Settlement in Amway Class Action Suit

Amway Class Action Suit SettlementThe following is a summary issued by Robert FitzPatrick and Pyramid Scheme Alert about the historic class action settlement that was just reached with the Amway Corporation, the largest of all multi-level marketing companies.

Three directors and advisors of Pyramid Scheme Alert, including Robert FitzPatrick, served as experts and consultants for the victims in this case.

Amway has agreed to pay victims and cover litigation costs amounting to over $55 million in cash and products. A judicially administered fund will pay refunds to two classes of victims, those who joined and quit within a year, usually paying only initial fees,  and another group of those who stayed in longer and lost much more. Another $50 million will be paid in other costs incurred by Amway to meet the terms of the settlement.

The suit charged that Amway misled consumers with false income claims, sold them overpriced products and marketing materials, and transferred the lost investments of virtually all new recruits to a tiny few at the top, year after year. The suit accused Amway of operating an illegal pyramid scheme and it argued that Amway’s main revenue source is ultimately the salespeople themselves, and that the company has little retail sales and few retail customers. Amway’s real product is a “business opportunity”. Amway’s revenue, the suit charged,  is driven by recruitment of consumers to make investments in its advertised “business opportunity”, not sales to the general public in an open market. It operates as a closed market, dooming, by its “endless chain” design virtually all who join at the bottom, year after year.

In the usual terms of class action settlements, Amway admitted no guilt, however, it has agreed to pay back millions of dollars to consumers, lower product prices, increase the refund period, pay all the attorney fees of the victims and offer free products to victims. Significant changes are also to be made in the “tools” business, which some claim is the main source of revenue to Amway’s top distributors, not commissions from Amway sales. Failing distributors are induced to pay even more money for “tools” (seminars, CDs, books) they are told will help them “succeed.”

Pyramid Scheme Alert’s analysis of Amway payouts shows that more than 99% of all who sign up never earn a profit. When actual costs are factored, including the related  “tools” business, some estimates put the loss rates at 99.9%

Under terms of the settlement, Amway is  restating its “income disclosure” to reflect that the figure offered to consumers is a “gross income” not net, meaning that it is not profit and does not reflect costs. (Amway’s advertised “average income” is also a “mean” average, so it factors the high incomes of the few at the peak of the pyramid, skewing up the “average.”  The mean average can also mislead consumers to think that the “average” participant actually earns a profit,  masking the reality that the vast majority earn nothing or no net profit.)

The lawsuit was filed in 2007 by the firm of Boies, Schiller, Flexner.  Amway delayed settlement with claims that the victims had no right to sue because the Amway contract requires “binding arbitration.” A Federal court ruled that the arbitration process was unenforceable and unfair. “The federal judge said of Amway’s arbitration requirements, “the requirement …is substantively unconscionable, and exceedingly so” and characterized the Amway arbitration  as a “stacked deck” in Amway’s favor.

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Comments (5)

  • Joecool

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    I wonder what Amway apologists will have to say about all of this?

    Reply

  • Ben Shniper

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    When I was out of a job, a “friend” offered me this “opportunity”. I had no idea, when he took me to a meeting, why a computer programming with java experience would be useful as a salesman.

    Soon I found out, it was just a crime of opportunity. We need to let people know what Amway and all the similar Multi-level-Marketing companies are about. They are just a method to exploit and steal from everyone else.

    They need to be heavily regulated, and they need to be forced to follow the law. They will lie and say that you will be a millionaire eventually if you stick with it long enough.

    But at what price to your fellow man?

    Reply

  • David Holdefer

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    My father-in-law got me involved in AMWAY back in 1996 for about 4 years and I am still angry about it. I lost about $15,000 over the 3-4 years. Is there any way that I can recoup these losses through this lawsuit??

    Reply

  • quixtarisacult

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    Pretty much confirms the ‘financial holocaust’ analogy that author David Brear coined to described Amway’s ‘Closed Market Swindle;’ yet this incredible corrupt juggernaut will be allowed to continue operating by authorities in the DOJ and by the so called regulatory bodies. The FTC should hang its head in shame for allowing known corruption to continue. It isn’t as if no one knows about it all? As usual, the changes proposed by the Amscammers are cosmetic and of course they will be able to continue to dupe and recruit the gullible who, like the poor, are always among us. Seemingly, nothing, like the bitter truth, will prevent people from wanting to get rich quick. Again, buyer beware. Suckers are born every day according to the late P.T. Barnum.

    Thanks Tracy for your presence on the the Web. How many potential victims of these fraudsters have smelled the Amway rat by reading your pages? Two thumbs up!

    Reply

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