The settlement is reportedly the largest monetary recovery obtained in an FTC action against a multilevel marketing company.
Amway gives individuals, referred to as Independent Business Owners (IBOs), the chance to own and operate their own business selling a variety of consumer products, ranging from nutritional supplements to energy drinks to health and beauty products.
According to the complaint, Amway and two of its affiliates, World Wide Group, L.L.C. (WWG) and Leadership Team Development Inc. (LTD), are alleged to use a variety of deceptive and unfair tactics, including misrepresentations about likely earnings.
The complaint also alleged that Amway, WWG and LTD deceptively instructed IBOs to falsely report selling products that they, in fact, did not sell, to create the appearance that the Amway opportunity revolves around selling products rather than attempting to recruit new IBOs to purchase Amway products.
“Amway and its affiliates misled prospective workers with false earnings claims and then pressured them to buy Amway products they were unlikely to be able to sell,” stated Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection, in a press release. “[This] action makes clear that the FTC will not tolerate any company deceiving workers—whether through deceptive earnings claims or by promoting reports of false sales to make direct selling or multilevel marketing opportunities look appealing to consumers.”
The two affiliates were also accused of selling training materials to IBOs that were allegedly marketed as being essential for success. However, according to the FTC and Washington’s joint complaint, the trainings were claimed to instruct IBOs to buy a set quantity of products every month regardless of whether they could be resold, and to focus their time on trying to recruit others to duplicate that behavior.
“Compromise”
In a statement on its website, Amway said it fundamentally disagrees with the FTC’s and the state of Washington’s characterization of its business.
“As part of their contract with Amway, all Independent Business Owners (IBOs) must follow robust standards of conduct. Amway rejects the agencies’ assertion that the company’s sales data is not accurate. In fact, Amway and the FTC have agreed to rely on our sales data to continue tracking and substantiating IBO customer sales,” stated the company.
“This settlement, like all settlements, required compromise. Resolution positions us to move forward and focus our energy where it belongs: on our customers, IBOs and employees.”
Details of the settlement
The proposed order settling the FTC and Washington’s allegations imposes a $225 million judgment, the majority of which will go to IBOs recruited by WWG and LTD who lost money.
In addition, Amway, WWG and LTD agreed to change their practices, including: IBOs will be required to sell to others at least 70% of the products they purchase from Amway each month; reduced compensation for recruiters if the IBOs they recruit buy products but do not resell them; terminate IBOs who fake sales or teach others to do so; required training for IBOs on these new rules; and regular auditing of Amway’s sales records by an independent outside auditor.
More details can be found HERE.
