I used to write A LOT on MLM. It may literally be a million words when you count my responses to comments where MLM distributors claimed that their business was legal and not a scam.
I got sued by several MLM companies for defamation, which was their way of burdening me with legal fees and nuisance work. Then they could say, “We can make this all go away if you take down your article.” As my kids would say, “R.I.P., Freedom of the Press.” The legal system for white-collar crime typically only works for those who have the money. One law firm’s website even explicitly mentioned this service as the best way to manage reputation in Google. They were careful to mention false claims, but in practice they were operating in the post-truth era, where inconvenient truths become “fake news.” As many told me, MLM companies set aside a budget for this kind of stuff – “it’s the cost of doing business.”
(Tip: If you are in a “business” that relies on silencing critics, it’s probably a scam. At a minimum, it’s not a good business to be in.)
I won some lawsuits on the grounds that they were Strategic lawsuits against public participation or SLAPPs. (John Oliver did a tremendous deep dive into SLAPPs that is well worth watching.) Others, I settled when it appeared that the cost of litigation would be too much.
I’m so removed that I was surprised to read Jonathan from My Money Blog’s post about Amway MLM $225M FTC Deceptive Business Practices Settlement Lessons. That’s the biggest MLM settlement ever – more than Herbalife’s $200 Million Settlement. I wrote about how amazing that whole story was. It was amazing enough that it became a documentary, Betting on Zero.
That’s too much of an introduction, so let’s get to:
Amway’s $225 Million Settlement with the FTC
When you pay money as part of a settlement, it’s a tacit admission that you did something wrong. No company’s business plan is “Give the FTC money.” A person or a company may decide that the lawsuit may cost hundreds of thousands in legal fees and offer to give up a small percentage to make it go away. That’s smart business – it’s like buying insurance. However, it would be extraordinary if the legal fees for Amway’s defense approached $225 million. At a $1000/hour (most lawyers would be half), it is 250,000 hours. That would be 120 lawyers working full time all year, with no vacation. It would be cheaper to buy a law firm.
The fact that Amway paid this money in a settlement tells me that Amway probably thought, “They caught us. We’re guilty. Let’s negotiate the best terms possible.” If paying hundreds of millions of dollars and significantly changing your business (this was part of the settlement) are your “good terms”, then what was the alternative?
What did Amway allegedly do wrong? Here’s a short list the FTC’s press release:
The complaint also alleges that Amway, WWG and LTD deceive consumers in ways that make it difficult for IBOs to make informed decisions, including:
– Falsely telling IBOs that they are likely to earn substantial income, exceeding $40,000 a year, or that they are likely to earn income that will replace their full-time job or allow them to retire early, when most IBOs who joined WWG or LTD after 2020 spent more money on Amway products and training than they received from Amway
– Falsely telling IBOs that they are likely to recruit multiple IBOs into the business to help them succeed, when in fact most consumers who joined Amway and WWG or LTD did not recruit multiple participants
– Falsely telling IBOs that they are joining an exclusive opportunity in which they will get access to mentoring from highly successful leaders, when in fact the Amway opportunity is open to any prospective IBO who follows the instructions of their recruiter, and the “mentors” IBOs work with are typically not highly successful
Those are all important, but the most important detail to me was this in the same press release:
“WWG and LTD are two of Amway’s largest ‘approved provider’ groups that recruit individuals to join Amway as IBOs. Both WWG and LTD sell training materials and services to IBOs that are allegedly marketed as being essential to becoming a successful Amway IBO. However, in these trainings, these groups instruct IBOs to buy a set amount of products each month regardless of whether the IBOs can resell them or want them for themselves and to focus their time on trying to recruit others to duplicate that behavior, according to the FTC and Washington’s joint complaint. As a result, according to the complaint, Amway, together with WWG and LTD, set up an unfair and unlawful system to pressure IBOs to purchase Amway products for reasons other than genuine demand for them.”
There’s a key red flag in any MLM/pyramid scheme: “these groups instruct IBOs to buy a set amount of products each month regardless of whether the IBOs can resell them”. This is particularly important to Amway, because in 1979 they were deemed not to be a pyramid because they did three things:
- Sold 70% of the product to actual retail customers
- Each distributor made retail sales to at least 10 different retail customers
- The company bought back product from leaving distributors that wasn’t sold
In the world of MLM, these became known as safeguards, as they showed that the MLM was promoting retail sales. It’s important to note that the court never enshrined these three things as being the law of the land. Overall though, it was at least very good guidance in a world where guidance has been largely missing from regulators.
Having known about the 1979 case and the emphasis on selling to retailing customers, it caught my attention that “Amway’s largest ‘approved provider’ groups” didn’t think it was that important to sell the product at retail.
This was shocking to me because of all the MLMs in the world, Amway should very well know it and enforce it.
I asked ChatGPT to come up with a comparison, and this is a small table that it gave me:
It then offered, “I can dig into the historical record from the 1979 proceedings through the 2026 complaint and see whether there is evidence establishing when Amway’s actual practices diverged from the factual assumptions underlying the original FTC decision.”
Why yes, thank you, ChatGPT, it would be helpful to try to pin down when things went wrong. I gave it permission to go ahead.
It responded, “There is evidence of practices resembling some of the 2026 concerns appearing only a few years after the 1979 decision… During later litigation between Amway and Procter & Gamble, discovery uncovered internal Amway documents from 1982 and 1983… The court characterized the internal documents as showing that senior Amway executives had concerns about conduct potentially becoming an illegal pyramid..”
It then cited this from Amway co-founder Richard DeVos that sounded the alarm that distributors need to be selling to customers.
Finally, it pointed to another legal case, Schaffer v. Talerico in 1983 where the judge seemed to declare that “the persons within the pyramid become the actual sellers and consumers of the product” and thus “it is unnecessary to sell to others”, which means “transactions between plaintiffs and defendants amount to a pyramid scheme.” In that last case, it didn’t make Amway a pyramid scheme because it was a dispute amongst two Amway IBOs (Independent Business Owners).
I’m leaning on AI to do a lot of work. We know that it can hallucinate and get things wrong. It has got important law citations in many headline cases. That’s why I provide you with the link it used and allow you to do the research and come to your own conclusion.
I was amazed that the safeguards only seemed to last four years (1979-1983) – if I’m being generous. It appears to me that the FTC is just now catching up on the problems that existed 43 years ago. By this time, a pyramid scheme could have rapidly made the people at the top rich and the people at the bottom poor. It is worth noting that co-founder Richard DeVos was the 60th richest person in the US in 2012.
The repercussions of that have impacted many, many American lives outside of Amway. Richard DeVos’s wife, Betsy DeVos, was the United States Secretary of Education in Trump’s first term.
Final Thoughts
I’ve said for a very long time that almost all MLMs seem to be a pyramid scheme. I researched dozens on this website and almost all of them are out of business now. There may be some good ones. My wife bought something from a friend doing Pampered Chef because she was down on her luck lately. That seems like the type of business that sells retail products. When you see a consumable product, though, I think it’s pretty common to say, “we can just consume it ourselves and don’t need to sell it.”
I am happy with the FTC’s action (finally), but I implore regulators to be more proactive rather than waiting dozens of years. I make this genuine plea to all regulators, whether they are legislative, executive, or judicial bodies, because this is a matter of public concern pursuant to R.I. Gen. Laws § 9-33-2.
