I knew that Amway had been sued and it had something to do with the Federal Trade Commision. I had no idea that the information put forth in the remainder of this post was out there. A further search into the actual court cases should prove interesting.
I found this on http://www.scoop.co.nz/stories/HL0501/S00074.htm
From The Amway Consumer Fraud Scandal Series
By Evelyn Pringle
Miamisburg, OH
The paperwork involved in the endless stream of lawsuits filed against Amway and its Kingpin distributors over the past 2 decades would probably fill a 10 story office building. The complaints and discovery documents filed in these actions, which Amway has fought so hard to keep hidden, outline 20 years of fraud perpetrated on millions of unwitting and vulnerable recruits all over the world
There have been so many suits filed, that the company's attorneys can't even come up with an exact number. In 1985, Amway Diamond Rick Setzer sued Amway. During the discovery process, in a request for production of documents, Setzer's attorneys asked for:
"Copies of all lawsuits filed against Amway corporation and or Richard DeVos and or Jay VanAndel for the past 10 years."
This was Amway's response, in part:
"The request imposes an undue burden in that the number of lawsuits filed against Amway Corporation and/or Richard DeVos and/or Jay Van Andel for the past ten years represents literally thousands of lawsuits, with the file on each lawsuit varying from several pages to entire rooms filled with documentation." Affidavit in Support of Defendants' Objections to Plaintiffs' First Request For Production of Documents.
Even if “thousands” only means 2000, over 10 years that means 200 law suits were filed each year. That number is astronomical when you consider that the number of distributors who actually go so far as to file a lawsuit is but a small percentage of the actual number of distributors who fall victim to Amway each year.
If people took the time to read the records contained in these lawsuits, they would find a common theme: Amway is a pyramid scheme; the tools business is a pyramid scheme; recruits are lured in by exaggerated income claims and flamboyant displays of wealth; retail selling is ignored in favor of self-consumption of Amway products; distributors and potential distributors are pressured to buy tools and tickets to motivational rallies.
Founder Jay Van Andel's former speechwriter, Don Gregory, described how Amway preys on new recruits. "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same," he said.
Eric Scheibeler is a former Amway insider turned whistleblower and FBI witness who has written a book about his experiences in Amway, entitled Merchants of Deception. (A free advance copy of the book, Merchant's of Deception, may be downloaded for a limited time at www.merchantsofdeception.com).
According to Eric, the 1970 FTC ruling requires that the majority of products going through a MLM must be sold to an end consumer (a non distributor) in order to not be considered an illegal pyramid scheme. This is referred to as the retail sales rule. Yet Eric says that he and his wife were taught to build a business that relied almost entirely on self consumption, which he has since learned is illegal.
A prime example of this excessive sales for self-consumption is still going on today, 30 years after the FTC issued its ruling, is the July, 2004, IRS case against Amway distributors, Kay and Randall Ollett. When testifying, Kay told the court that about 70-75% of their sales were a result of products purchased by her and her husband for their own use. The Olletts purchased almost all of their household products through their distributorship, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products, food items such as health food bars and energy drinks, a water treatment system, and even clothing such as men’s socks, slacks, and sport shirts. The Tax Court ruled against the Olletts and would not allow the couple to claim tax deductions for expenses related to their Amway activity.
Eric also explains how the "tools" business of selling books, tapes, and videos is also an illegal pyramid because it is a closed system and no product is ever sold at retail to a consumer outside the group. Which means recruits unknowingly become involved in not one, but two illegal pyramids, when they join Amway, according to Eric.
The downline distributors are never told that their upline is making as much or more from the sale of tools as they are from the sale of products. The distributors assume that the lifestyles of their upline are attributable to their Amway businesses, and buy more tools hoping to achieve the same success.
So it becomes a never-ending cycle: the more tools the downline distributors buy, the more successful upline distributors appear; which in turn motivates downline distributors to buy more tools. Over 99% of low level distributors eventually quit, or go broke trying to hang on long enough reach a level where they too can get a cut of the tools profits.
In the 1998 New Hampshire case of Lavoie v Yager, Ruby directs alleged that their upline cut them off from the tools profits, and also alleged unfair trade practices, illegal chain distribution scheme, interference with advantageous relations, securities fraud, under the RICO Act. The complaint in this case is unique in that it contains details on the inner working of Kingpin Dexter Yager's system, and it also follows the progression of a distributor through the system.
Another wealth of insider information can be found in the 1998 Morrison v Amway suit. 29 distributors filed a lawsuit and revealed many of Amway's best-kept secrets. The suit alleges that the distributors make the majority of their income selling tools rather than products and that distributors in the downlines are coerced into spending money on tapes and functions by being told that they have no chance of success unless they do. It also alleges that tools profits are used to control and coerce downline distributors, and that those who ask questions or refuse to play the game risk having their businesses destroyed
The 1998 Vernon v Amway case seems to substantiate Eric Scheileber's claim that Amway recruits unknowingly become part of 2 illegal schemes when they join Amway. This case sought damages incurred by: fraudulent inducement in causing plaintiffs to participate in an illegal scheme to purchase and sell motivational tapes and tickets to Amway events; and conspiracy to fraudulently induce them to enter into an agreement to execute what they believed to be an Amway Sales Plan.
