You Can't Cheat an Honest Man - James Walsh [96]
• Amway has successfully entered the soap and detergents market because its distributors sell directly to consumers in their homes or businesses, rather than through retail grocery stores.
The Court also found the FTC’s charges that Amway lied about how easy it was to make money unfounded. On this count, It concluded:
There is no doubt that the Amway Sales and Marketing Plan is designed to catch the interest of a prospective recruit by appealing to material interests. ...But the Amway plan also makes clear the idea that work will be involved, and that the material rewards to be gained will depend on the amount and quality of work done.
The judge gave particular attention to the FTC’s allegations that Amway was doomed to failure because it saturated its markets. On this count, he noted:
The preponderance of the evidence in the record does not support the allegation of “saturation.” Amway is not a “modern-day version of the chain letter.” [Its] system does not create the potential for massive deception present in a pyramid distribution scheme.... Unlike the pyramid companies, Amway and its distributors do not make money unless products are sold to consumers.
In short, Amway was exonerated. All it received from the FTC investigation was a small fine for some misleading promotional and advertising statements. The bad publicity took a toll, though. Some former employees sued the company for brainwashing them; the suits gave life to talk that Amway was a quasi-religious cult. Sales, which had been growing steadily for 30 years, plateaued.
In 1986, just as the company was entering another growth spurt, the FTC took another shot. It fined Amway $100,000 for illegally inflating earnings projections. Rather than drag out this administrative action with a legal challenge, Amway worked out an agreement with the Feds. It changed its business plan brochures to point out that the average monthly income for active distributors was $65. It also stated in bold type that only one in 82 distributors sold enough products to earn $2,138 a month.
Many people remain skeptical about Amway, though.
In 1996, the company ran into some unexpected trouble. Several record labels sued Amway, charging that motivational videotapes produced by some of its top salespeople were sprinkled with pop songs they’d never received permission to use.
The lawsuit, filed by the Recording Industry Association of America, claimed that top Amway distributors sold the tapes to lower-level recruits through the mail or at sales conventions. And the tapes weren’t cheap, running up to $25 each. The RIAA lawsuit went on to claim that the copyright violations entitled the injured record companies to at least $11 million in damages.
Some of the tapes mentioned in the lawsuit showed top Amway distributors—called “diamonds” in company jargon—enjoying the big homes and flashy cars Amway sales provided.
Aside from catching the record industry’s attention, the tapes bother many regulators. In many cases, the business of promoting the Amway dream is a thriving industry all by itself—and one that more closely resembles an illegal pyramid.
One of the diamonds named in the RIAA lawsuit was Dexter Yager. Yager was a famous character in Amway lore. He came from humble origins, without much formal education, to build a downline network that accounted for as much as a third of Amway’s total sales. (Most people who know Amway readily admit Yager has been as important to the company’s growth as either of its founders. Many people in the business call him the “patron saint of multi-level marketing.”)
From all of this, Yager made tens of millions of dollars a year in bonuses. And he has many of the quirks of a Ponzi perp. He owns a huge home near Charlotte, North Carolina. He has various MercedesBenzes, Rolls-Royces and Jaguars. He boasts about his political connections—having met Ronald Reagan, George Bush and various other pro-business pols.
Of course, Yager is a rarity. He joined a fast-growing MLM firm in its early years. He brought a zeal to selling that would