FTC Orders $250 Million in Redress From Amway and Two Partner Organizations

A record monetary judgment

The U.S. Federal Trade Commission (FTC) has imposed a $250 million penalty on multilevel marketing firm Amway Corp and two partner companies, World Wide Group LLC (WWG) and Leadership Team Development Inc. (LTD). The action followed a lawsuit brought by the state of Washington against the company over unfair and deceptive business practices.

According to the FTC, the financial compensation secured in the case is the largest monetary recovery ever achieved in an FTC action against a multilevel marketing company. The agency said that almost the entire amount collected will be directed to compensating consumers harmed by Amway's alleged deceptive practices.

Amway is one of the largest multilevel marketing companies in the United States. It offers a business opportunity in which so-called independent business owners (IBOs) can sell consumer goods ranging from dietary supplements and energy drinks to health and beauty products.

The allegations

The FTC and the state of Washington alleged that Amway and its partners used earnings promises that lacked any real basis to pressure the IBOs who joined them into buying Amway products that they did not want and that were difficult to resell.

The complaint also alleged that Amway and its partners instructed IBOs to falsely report product sales that had not actually taken place, in order to create the appearance that the business opportunity was about selling products rather than recruiting new IBOs.

Christopher Mufarrige, director of the FTC's Bureau of Consumer Protection, said Amway and its partners misled prospective workers with false earnings claims and then pressured them into purchasing products they were unlikely to be able to sell. He added that the FTC will not tolerate any company deceiving workers with false earnings claims or by encouraging false sales reporting.

The role of the approved providers

WWG and LTD are described as Amway's two largest so-called approved providers, recruiting new members into the ranks of Amway's IBOs. The two companies sell training materials and services to IBOs, which, according to the allegations, are presented as essential to becoming a successful IBO.

The complaint states that in these training sessions IBOs were instructed to purchase a fixed quantity of product every month, regardless of whether they could sell it or wanted it, and to devote their time instead to recruiting others to repeat the same pattern. The FTC said this system unfairly forced IBOs to buy Amway products irrespective of actual demand.

Required changes and next steps

Alongside the substantial monetary judgment, the FTC also ordered Amway and its partners to change their practices. The companies must not force IBOs to buy products they cannot sell, must encourage transparency, and must reduce the commissions paid to recruiters in cases where IBOs are unable to sell the products they have purchased.

The penalty requires approval by a federal judge before it becomes final.