Amway, also known as Quixtar for a number of years, settles a case alleging it operates a ‘pyramid scheme’
In what may well prove to have far reaching effects on the whole MLM or Network Marketing industry, Amway agreed today to settle the class action described below alleging that the company and some of their top distributors were operating an illegal pyramid scheme.
ADA TOWNSHIP — Amway this morning announced a deal to pay $34 million in cash and provide $22 million worth of products to settle a 2007 class-action suit alleging it the company and some of its top-level distributors operate an illegal pyramid scheme.
The case was filed in California by former distributors for Quixtar, the name Amway used for its U.S.-based operation at the time.
The proposed settlement would cover former Amway/Quixtar distributors from 2003 until the day the settlement is approved.
The plaintiffs said the company used unfair and illegal business practices that mislead distributors about their ability to make money and how much it would cost to be part of the business.
The settlement with the former distributors, or Independent Business Owners as Amway calls them, does not constitute an admission of guilt. But the company “stipulates that certain reforms in its business instituted after the filing of this action have been motivated” by the case.
The deal was announced in a brief press release and an e-mail to Amway employees this morning.
“The suit contains strong and disagreeable allegations and language that we categorically reject,” the letter from Chairman Steve Van Andel and President Doug DeVos read. “They are sensationalist claims that remain unproven and that we expect will be dismissed by the court.
“Nevertheless, the company and its IBO leaders take responsibility for all past issues, and we take responsibility for fixing them. We regret that the experiences of some IBOs fell short of the high standards that have allowed us to help many people, from all walks of life, start successful businesses for more than 50 years.”
The proposed settlement, which still must be approved by San Francisco U.S. District Court Judge Samuel Conti, provides up to $20 million to pay plaintiffs’ attorneys from the $34 million cash fund.
Up to $5 million could be used to refund registration fees by people who did not continue with Quixtar after their first year.
People who lost more than $2,500 as part of their experience with Quixtar could apply for cash payments of up to $15,000 to cover their losses.
Former distributors also could apply to receive up to $100 worth of Amway products, with shipping costs for those products coming from the cash settlement pool.
In its letter to employees [below], DeVos and Van Andel said Amway has addressed many of the concerns raised by those who filed the case and others who have criticized the business as being too heavily weighted toward finding new recruits and the sale of so-called “tools” or “business support materials” like motivational tapes, books and seminars.
Among actions the company says it has taken for the Independent Business Owners:
“We think the issues presented by that case are old problems. We’re viewing this as a chance to go forward in the U.S. business with a clean slate without litigation like this hanging over our heads anymore.”
Those interested in the balance of the MLive.com article can find it here.
Editor’s Note: Enemies of Network Marketing may try to say that this action shows that MLM really is an illegal pyramid. Nothing could be further from the truth. This case was about “the sale of so-called “tools” or “business support materials” like motivational tapes, books and seminars.” Also at issue was misrepresentation of how much it costs to be an IBO and how much one can earn. Many companies have never used such strategies.
Network Marketing done well, is not only legal, but also brilliant, moral, and honorable.