The Federal Trade Commission is taking what it calls “historic action” against Amway, one of the oldest and largest multilevel marketing companies in the United States. And yet, you’d be hard pressed to find any news stories about this. All you’ll get is the little press release from the FTC and a couple of minor stories at some news stations. You’d think if this was so historic, it would be all over the place!
And you certainly won’t be hearing the FTC call Amway a pyramid scheme!
Amway has agreed to pay $225 million to settle allegations that they deceived people about the money they could make, pressured distributors to buy products they didn’t want, and encouraged distributors to report sales that never happened. Robert FitzPatrick of Pyramid Scheme Alert points out the fact that this is peanuts to Amway. The company’s annual revenue in the United States is between $800 million and $1 billion, each and every year. And the U.S. market makes up only 12% of the total company. This little settlement is but a drop in the bucket.
So will this “historic” settlement make any difference in the world of multi-level marketing? Of course not!
The allegations against Amway (and two affiliated companies, World Wide Group, LLC and Leadership Team Development Inc.) sound familiar to anyone who has followed MLM for any length of time. According to the FTC, recruits were told they could make more than $40,000 a year, replace the income from their jobs, or retire early. In reality, most people who joined Amway through WWG or LTD after 2020 spent more on Amway products and training than they received from Amway. (This is how it always is. 99% of people lose money in MLM.)
The FTC also says recruits were pressured to buy a certain amount of products every month whether they could sell those products or even wanted them for themselves. The focus was then on recruiting other people who would do the same thing. Amway and its affiliates allegedly went so far as to teach distributors to report products as sold when they hadn’t actually been sold, creating the appearance of retail demand that didn’t exist.
That last allegation is especially interesting because Amway has played an enormous role in how MLMs are regulated in the United States. Back in 1979, the FTC ruled that Amway was not an illegal pyramid scheme. One of the important reasons was that Amway supposedly had safeguards that discouraged distributors from loading up on inventory simply to qualify for bonuses. Among them was the famous “70% rule,” which required distributors to sell at wholesale or retail at least 70% of the products they purchased during the month to qualify for certain bonuses. Way back then, the FTC found that Amway enforced its rules and that the rules helped prevent inventory loading.
47 years later, what does the FTC say? Under the proposed settlement, Amway distributors will have to sell to other people at least 70% of the products they purchase each month. Distributors must promptly report customer sales and the actual prices paid, and Amway must send receipts directly to the customers. Distributors who fake sales or teach others to do it must be terminated. An independent auditor will regularly review Amway’s sales records. Compensation will also be substantially reduced when recruited distributors buy products but don’t resell them.
Amway disagrees with the government’s allegations and specifically disputes the suggestion that its sales data is inaccurate. The company says the settlement allows it to move forward, however, and maintains that its business model remains strong.
The government rarely pursues MLMs. These companies face little in the way of true enforcement of regulations. On the rare occasion that a case like this comes up, the MLM pays money, agrees to restrictions, and the rest of the MLM industry keeps going. Another company eventually gets investigated, another enforcement action is announced, and everyone acts surprised to learn that most distributors aren’t making the money they thought they would make. (My anti-MLM friends and I have been saying this for decades, but is anyone listening?)
It has never been difficult to understand the problem with MLM, it’s just that these companies are so effective at their smoke and mirrors. The problem is that the financial opportunity is sold with stories about successful distributors, financial freedom, quitting your job, and building a business. Yet the overwhelming majority of participants don’t achieve anything resembling the lifestyle used to promote the opportunity. In fact, almost everyone loses money!
Imagine you were being recruited into an MLM and the recruiter told you that you’re going to invest $500 to $5,000 into it, and there would be a 99% chance that you would lose all of your money. Would you still sign up? Of course not!
Silly settlements like this do nothing to fix the MLM problem. Sure, the $225 million settlement sounds big. It’s the biggest the FTC has ever gotten! And some distributors will receive a little money back. But a settlement like this and the same old requirement to pretend that products are actually sold to consumers…. it’s all a waste of time. Nothing will truly change and consumers are still not being protected from these predatory schemes that the FTC pretends are businesses.
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