Amway Corp., one of the country’s largest multi-level marketing companies, and two of its affiliates will pay $225 million to resolve allegations by the Federal Trade Commission, or FTC, and Washington state that the companies use unfair and deceptive tactics to recruit members to Amway’s direct selling and multi-level marketing program.
This is the largest amount of money obtained in an FTC action against a multi-level marketing company. Nearly all of it will be used to provide relief to consumers harmed by the deceptive tactics of Amway and its affiliates, Spokane Valley-based World Wide Group and North Carolina-based Leadership Team Development.
Amway pitches itself as a money-making opportunity for people to become “Independent Business Owners” selling premium-priced consumer products, including nutritional supplements, energy drinks, makeup, and skincare products. In their lawsuit, the FTC and Washington allege that Amway and its affiliates use a variety of deceptive and unfair tactics, including misrepresentations about likely earnings, to pressure participants to buy Amway products they don’t want and that end up being difficult to sell.
“Amway and its affiliates profited by taking advantage of regular people’s hopes and ambitions,” Washington Attorney General Nick Brown said in a statement.
The lawsuit also alleges Amway and its affiliates deceptively instruct participants to falsely report sales that didn’t occur to create the appearance that the Amway opportunity revolves around selling products rather than simply attempting to recruit new people into the operation to purchase Amway products.
Promised earnings
World Wide Group and Leadership Team Development are two of Amway’s largest affiliates that recruit people to join Amway with claims they can earn more than $40,000 a year. The lawsuit alleges only about 1 percent earn that much and most who joined Amway’s affiliates after 2020 spent more on Amway products and training than they received in income from the company.
Both affiliates sell training materials and services to participants that cost thousands of dollars a year and are marketed as being essential to participants’ success in Amway. However, these trainings instruct participants to buy a set amount of products each month, regardless of whether they can resell them or want them for themselves, and focus their time on trying to recruit others to duplicate that behavior, according to the lawsuit.
As a result, Amway and its affiliates allegedly set up an unfair and unlawful system to pressure participants to purchase Amway products for reasons other than genuine demand for them. The prices of Amway products are high, making it more difficult to sell to the general public. For example, until recently, Amway sold a case of 24 bottles of water, 16.9 oz., for $52, according to the lawsuit.
In addition to imposing a $225 million judgment, the proposed order requires changes to the companies’ practices, including:
- Participants will be required to resell at least 70 percent of the products they purchase from Amway each month to avoid stockpiling inventory, which artificially inflates Amway’s sales.
- Recruiters will receive reduced compensation if the people they recruit buy products but don’t resell them.
- Participants need to report all of their customer sales promptly, including the actual sales price, and Amway will send receipts to all participants’ customers.
- Amway is required to terminate participants who fake sales or teach others to do it.
- Amway’s sales records will be audited regularly by an independent outside auditor.
- Participants will be required to receive training on these rules and others prior to being allowed to recruit.
- Amway is to require its affiliates, including the two named in the complaint, to not charge new recruits for any training or services during their first year.
Photo: WMrapids
Headquarters of Amway in Ada, Mich.
