Amway to Pay $225mln to Settle US Multilevel Marketing Case

Amway and two of its affiliates have agreed to pay 225 million US dollars to settle allegations by US regulators that they used deceptive earnings claims and unfair sales practices to recruit people into the company’s multilevel marketing business.

The settlement with the US Federal Trade Commission and the state of Washington represents the largest monetary recovery obtained by the FTC in an enforcement action against a multilevel marketing company. Nearly all of the payment will be distributed as compensation to Independent Business Owners who regulators allege were harmed by the practices.

The case centres on Amway’s recruitment and sales model, under which Independent Business Owners, or IBOs, sell consumer products ranging from nutritional supplements and energy drinks to health and beauty products.

The FTC and Washington alleged that Amway, World Wide Group and Leadership Team Development pressured IBOs to purchase products they did not want or were unlikely to resell, while making misleading claims about the income they could earn from the business.

According to the complaint, some recruits were told they could earn more than 40,000 US dollars a year, replace their full-time employment or retire early. Regulators said most IBOs who joined Amway through WWG or LTD after 2020 spent more on Amway products and training than they received from Amway.

The authorities also alleged that IBOs were instructed to report sales that had not actually occurred, creating the appearance that the business was driven by retail sales rather than recruitment and purchases by new members.

WWG and LTD, two of Amway’s largest approved provider groups, sell training materials and services to IBOs. Regulators alleged that their training encouraged recruits to purchase a set amount of Amway products each month regardless of whether they could resell them or wanted the products for personal use.

Under the proposed settlement, IBOs would have to sell at least 70 percent of the Amway products they purchase each month to other customers. Recruiters would receive substantially reduced compensation when recruits buy products without reselling them.

IBOs would also be required to report customer sales promptly, including the actual selling price, while Amway would send receipts directly to customers. The company would be required to terminate IBOs who falsify sales or instruct others to do so.

The settlement would further require Amway’s sales records to undergo regular independent audits. New IBOs would have to complete training on the rules before they could recruit others, while approved providers such as WWG and LTD would be prohibited from charging new IBOs for training or services during their first year.

“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,” said Christopher Mufarrige, director of the FTC’s Bureau of Consumer Protection.

Source: FSX Business News