Amway

Amway
Private
Industry multi-level marketing
Founded November 9, 1959
Founder
Headquarters Ada, Michigan, United States
Area served
 Worldwide
Key people
  • Steve Van Andel (Chairman)
  • Doug DeVos (President)
Products Amway Home, Glister, G&H, Nutrilite, Artistry, AmwayQueen, eSpring, Atmosphere, XS Energy...
Revenue US$ 9.5 billion (2015)[1]
Number of employees
 21,000 (as of 2014)[2]
Parent Alticor
Website www.amwayglobal.com

Amway (short for The "American Way", renamed to Quixtar in 2008)[3] is an American company that uses a multi-level marketing model to sell a variety of products, primarily in the health, beauty, and home care markets.[4][5][6] Amway was founded in 1959 by Jay Van Andel and Richard DeVos. Based in Ada, Michigan, the company and family of companies under Alticor reported sales of $9.5 billion for 2015, the second consecutive year of decline for the company.[1] Its product lines include home care products, personal care products, jewelry, electronics, Nutrilite dietary supplements, water purifiers, air purifiers, insurance, and cosmetics. It has several times been subject to investigation in various countries, by institutions such as the United States Federal Trade Commission (FTC), for alleged pyramid scheme related practices.[7][8][9][10][11]

Amway conducts business through a number of affiliated companies in more than a hundred countries and territories around the world, ranked No. 29 among the largest private companies in the United States by Forbes in 2015 and No. 1 in multi-level marketing by Direct Selling News.[12][13][14]

History

Founding

Amway Japan Head Office
Amway Vietnam (Hồ Chí Minh City)

Jay Van Andel and Rich DeVos, friends since school days, had been business partners in various endeavors including a hamburger stand, air charter service, and a sailing business. In 1949 they were introduced by Neil Maaskant (Van Andel's second cousin) to the Nutrilite Products Corporation. Nutrilite was a California-based direct sales company founded by Carl Rehnborg, developer of the first multivitamin marketed in the United States. In August 1949, after a night-long talk, DeVos and Van Andel signed up to become distributors for Nutrilite food supplements.[15] They sold their first box the next day for $19.50, but lost interest for the next two weeks. Shortly thereafter, at the urging of Maaskant, who had become their sponsor, they traveled to Chicago to attend a Nutrilite seminar. The meeting was at a downtown hotel, with over a hundred people in attendance. After seeing promotional filmstrips and listening to talks by company representatives and successful distributors, they decided to pursue the Nutrilite business opportunity with enthusiasm. They sold their second box of supplements on their return trip to Michigan, and rapidly proceeded to develop their new business further.[15]

In 1949, DeVos and Van Andel had formed Ja-Ri Corporation (abbreviated from their respective first names) for importing wooden goods from South American countries. After their trip to the Nutrilite seminar, they dropped this business and Ja-Ri became their Nutrilite distributorship.[16] In addition to profits on each product sold, Nutrilite also offered commission on the sales of products by new distributors introduced to the company by existing distributors—a system today known as multi-level marketing or network marketing. By 1958, DeVos and Van Andel had built an organization of over 5,000 distributors. However, following concerns about the stability of Nutrilite, in April 1959 they and some of their top distributors formed The American Way Association to represent the distributors and look for additional products to market.[17]

Their first product was called Frisk, a concentrated organic cleaner developed by a scientist in Ohio. DeVos and Van Andel bought the rights to manufacture and distribute Frisk, and later changed the name to LOC (Liquid Organic Cleaner).[18] They subsequently formed Amway Sales Corporation to procure and inventory products and to handle the sales and marketing plan, and Amway Services Corporation to handle insurance and other benefits for distributors (Amway being an abbreviation of "American Way").[19] In 1960 they purchased a 50% share in Atco Manufacturing Company in Detroit, the original manufacturers of LOC, and changed its name to Amway Manufacturing Corporation.[20] In 1964 the Amway Sales Corporation, Amway Services Corporation, and Amway Manufacturing Corporation merged to form a single entity, Amway Corporation.[21] Amway bought control of Nutrilite in 1972 and full ownership in 1994.[22]

International expansion

Amway expanded overseas to Australia in 1971, to Europe in 1973, to parts of Asia in 1974, to Japan in 1979, to Latin America in 1985, to Thailand in 1987, to China in 1995, to Africa in 1997, to India and Scandinavia in 1998, to Ukraine in 2003, to Russia in 2005, and to Vietnam in 2006.

Quixtar

Main article: Amway Global

In 1999 the founders of the Amway corporation established a new holding company, named Alticor, and launched three new companies: a sister (and separate) Internet-focused company named Quixtar, Access Business Group, and Pyxis Innovations. Pyxis, later replaced by Fulton Innovation, pursued research and development and Access Business Group handled manufacturing and logistics for Amway, Quixtar, and third-party clients.[23]

The main difference was that all "Independent Business Owners" (IBO) could order directly from Amway on the Internet, rather than from their upline "direct distributor", and have products shipped directly to their home. The Amway name continued being used in the rest of the world. After virtually all Amway distributors in North America switched to Quixtar, Alticor elected to close Amway North America after 2001. In June 2007 it was announced that the Quixtar brand would be phased out over an 18- to 24-month period in favor of a unified Amway brand (Amway Global) worldwide.

In 2006, Quixtar published The Quixtar Independent Business Owner Compensation Plan, in which the company reported that the average monthly gross income for "Active" IBOs was $115.[24]

Global markets

According to the Amway website, as of 2011 the company operates in over 100 countries and territories, organized into regional markets: the Americas, Europe, greater China, Japan and Korea, and SE Asia/Australia. The top 10 markets for Amway in 2015 were China, South Korea, United States, Japan, Thailand, Russia, Taiwan, Malaysia, India and Ukraine.[1]

In 2008, Alticor announced that two-thirds of the company's 58 markets reported sales increases, including strong growth in the China, Russia, Ukraine and India markets.[25]

Amway Australia

Amway China

Amway grew quickly in China from its market launch in 1995. In 1998, after abuses of illegal pyramid schemes led to riots, the Chinese government enacted a ban on all direct selling companies, including Amway.[26] After the negotiations, some companies like Amway, Avon, and Mary Kay continued to operate through a network of retail stores promoted by an independent sales force.[27] China introduced new direct selling laws in December 2005, and in December 2006 Amway was one of the first companies to receive a license to resume direct sales. However, the law forbids teachers, doctors, and civil servants from becoming direct sales agents for the company and, unlike in the United States, salespeople in China are ineligible to receive commissions from sales made by the distributors they recruit.

In 2006, Amway China had a reported 180,000 sales representatives, 140 stores, and $2 billion in annual sales.[28] In 2007 Amway Greater China and South-east Asia Chief Executive Eva Cheng was ranked No.88 by Forbes magazine in its list of the World's Most Powerful Women.[29] In 2008, China was Amway's largest market, reporting 28% growth and sales of 17 billion yuan(US$2.5 billion).[30] According to a report in Bloomberg Businessweek in April 2010, Amway had 237 retail shops in China, 160,000 direct sales agents, and $3 billion in revenue.[31]

Brands

Amway's product line grew from LOC, with the laundry detergent SA8 added in 1960, and later the hair care product Satinique (1965) and the cosmetics line Artistry (1968). Today Amway manufactures over 450 products, with manufacturing facilities in China, India and the United States, as well as Nutrilite organic farms in Brazil, Mexico and the United States (California and Washington State). Amway brands include Artistry, Atmosphere, Body Blends, Bodykey, Body Works, Clear Now, eSpring, Glister (brand)|Glister, iCook, Legacy of Clean, Nutrilite, Peter Island, Perfect Empowered Drinking Water, Personal Accents, Ribbon, Satinique, Artistry Men and XS.

In 2015, the vitamins and weight management products accounted for 46 percent of Alticor's sales. Beauty and personal care products represented 25 percent of sales while durable products, such as eSpring water treatment systems and Atmosphere air treatment systems, represented 16 percent of sales. Home care products generated 7 percent of sales.[1]

According to Euromonitor International, Amway sells more products with a satisfaction guarantee than any other direct seller.[32]

Household cleaners

Amway is best known in North America for its original multi-purpose cleaning product LOC, SA8 laundry detergent, and Dish Drops dishwashing liquid. In the January 2007 issue of Consumer Reports, SA8 with Bioquest was rated the best-performing laundry detergent, scoring 99 out of a possible 100 points.[33] Consumer Reports did, however, criticize SA8's pricing, a situation which was disputed by Amway.[34] Consumer Reports conducted blind testing of detergents in 2010 and ranked versions of Amway's Legacy of Clean detergents 9th and 18th of 20 detergents tested. Consumer Reports program manager Pat Slaven recommended against buying the products because consumers can "go to the grocery store and get something that performs a whole lot better for a whole lot less money".[35][36]

Health and beauty

Amway's health and beauty brands include Artistry, Satinique, Hymm, Body Series, Glister, Moiskin (South America),[37] Nutrilite, Nutriway (Scandinavia and Australia/New Zealand), Attitude (India), eSpring, Atmosphere and iCook as well as XL and XS Energy drinks. Other Amway brands that were discontinued or replaced include: Tolsom, Eddie Funkhouser New York, or beautycycle (Eastern Europe).

Artistry

Main article: Artistry (cosmetics)

Amway's Artistry products include skin care, cosmetics, and anti-aging creams and serums. In 2011, Artistry brand reached sales of $2.8 billion.[38] According to Euromonitor International, the Artistry brand was among the world's top five, largest selling, premium skincare brands, and among world's top ten, largest selling, premium cosmetic brands in 2014-2015.[32]

Nutrilite

Main article: Nutrilite

Amway's largest selling brand is the Nutrilite range of health supplements (marketed as Nutriway in some countries), and in 2008 Nutrilite sales exceeded $3 billion globally.[39] In 2001, five Nutrilite products were the first dietary supplements to be certified by NSF International.[40] In 2006, 2007, 2008, and 2009 in the nutrient and health food category, Nutrilite won "Platinum" and "Gold" awards in Malaysia, China, Taiwan, Thailand, and Asia overall in the Reader's Digest "Trusted Brands of Asia" survey.[41] In 2008 Nutrilite scientists, in partnership with Alticor subsidiary Interleukin Genetics won the 12th John M. Kinney Award for Nutrition and Metabolism for their research into the interaction between nutrition and genetics.[42]

In 2011, Nutrilite brand of vitamins and dietary supplements led Amway's sales, totaling almost $4.7 billion.[38] According to Euromonitor International, in 2014, Nutrilite was the world's No. 1 selling vitamins and dietary supplements brand.[32] In 2015, it was reported that according to Euromonitor International, Amway was the largest vitamin and dietary supplement vendor in China, with 11% of a market that generated 100 billion yuan ($15.6 billion) in annual sales.[43] In 2015, it was reported that according to China Confidential consumer brands survey, Amway Nutrilite was the most popular vitamin and dietary supplement brand in China.[44]

In January 2009, Amway announced a voluntary recall of Nutrilite and XS Energy Bars after learning that they had possibly been manufactured with Salmonella-contaminated ingredients from Peanut Corporation of America. The company indicated that it had not received any reports of illness in connection with the products.[45]

In 2012, the Center for Science in the Public Interest (CSPI), accused Amway of making unsubstantiated and illegal claims about Nutrilite Fruits & Vegetables 2GO Twist Tubes and threatened to launch a class action lawsuit against the company unless it took remedial action.[46][47] Amway countered that the claims made about the products were properly substantiated and that they did not plan to change the product's labeling but nevertheless would review the statements that CSPI has questioned.[48] CSPI later reported that Amway had agreed to changing product labels by the end of 2014.[49]

eSpring

Amway's eSpring water filter was introduced in 2000. According to Amway, it was the first system to combine a carbon block filter and ultraviolet light with electronic-monitoring technology in the filter cartridge and it became the first home system to achieve certification for ANSI/NSF Standards 42, 53, and 55.[50][51] According to Amway, eSpring was the first water treatment system to receive certification for all fifteen NSF/ANSI 401 contaminants which includes pharmaceuticals, pesticides and herbicides.[50][52] The company also claims that, in addition to these 15 contaminants, eSpring is certified for more than 145 potential contaminants, including lead and mercury.[50]

eSpring was the first commercial product which employed Fulton Innovation's eCoupled wireless power induction technology.[53] In December 2006, Amway sister company, Fulton Innovations, announced that it would introduce eCoupled technology in other consumer electronic products at the 2007 Consumer Electronics Show.[54] Companies licensing this technology include Visteon, Herman Miller, Motorola and Mobility Electronics.[55] Fulton was a founding member of the Wireless Power Consortium which developed the Qi (inductive power standard).[56]

In 2007 eSpring was ranked fifth out of 27 brands in a comparison of water filters by Consumer Reports.[57] In 2012, eSpring scored 94 points (out of a possible 100 points) - best among countertop models and third out of 18 brands in a comparison by Consumer Reports.[58]

In 2013, eSpring was one of the Reader's Digest Trusted Brands Award winners in the water purifiers category in Malaysia.[59] In 2015, Amway was recognized for the sixth consecutive year by Frost & Sullivan as Asia Pacific Water Filtration company of the year.[52] According to an Amway commissioned study of global sales conducted by marketing research firm Verify Markets, eSpring was the world's largest selling brand of kitchen water treatment systems and home water treatment systems in 2014.[60]

XS

On January 14, 2015, Amway announced that it had acquired XS Energy, a California-based brand of energy drinks and snacks. The XS Energy brand has been sold as an Amway product since 2003. As of January 2015, it has been distributed in 38 countries, generating annual sales of $150 million.[61][62][63]

According to Euromonitor International, the XS Energy was the first exclusively sugar-free energy drink brand sold globally.[32]

Ditto Delivery

Alticor owns a patent on the online shopping method of Ditto Delivery, which allows consumers to specify an automatic monthly delivery of each product.[64] In May 2001, Ditto Delivery accounted for 30% of Quixtar's North American sales.[65]

Business model

Amway combines direct selling with a multi-level marketing strategy. Amway distributors, referred to as "Independent Business Owners" (IBOs), may market products directly to potential customers and may also sponsor and mentor other people to become IBOs. IBOs may earn income both from the retail markup on any products they sell personally, plus a performance bonus based on the sales volume they and their downline (IBOs they have sponsored) have generated.[4] People may also register as IBOs to buy products at discounted prices.

Harvard Business School, which described Amway as "one of the most profitable direct selling companies in the world", noted that Amway founders Van Andel and DeVos "accomplished their success through the use of an elaborate pyramid-like distribution system in which independent distributors of Amway products received a percentage of the merchandise they sold and also a percentage of the merchandise sold by recruited distributors".[66]

Commercial sponsorships

In December 2006, Alticor secured the naming rights for the Orlando Magic's home basketball arena in Orlando, Florida. The Orlando Magic are owned by the DeVos family. The arena, formerly known as the TD Waterhouse Centre, was renamed the Amway Arena. Its successor, the Amway Center, was opened in 2010, and the older arena was demolished in 2012.[67]

In 2009, Amway Global signed a three-year deal with the San Jose Earthquakes Major League Soccer team to become the jersey sponsor.[68]

In March 2009, Amway Global signed a multi-year deal to become the presenting partner of the Los Angeles Sol of Women's Professional Soccer.[69] The deal, however, would last only one year, as the Sol folded the next year.

In 2011 Amway signed a three-year deal to be the presenting sponsor of the National Hockey League's Detroit Red Wings.[70]

Since 2012, Amway has been the title sponsor of the Canadian Championship, an annual soccer tournament.

Politics and culture

Political contributions

In the 1990s, the Amway organization was a major contributor to the Republican Party (GOP) and to the election campaigns of various GOP candidates. Amway and its sales force contributed a substantial amount (up to half) of the total funds ($669,525) for the 1994 political campaign of Republican congresswoman and Amway distributor Sue Myrick (N.C.).[71] According to two reports by Mother Jones magazine, Amway distributor Dexter Yager "used the company's extensive voice-mail system to rally hundreds of Amway distributors into giving a total of $295,871" to Myrick's campaign.[71][72] According to a campaign staffer quoted by the magazine, Myrick had appeared regularly on the Amway circuit, speaking at hundreds of rallies and selling $5 and $10 audiotapes.[71] Following the 1994 election, Myrick maintained "close ties to Amway and Yager", and raised $100,000 from Amway sources, "most notably through fundraisers at the homes of big distributors", in the 1997–98 election cycle.[72]

In October 1994, Amway gave the biggest corporate contribution recorded to that date to a political party for a single election, $2.5 million to the Republican National Committee, and was the number one corporate political donor in the United States.[71] In the 2004 election cycle, the organization contributed a total of $4 million to a conservative 527 group, Progress for America.[73]

In July 1996, Amway co-founder Richard DeVos was honored at a $3 million fundraiser for the Republican Party, and a week later, it was reported that Amway had tried to donate $1.3 million to pay for Republican "infomercials" and televising of the GOP convention on Pat Robertson's Family Channel, but backed off when Democrats criticized the donation as a ploy to avoid campaign-finance restrictions.[71][74]

In April 1997 Richard DeVos and his wife, Helen, gave $1 million to the Republican National Committee (RNC),[72][74] which at the time was the second-largest soft-money donation ever, behind Amway's 1994 gift of $2.5 million to the RNC.[72] In July 1997, Senate Majority leader Trent Lott and House Speaker Newt Gingrich slipped a last-minute provision into a hotly contested compromise tax bill that granted Amway a tax break on its Asian branches, saving it $19 million.[72]

In a column published in the Fort Worth Star-Telegram newspaper in August 1997,[75] reporter Molly Ivins wrote that Amway had "its own caucus in Congress...Five Republican House members are also Amway distributors: Reps. Sue Myrick of North Carolina, Jon Christensen of Nebraska, Dick Chrysler of Michigan, Richard Pombo of California, and John Ensign of Nevada. Their informal caucus meets several times a year with Amway bigwigs to discuss policy matters affecting the company, including China's trade status."[76]

A 1998 analysis of campaign contributions conducted by Businessweek found that Amway, along with the founding families and some top distributors, had donated at least $7 million to GOP causes in the preceding decade.[74] Political candidates who received campaign funding from Amway in 1998 included Representatives Bill Redmond (R–N.M.), Heather Wilson (R–N.M.), and Jon Christensen (R–Neb).[72]

According to a report by the Center for Public Integrity, in the 2004 election cycle, members of the Van Andel and DeVos families were the second, third and fifth largest donors to the Republican party.[77]

Dick DeVos, son of Amway founder Richard DeVos and past president of the company, served as Finance Chairman of the Republican National Committee,[78] and his wife Betsy DeVos served as chair of the Michigan Republican Party from 1996 to 2000 and 2003 to 2005.[79]

In May 2005, Dick DeVos ran against incumbent Governor Jennifer Granholm in Michigan's 2006 gubernatorial election. DeVos was defeated by Granholm, who won 56% of the popular vote to DeVos' 42%.[80]

In August 2012, gay rights activist Fred Karger began a movement to boycott Amway in protest of the contribution from a private foundation of Amway President Doug DeVos to the National Organization for Marriage, a political organization which opposes legalization of same-sex marriage in the United States.[81]

Religion

Several sources have commented on the promotion of Christian conservative ideology within the Amway organization.[72][82][83][84] Mother Jones magazine described the Amway distributor force as "heavily influenced by the company's dual themes of Christian morality and free enterprise" and operating "like a private political army".[72] In The Cult of Free Enterprise, author Stephen Butterfield's book about his experiences in the Yager group within Amway, wrote "[Amway] sells a marketing and motivational system, a cause, a way of life, in a fervid emotional atmosphere of rallies and political religious revivalism."[82] Philadelphia City Paper correspondent Maryam Henein stated that "The language used in motivational tools for Amway frequently echoes or directly quotes the Bible, with the unstated assumption of a shared Christian perspective."[83] These motivational tools are produced by some top distributors independent of Amway.[83] In his book, Butterfield states that he did not become aware that the tapes he was purchasing from Yager were not Amway Corporation tapes until months after he left the business and notes "It is questionable how much Amway can be held culpable for the cultist hoopla of the Yager rallies".[82]

Businessweek correspondents Bill Vlasic and Beth Regan characterized the founding families of Amway as "fervently conservative, fervently Christian, and hugely influential in the Republican Party", noting that "Rich DeVos charged up the troops with a message of Christian beliefs and rock-ribbed conservatism."[74]

High-ranking Amway leaders such as Richard DeVos and Dexter Yager were owners and members of the board of Gospel Films, a producer of movies and books geared towards conservative Christians, as well as co-owners (along with Salem Communications) of a right-wing, Christian nonprofit called Gospel Communications International.[72][83][85][86][87] Yager, interviewed on 60 minutes in 1982, admitted that he promotes Christianity through his Amway group, but stated that this might not be the case in other Amway groups.[88]

Rolling Stone's Bob Moser reported that former Amway CEO and co-founder Richard DeVos is connected with the Dominionist political movement in the United States. Moser states that DeVos was a supporter of the late D. James Kennedy, giving more than $5 million to Kennedy's Coral Ridge Ministries.[89][90][91] DeVos was also a founding member and two-time president of the Council for National Policy, a right-wing Christian organization.[92]

Sociologist David G. Bromley calls Amway a "quasi-religious corporation" having sectarian characteristics.[93][94] Bromley and Anson Shupe view Amway as preaching the Gospel of Prosperity.[95] Patralekha Bhattacharya and Krishna Kumar Mehta, of the consulting firm Thinkalytics, LLC, reasoned that although some critics have referred to organizations such as Amway as "cults" and have speculated that they engage in "mind control", there are other explanations that could account for the behavior of distributors. Namely, continued involvement of distributors despite minimal economic return may result from social satisfaction compensating for diminished economic satisfaction.[96]

Chamber of Commerce

Amway co-founder, Jay Van Andel (in 1980), and later his son Steve Van Andel (in 2001) were elected by the board of directors of the United States Chamber of Commerce as chairman of the private American lobbying organization.[97]

Accreditation Program

In 2006 Amway (then Quixtar in North America) introduced a Professional Development Accreditation Program in response to concerns surrounding Business Support Materials (BSM), including books, tapes and meetings.[98][99] In 2010 this was superseded by the Accreditation Plus program to ensure that all Business Support Materials (BSM) content is consistent with Amway Quality Assurance Standards that approved providers of BSM must abide by.[100][101] The Quality Assurance standards state that [102][103][104]

Pyramid scheme accusations

Robert Carroll, of the Skeptic's Dictionary, has described Amway as a "legal pyramid scheme", and has said that the quasi-religious devotion of its affiliates is used by the company to conceal poor performance rates by distributors.[105]

FTC investigation

Main article: In re Amway Corp.

In a 1979 ruling,[21][106] the Federal Trade Commission found that Amway does not fit the definition of a pyramid scheme because (a) distributors were not paid to recruit people, (b) it did not require distributors to buy a large stock of unmoving inventory, (c) distributors were required to maintain retail sales (at least 10 per month), and (d) the company and all distributors were required to accept returns of excess inventory from down-level distributors.[107][108]

The FTC did, however, find Amway "guilty of price-fixing and making exaggerated income claims";[109] the company was ordered to stop retail price fixing and allocating customers among distributors and was prohibited from misrepresenting the amount of profit, earnings or sales its distributors are likely to achieve with the business. Amway was ordered to accompany any such statements with the actual averages per distributor, pointing out that more than half of the distributors do not make any money, with the average distributor making less than $100 per month. The order was violated with a 1986 ad campaign, resulting in a $100,000 fine.[110][111]

Amway India (Andhra Pradesh and Kerala)

In September 2006, following a public complaint, Andhra Pradesh and Telangana state police (CID) initiated raids and seizures against Amway distributors in the state, and submitted a petition against them, claiming the company violated the Prize Chits and Money Circulation Schemes (banning) Act.[112] They shut down all corporate offices associated with the Amway organization including the offices of some Amway distributors. The enforcement said that the business model of the company is illegal.[9][113] The Reserve Bank of India (RBI) had notified the police that Amway in India may be violating certain laws regarding a "money circulation scheme" and the IB Times article writes that "some say ... Amway is really more about making money from recruiting people to become distributors, as opposed to selling products".[9] In 2008, the state government of Andhra Pradesh enacted a ban on Amway media advertisements.[112]

On August 6, 2011, Kerala Police sealed the offices of Amway at Kozhikode, Kannur, Kochi, Kottayam, Thrissur, Kollam and Thiruvananthapuram following complaints.[10][114][115] On November 2012, The Economic Offences Wing of Kerala Police, conducted searches at the offices of Amway at Kozhikode, Thrissur and Kannur as part of its crackdown on money chain activities and closed down the firm's godowns at these centres. Products valued at Rs.2.14 crore were also seized.[116] Later, Area manager of Amway, P. M. Rajkumar, who was arrested following searches was remanded in judicial custody for 14 days.[117]

On May 27, 2013, Crime Branch officials of Kerala Police arrested William S. Pinckney, Managing Director & CEO of Amway India Enterprises along with two other directors of the company from Kozhikode. The three were arrested on charges of running a pyramid scheme.[11][118] They were granted bail the next day and the business was unaffected. On June 8, 2013, Kozhikode Court lifted the freeze on Amway offices in Kerala.[119] On May 26, 2014, Pinckney was arrested by Andhra Pradesh police on the basis of a consumer complaint that alleged unethical circulation of money by Amway. He was subsequently arrested in other criminal cases registered against him in the state on allegations of financial irregularities by the company.[120] Pinckney was jailed for two months until being released on bail.[120][121][122]

U.S. Class action settlement

On November 3, 2010, Amway announced that it had agreed to pay $56 million – $34 million in cash and $22 million in products – to settle a class action that had been filed in Federal District Court in California in 2007.[8] The class action, which had been brought against Quixtar and several of its top-level distributors, alleged fraud, racketeering, and that the defendants operated as an illegal pyramid scheme.

While noting that the settlement is not an admission of wrongdoing or liability, Amway acknowledged that it had made changes to its business operations as a result of the lawsuit. The settlement is subject to approval by the court, which was expected in early 2011.[8] The economic value of the settlement, including the changes Amway made to its business model, totals $100 million.[123]

Class action in Canada

A 2009 class action case lodged in Canada was rejected by the Federal Court and confirmed on appeal by the Federal Court of Appeal, with costs awarded to Amway and the plaintiffs directed to arbitration.[124][125][126][127]

Other legal actions

Canadian tax fraud case

In 1982, Amway co-founders, Richard M. DeVos and Jay Van Andel, along with Amway's executive vice president for corporate services, William J. Mr. Discher Jr., were indicted in Canada on several criminal charges, including allegations that they underreported the value of goods brought into the country and had defrauded the Canadian government of more than $28 million from 1965 to 1980.[128][129][130][131] The charges were dropped in 1983 after Amway and its Canadian subsidiary pleaded guilty to criminal customs fraud charges. The companies paid a fine of $25 million CAD, the largest fine ever imposed in Canada at the time. In 1989 the company settled the outstanding customs duties for $45 million CAD. In a 1994 article authored by DeVos, he stated that the guilty plea was entered for technical reasons, despite believing they were innocent of the charges, and that he believed that the case had been motivated by "political reasons".[132]

RIAA lawsuit

The Recording Industry Association of America (RIAA), as part of its anti-piracy efforts, sued Amway and several distributors in 1996, alleging that copyrighted music was used on "highly profitable" training videotapes.[133] Amway denied wrongdoing, blaming the case on a misunderstanding by distributors, and settled the case out of court for $9 million.[134] In a related lawsuit initiated by the distributors involved, the Court established that Mahaleel Lee Luster, who had been contracted to make the videotapes, had violated copyright without the knowledge of three of the five of those distributors.[135]

Amway UK

In 2007, Amway's operations were halted in the United Kingdom and Ireland following a yearlong investigation by the UK Department of Trade and Industry, which moved to have Amway banned on the basis that the company had employed deceptive marketing, presented inflated earnings estimates, and lured distributors into buying bogus "motivation and training" tools.[136][137] In 2008, a UK judge dismissed government claims against Amway's operations, saying major reforms in the prior year (which included banning non-Amway approved motivational events and materials) had fixed company faults that favored selling training materials over products and misrepresented earnings. However, the judge also expressed his belief that Amway allowed "misrepresentations" of its business by independent sellers in years past and failed to act decisively against the misrepresentations.[138]

Welcome to Life (Poland)

In 1997, Amway Poland and Network TwentyOne separately sued the makers of a Polish film, Welcome to Life, for defamation and copyright violations. The director and producer were later acquitted on the charge of disseminating false information.[139][140] The film, banned for 12 years, was one of the highly anticipated movies of 2009's Warsaw Film Festival and was dubbed by the promoters as a "scary movie about brainwashing"[139] It was said to depict hard-sell "pep rallies", and to include statements from distributors that meetings had a similar tone to meetings of the Communist Party before it lost power in Poland. Methods of recruitment that confusingly resembled those of a sect were also described.[141] A bestseller on the local video black market, the film was banned while the suit proceeded.[142]

In 2001 a regional court ruled in favor of Network 21; however, in 2004 the Warsaw Regional Court dismissed Amway's civil lawsuit. On appeal Amway won the case and the producers were ordered to pay a fine to a children's charity and publish a public apology.[143][144] As of 2009 the film was still banned due to an ongoing case brought by "private individuals" ridiculed in the film.[145]

On December 18, 2012, the court ruled that film can be screened, but the makers have to remove "untrue information", as the screen near the end of the movie stated that 30% of company income is generated by sales of training materials and that the vast majority of its profits are shared only by the tiny fraction of top distributors.[146] This is not the only court case, so the film is still banned on other grounds.[147]

Dr. Phil and Shape Up

In March 2004, TV personality Phil McGraw (a.k.a. Dr. Phil) pulled his "Shape Up" line of supplements off the market in the face of an investigation by the U.S. Federal Trade Commission (FTC). The supplements were manufactured by CSA Nutraceuticals, a subsidiary of Alticor's Access Business Group.[148] The FTC later dropped the probe, but in October 2005 a class-action lawsuit was filed against McGraw by several people who used the products and claimed that the supplements, which cost $120 per month, did not stimulate weight loss.[149] In September 2006, a $10.5 million settlement was reached, in which Alticor agreed to provide $4.5 million in cash and $6 million in Nutrilite products to disgruntled users of Shape Up.[150][151][152][153]

Procter & Gamble

Some Amway distributors distributed an urban legend that the (old) Procter & Gamble service mark was in fact a Satanic symbol or that the CEO of P&G is himself a practicing Satanist. (In some variants of the story, it is also claimed that the CEO of Procter & Gamble donated "satanic tithes" to the Church of Satan.)[154] Procter & Gamble alleged that several Amway distributors were behind a resurgence of the story in the 1990s and sued several independent Amway distributors and the company for defamation and slander.[155] The distributors had used Amway's Amvox voice messaging service to send the rumor to their downline distributors in April 1995. After more than a decade of lawsuits in multiple states, by 2003 all allegations against Amway and Amway distributors had been dismissed. In October 2005 a Utah appeals court reversed part of the decision dismissing the case against the four Amway distributors, and remanded it to the lower court for further proceedings.[156] On March 20, 2007, Procter & Gamble was awarded $19.25 million by a U.S. District Court jury in Salt Lake City, in the lawsuit against the four former Amway distributors.[157][158] On November 24, 2008, the case was officially settled.[159]

Other issues

Cultism

Some Amway distributor groups have been accused of using "cult-like" tactics to attract new distributors and keep them involved and committed.[82][160][161][162] Allegations include resemblance to a Big Brother organization with paranoid attitude to insiders critical of the organization,[162] seminars and rallies resembling religious revival meetings[82][162] and enormous involvement of distributors despite minimal incomes.[82][161][162] An examination of the 1979–1980 tax records in the state of Wisconsin showed that the Direct Distributors reported a net loss of $918 on average.[93][161]

Dateline NBC

In 2004, Dateline NBC featured a critical report based on a yearlong undercover investigation of business practices of Quixtar.[163] The report noted that the average distributor makes only about $1,400 per year and that many of the "high level distributors singing the praises of Quixtar" are actually "making most of their money by selling motivational books, tapes and seminars; not Quixtar's cosmetics, soaps, and electronics".

"In fact, about twenty high level distributors are part of an exclusive club; one that those hundreds of thousands of other distributors don’t get to join. For years only a privileged few, including Bill Britt, have run hugely profitable businesses selling all those books, tapes and seminars; things the rank and file distributors can’t sell themselves but, are told over and over again, they need to buy in order to succeed."

The program said that a Quixtar recruiter featured in the report made misleading and inconsistent statements about Quixtar earnings during a recruitment meeting and had an outstanding arrest warrant for cocaine possession from the mid-90s.[163]

In a response to Dateline NBC, Quixtar published a link to "Dateline Quixtar Response" on its official website.[164] In its response,[165] Quixtar, among others, stated:

"We learned that two Dateline producers had registered as IBOs and for months had been conducting undercover research for the story, which included using a hidden camera to videotape meetings and conversations with IBOs. The producers did not identify themselves as working for Dateline, instead feigning interest in building a business powered by Quixtar."

The site also stated that:

"Dateline's story on Quixtar boiled down to the complaints of three former Independent Business Owners (IBOs) – one of whom is a competitor – and ignored the hundreds of thousands of IBOs powered by Quixtar who are achieving their goals."

See also

References

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