Last month, the Federal Trade Commission (FTC) and the Washington state attorney general announced a settlement under which Amway Corporation, a multilevel marketing (MLM) company, and affiliated recruiting companies World Wide Group, LLC and Leadership Team Development, Inc., will pay $225 million in consumer redress—the largest monetary relief obtained by the FTC in an MLM case to date.
The case highlights the FTC’s continued focus on alleged deception involving money-making opportunities as well as its partnership with states to obtain monetary relief that the FTC could not otherwise obtain on its own. The injunctive relief serves as notice of what the FTC expects of other MLM companies.
The plaintiffs allege in the complaint that the companies violated Section 5 of the FTC Act and Washington State’s Consumer Protection Act through deceptive earnings and recruiting claims, misrepresenting the services and mentoring available to participants, and encouraging participants to falsify customer sales records. The plaintiffs also allege that the companies engaged in unfair practices by incentivizing participants to purchase products for reasons unrelated to genuine consumer demand.
How Amway’s Multilevel Marketing Model Works
Amway markets health and wellness products through individual affiliate sellers called “Independent Business Owners” (IBOs). IBOs earn “bonuses” based on a points system tied to product purchases: when an IBO or their customer buys Amway products, those purchases generate points that flow upward through the “upline” recruiting chain of IBOs.
Most new IBOs are recruited by members of Amway-authorized training organizations known as “Approved Providers,” which sell training packages, event tickets, audio recordings, and app subscriptions they claim are essential to building a successful Amway business. Codefendants World Wide Group (WWG) and Leadership Team Development (LTD) are two of the largest Approved Providers and are owned by a small group of high-ranking Amway IBOs. Amway reviews WWG and LTD marketing materials and purports to maintain a content standards program to monitor those materials for improper claims.
According to the complaint, few IBOs earn meaningful bonuses from selling products to customers. Instead, plaintiffs allege that the primary revenue stream for IBOs is from recruiting more IBOs into their “downline,” whose product purchases generate points that flow upward through the recruiting chain. Plaintiffs further allege that some direct consumer purchases are actually made through fictitious accounts used to disguise IBO self-funding as genuine sales.
In response to other FTC actions, Amway began requiring IBOs to report that at least 60 percent of their monthly sales were to actual customers. To reach that threshold, however, the plaintiffs contend that Amway, LTD, and WWG encouraged IBOs to use Amway’s “Create a Receipt” tool to submit fake sales reports under family members’ names and burner phone numbers.
The Complaint Alleges Deceptive Earnings Claims and Unfair Practices
The plaintiffs allege that Amway, WWG, and LTD recruit new participants through dramatic and unsupported claims about their potential earnings. IBOs are allegedly told to describe Amway participation as an exclusive or limited opportunity to receive mentorship from individuals who achieved complete financial independence by their 30s.
But in reality, according to the complaint, the vast majority of IBOs never earn a profit and often lose thousands of dollars in the process. Most new IBOs leave Amway within one year, and most IBOs stop purchasing Amway products entirely after they leave the company. According to the complaint, the defendants’ earnings misrepresentations induced prospective recruits to join Amway and incur hundreds or thousands of dollars in expenses despite the limited earnings most IBOs actually received.
The unfairness claim targets the structure and operation of the business more broadly. The complaint alleges that Amway, WWG, and LTD incentivized and encouraged IBOs to pay significant sums to join an Approved Provider, make repeated high-volume product purchases for reasons other than genuine consumer demand, create false business records, and recruit additional individuals willing to do the same—all based on the prospect of financial success that only a small fraction of IBOs achieve.
Inside the $225 Million Amway Settlement
Under the settlement, the defendants agreed to pay approximately $225 million, including $221 million to the FTC for consumer relief and related purposes and $4 million to Washington State. Neither the complaint nor the order explains the statutory authority for the FTC to obtain this relief, but it may be based on a 2021 Notice of Penalty Offenses Concerning Money-Making Opportunities that the FTC sent to the defendants, thereby authorizing the FTC to seek hefty monetary penalties under Section 5(m). The relief may also be based on the amount the AG might have obtained or on a threatened administrative proceeding followed by a Section 19 redress action. Nevertheless, the FTC’s failure to explain the authority for the relief obtained is troubling.
New Requirements for Amway Sales Practices
The order requires significant changes to Amway’s compensation structure and sales practices, including the sales on which compensation is based; training of new participants; how sales are documented; and procedures for investigating and handling sales falsification. In addition, earnings claims must be supported by competent and reliable evidence and accompanied by clear and conspicuous disclosures necessary to prevent deception.
Finally, Amway must maintain a corrective-action program and undergo annual review by an independent third-party auditor, who will evaluate customer sales data, enrollment records, and compensation data. The auditor must report annually to the FTC and Washington and must maintain an independent channel through which participants can anonymously report compliance concerns. For more insights into advertising law as we monitor this growing legal landscape, bookmark the All About Advertising Law blog and subscribe to our monthly newsletter. To learn more about Venable’s Advertising Law services, click here. And listen to the Ad Law Tool Kit Show—a podcast from Venable.
