You Can't Cheat an Honest Man - James Walsh [95]
Many observers—including federal regulators—have found the Amway system suspiciously complicated. In March 1975, the FTC issued a complaint against Amway that included five separate counts involving anti-competitive and deceptive practices. The Feds also alleged that Amway promoted the “endless chain” element of its pyramid structure as much or more than it promoted the actual sale of goods or services.
The agency noted that the Amway Career Manual for distributors explained how to recruit distributors by appealing to the financial goals of prospects. The Manual then offered specific questions for recruiters to ask. These included:
• What are some of your dreams? Do you want a new car, a new house, college education for your children?
• Do you want retirement income that will afford you a comfortable standard of living?
• What income do you want six years from now? Are you willing to work hard to get this?
• How much would you like as a continuing income? Would you work for your goal?
• Would you be interested if I could show you a way you can make your dreams come true?
These loaded questions—which are so basic and vague that they beg simplistic answers—are typical of MLM recruitment tactics. The Feds also argued that Amway fixed prices at which products and services could be sold through its network. They cited one of the company’s Rules of Conduct:
No distributor shall sell products sold under the Amway label for less than the specified retail price, when making sales to persons who are not distributors, except where commercial discounts are authorized to be given. No distributor shall give a greater discount than that authorized in the appropriate Amway Product Sales Manual.
The FTC noted that, to enforce this rule, Amway threatened termination of the distributorship to discourage retail price cutting.
Finally, the Feds argued that Amway, even without actual proof of economic failure, was “doomed to failure” and contained an “intolerable potential to deceive.” This all stemmed from the alleged fact that Amway would saturate its markets, leaving distributors unable to sell the detergent and household products.
Amway fought back against the FTC charges. It pointed out that its distributorships were not for sale and sponsoring distributors received no profit from the act of sponsoring. “It is only after the sponsored distributor begins to buy products that the sponsoring distributor will receive income,” the company argued.
To receive a bonus, distributors had to resell at least 70 percent of the products they purchased each month. And the company’s so-called “ten-customer rule” held that distributors could not receive bonuses unless they proved a sale to each of 10 different retail customers during each month.
Amway also pointed out that it had, since its beginning, a policy of buying back any unused marketable products from a distributor whose inventory was not moving or who wished to leave the business. Most illegal pyramids don’t do this.
While Amway admitted that it published a suggested retail price list, it denied fixing prices. It claimed:
[E]ach Amway distributor is an independent businessman who purchases products from Amway for cash. Title to these products actually passes from the company to the distributor under a purchase and sales agreement. Thus...each buyer has latitude in determining what price he will charge for the product....
In June 1978, Administrative Law Judge James Timony ruled on the case—and saw things mostly Amway’s way. Among his findings:
• 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