS 15

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.- - I

CODE NAME PHONE EMAIL -

.. '

16 ROADMAP TO SUCCESS

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,- -

I CODE NAME PHONE EMAIL 1- -

' '

ROADMAP TO SUCCESS 17

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. . . . . . . . . . . . .

18 ROADMAP TO SUCCESS

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.

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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!

ROADMAP TO SUCCESS 19

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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

20 ROADMAP TO SUCCESS

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\ ,

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!

........... .

ROADMAP TO SUCCESS 21

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. . . . . . . . . . . . .

22 ROADMAP TO SUCCESS

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

li'

1: I I' II

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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!

...... .

. . . . . . . . . . . . .

. . . . . . . . . . . .

........... .

........... .

ROADMAP TO SUCCESS 23

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