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The SEC and Multilevel Marketing, 5/12/2004
The FTC later recognized the distinction of “saturation” between legitimate pyramid structured programs and illegal pyramid schemes. In 1979, the FTC determined that the MLM program operated by Amway was neither fraudulent nor illegal. The FTC found that Amway Corporation was essentially structured as a pyramid, not a Ponzi scheme, with an ever increasing downline privity of recruits. Nonetheless, the FTC determined that the plan did not constitute an illegal pyramid because certain Amway rules ensured a focus on retailing merchandise over pyramiding of members. This effort at retailing, the FTC found, meant that the program would never be ‘saturated’ with members sending’ money to each other until there were no further people to join. These "anti-saturation" rules saved Amway from the ambit of the anti-Ponzi and pyramid scheme rules, not the specific structure of the enterprise. So, an Amway-like program that happened to pay participants a small fixed fee for bringing in recruits could constitute a "pyramid" but not a scheme to defraud because saturation will not occur.

Bruce A Craig, an assistant attorney general for the State of Wisconsin Department of Justice has questioned the logic of not considering Amway an illegal pyramid scheme. His comments deserve serious consideration because, during 30 years of service he has prosecuted a significant number of pyramid scheme including the Koscot case. In a letter to Robert Pitofsky, the FTC Chairman who drafted the original Amway opinion, Craig noted that since the Amway decision, “investments in pyramid type offerings have resulted in billions of dollars over the years.” He highlights that “the FTC Amway decision has created a good deal of uncertainty in respect to private and public legal efforts to deal with abuses of pyramid plans” that “will only increase with the onset of marketing over the Internet.”

I certainly agree. Every time I prosecuted a pyramid or Ponzi for the SEC, the first words out of the founder’s mouth were: “I set this up just like Amway.” Craig has urged the FTC to reexamine the aspects of Amway that make it legal because “the premise of ‘multilevel vs. pyramid’ may well represent a distinction without a difference.” I believe Craig is correct when he asks “whether these exculpatory factors can be effectively evaluated in time to prevent losses to the consuming public." In my experience, the fraudsters know that; and that is why, unfortunately, when the SEC Enforcement Division comes in with an asset freeze, the money is long gone.

Quixtar Sued for Alleged Fraud and Racketeering, 16/2/2007
Two former distributors have filed a suit charging that Quixtar is essentially a pyramid scheme and that the company and high-level distributors have defrauded new distributors in several ways . Quixtar is a multilevel marketing (MLM) company founded in 1999 as the successor to Amway in the United States, Canada, and the Caribbean. It is privately owned by the families of Amway founders Rich DeVos and Jay Van Andel through the Alticor holding company, which is also the parent of Amway.

The Federal Trade Commission's policies for determining whether a company is a "legitimate" MLM or a pramind scheme has been based largely on a case the agency brought against Amway in the 1970s . The key consideration is whether new distributors have a genuine opportunty to conduct a retail business or are merely buying the right to recruit other distributors. In 1979, the FTC concluded:

Some promoters posing as direct selling companies have rewarded recruiting itself in 'pyramid' plans, involving 'headhunting' and 'inventory loading.' Recruits earn money by securing further recruits, and there are few product sales to consumers. In order to recruit an effective sales force, Amway encourages its distributors to sponsor new distributors. This is not, however, a pyramid plan. In the Amway system, the incentive to recruit comes from the commission distributors receive on product sales by sponsored distributors in their organizations. But, by several rules, Amway requires that commissions are not paid unless the products are sold to consumers. Distributors must each sell to ten retail customers every month; the distributors must certify that 70% of the products purchased by them during the month have been resold; and inventory loading is further deterred by a rule requiring distributors to buy back the inventory of any of their sponsored distributors leaving the business .

In other words, the FTC ruled that Amway would not be considered a pyramid scheme if the sponsoring distributors:

Class Action. Jeff Pokorny and Larty Blenn on behalf of themselves and those similarly situated vs. Quixtar, Inc., James Ron Puryear Jr., Georgia Lee Puryear, and World Wide Group, LLC, Britt Worldwide L.LC., American Multimedia Inc., Britt Management, Inc, Bill Britt and Peggy Britt. U.S. District Court, Western District of California, Case No. C 07 0201, filed Jan 10, 2007.

Complaint. In the matter of Amway Corporation, Inc., et al. FTC Docket 9023, March 25, 1975.

Final order. In the matter of Amway Corporation, Inc., et al. FTC Docket 9023, May 8, 1979.

MLM Watch, 18/12/2016
Quixtar Sued for Alleged Fraud and Racketeering (posted 2/15/07)

Amway Corporation (1979

and 1986)

Amway: The Untold Story

Amway/Quixtar/Alticor Business Analysis

An Insider's Perspective

Merchants of Deception (free book about alleged Amway/Quixtar fraud)

Ross Institute: Information about Amway, Herbalife, Mannatech, and Trek Alliance

MLM Watch, 16/11/2014
Quixtar Sued for Alleged Fraud and Racketeering

Quixtar Sued for Alleged Fraud and Racketeering (posted 2/15/07)

Amway Corporation (1979

and 1986)

Amway: The Untold Story

Amway/Quixtar/Alticor Business Analysis

An Insider's Perspective

Merchants of Deception (free book about alleged Amway/Quixtar fraud)

Ross Institute: Information about Amway, Herbalife, and Trek Alliance

The Origin of Multilevel Marketing, 13/5/2006
The roots of multilevel marketing are intertwined with those of the Amway Corporation and its Nutrilite product line. The Nutrilite concept is said to have originated about during the early 1930s in the mind of Carl Rehnborg, an American businessman who lived in China from 1917 to 1927. According to Amway publications, this gave Rehnborg "ample opportunity to observe at close range the effects of inadequate diet." He also "became familiar with the nutritional literature of his day." Concluding that a balanced diet was needed for proper bodily function, he began to envision a dietary supplement which could provide people with important nutrients regardless of their eating habits.

Amway's founders, Rich DeVos and Jay Van Andel, were friends who became Nutrilite distributors after high school graduation. They were extremely successful and built a sales organization with over 2,000 distributors.

Fearing that Nutrilite Products might collapse, they formed a new company, the American Way Association, later renamed Amway. They began marketing biodegradable detergent products and other household cleaning products and later diversified the product line to include beauty aids, toiletry, jewelry, furniture, electronic products, and many other items. Gross sales rose steadily from half a million dollars in 1959 to over a billion dollars by the early 1980s.

Publicly Held MLM Companies, 22/3/2014
Amway Asia Pacific. Ltd.

Amway Japan, Ltd.

The Mirage of Multilevel Marketing, 21/1/2008
A recent analysis of Quixtar's reported income figures indicates how poorly most MLM distributors do. In a declaration filed in a suit by two former Quixtar distributors, he concluded:

Many physicians are selling health-related multilevel products to patients in their offices. The companies most involved have included Amway (now doing business as Quixtar), Body Wise, Nu Skin (Interior Design), Rexall, Juice Plus+. Doctors are typically recruited with promises that the extra income will replace income lost to managed care. In December 1997, the American Medical Association Council on Ethical and Judicial Affairs (CEJA) advised against against profiting from the sale of "non-health-related products" to their patients. Although CEJA's policy statement does not mention products sold through multilevel marketing, CEJA's chairman said the statement was triggered by the growing number of physicians who had added an Amway distributorship to their practice.

Both Buyers and Sellers Should Be Wary of Multilevel Marketing, 2/7/2006
MLMs are driven largely by greed. The idea of working hard for a while, building up a substantial down-line sales system, and watching the money roll in, is appealing, but is "too good to be true." Literature of the NuSkin company claimed that distributors could make $5,000 to $10,000 per month, but 98% of all distributors earned an average of $38 a month . Even the well-established Amway company has not been able to deliver on the sweet dream for most of its people. In the mid-1990s, the company had 14,000 employees, over 3 million distributors internationally, and global sales of $7 billion. Yet the average monthly gross income of "active" Amway representatives was less than $90.

Comments on the FTC's Proposed Business Opportunity Rule, 1/7/2006
I wrote the book The Network Marketing Game, which exposed the ethical problems of exploiting and deceiving others for personal gain. While on a speaking tour promoting the book, I got feedback from tax accountants who asked why—with all the promises of MLM promoters of “residual income”—they were not seeing profits reported on tax returns of MLM participants. I decided to interview other tax professionals—almost 300 of them over a period of several years. I also interviewed programmers of tax software and persons involved in seminars for tax professionals. With a total of over two million tax returns represented, a clear picture emerged of who was making money in MLM—the TOPP’s (top of the pyramid promoters), at the expense of huge downlines of participants/victims who lost money. This seemed to confirm the findings of Bruce Craig, an Assistant Attorney General for the state of Wisconsin in the 1970’s. He discovered that net income on tax returns of the top 1% of Amway dealers in Wisconsin was minus $900!

The Notice stated that the FTC staff estimated there were 150 MLM companies. I have personally evaluated over 200 MLM programs out of several hundred that are active, with new ones appearing almost daily. The MLM phenomenon and associated abuse is far greater than regulators have recognized, since much of their data is based on complaints filed. Careful analysis of the financial reports of publicly traded companies, such as Amway, Nu Skin, Herbalife, USANA, and Prepaid Legal, reveal the number of victims and aggregate losses to be far more extensive than official complaints would suggest.

Utah Legislature Passes Pyramid Scheme “Safe Harbor" Amendments, 2/3/2006
Mark Shurtleff received at least $72,000 from DSA (which initiated and lobbied for SB 182) MLM companies directly affected by the bill. The largest single corporate contribution was $50,000 from the MLM company Pre-Paid Legal (PPL), which is currently the subject of a “sweeping investigation” by the Connecticut Attorney General’s office and in recent months was ordered by a jury to pay over $9 million in damages to distributors who charged deception. PPL has also been accused of operating a pyramid scheme and sued by investors and distributors more often than any other MLM in the country. Nu Skin which contributed $5,000, has been fined twice by the FTC for more than $1 million for deception in income and product claims. Alticor, Amway's parent company, is also a major contributor. Amway has been prosecuted and fined by the FTC for price-fixing and deception. A 2004 exposé on NBC Dateline revealed extensive misrepresentation of income claims. A decision by an FTC Administrative Law Judge laid down retail requirements on MLMs that SB 182 seeks to supercede.

FTC's Press Conference about the Herbalife Settlement, 26/7/2016
McCrum: The basis for the industry's existence has been sort of that earlier litigation in the Amway case and the FTC guidance released more than a decade ago. What are the implications for the rest of the industry? Does a clear definition need to be promulgated? And do industry practices more broadly need to change?

Juice Plus: A Critical Look, 25/4/2016
The operation evolved into Nutrilite Products in 1939 and began significant interstate distribution in 1945. In 1959, two highly successful distributors formed a new company that evolved into the multibillion-dollar, international conglomerate now called Amway. Shaklee Corporation, another MLM giant, was founded in 1956 by a retired chiropractor. Since that time, hundreds of other companies and millions of "independent distributors" have joined the fray.

Multilevel Marketing Project, 22/3/2014
During the next few years, as time permits, I will focus on the health-related claims on MLM company web sites and posting my evaluations on MLM Watch. So far we have located official sites for 2Xtreme Performance International, 4Life, Achievers Unlimited, Advantage International, Advocare, AIM, Alive International, All That's Natural, Alliance Technology International, Alpine Industries, American Longevity, AmeriSciences, Amway, Annása, Arbonne International,

Four Lies about MLM, 29/5/2002
The only possible reason I can think of as a basis for the existence of this 20 percent figure is that the founders of Amway, Rich Devos and Jay Van Andel, have a combined net worth in excess of $6 billion. That's 6,000 millionaires right there. Maybe that's where the 20 percent comes from.

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