Washington and the Federal Trade Commission reached a $225 million settlement on Thursday with the health, beauty and home care products company Amway and its seller training providers for “unfair and deceptive” business practices.
Amway, which stands for “American Way,” is a Michigan-based company that sells goods ranging from nutritional supplements to energy drinks to health and beauty products exclusively through a network of independent sellers rather than stores.
In other words, the business relies on everyday people buying the products in bulk and selling them to other people. You might have seen people on social media promoting Nutrilite products, a brand of vitamins and dietary supplements owned by Amway.
The business model is often referred to as multilevel marketing, where participants earn money based on their own sales and the sales of other sellers they recruit.
Operating a multilevel marketing company is not illegal on its own, but it can become illegal when it pays participants mostly for recruiting new members and uses false promises to keep sellers buying its products.
In their lawsuit, the FTC and Washington state alleged that Amway and its training providers, Spokane Valley-based World Wide Group and North Carolina-based Leadership Team Development, misled sellers with false earnings claims and then pressured them into buying products they didn’t want and that were hard to sell.
Washington State Attorney General’s Office said in a news release Thursday that the prices of Amway products are high, making it more difficult to sell to the general public. The complaint said that, up until recently, Amway sold a case of 24 bottles of water for $52.
A spokesperson for the Washington State Attorney General’s Office said the state joined the lawsuit because many of those impacted live in Spokane and the Seattle area.
In the complaint, the state noted that many high-ranking Amway sellers have lived in the Seattle area. As a result, many of World Wide Group’s training events were held near Seattle in venues including the Tacoma Dome and the Lynnwood Convention Center.
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The complaint also alleges that sellers are pressured to report sales that did not occur to create the appearance that the Amway opportunity revolves around selling products rather than recruitment.
In a statement to The Seattle Times, an Amway spokesperson said the company disagrees with the agencies’ characterization of its business practices, rejecting the assertion that its sales data is inaccurate.
“In fact, Amway and the FTC have agreed to rely on our sales data to continue tracking and substantiating (independent business owner) customer sales,” the spokesperson said.
The proposed order settling the FTC and Washington’s allegations imposes a $225 million judgment, nearly all of which will go to Amway’s sellers who lost money, according to an FTC news release.
Attorney General Nick Brown said in his news release that Amway and its training providers profited by taking advantage of people’s hopes and ambitions.
“This settlement will deliver relief for the many Washingtonians who joined Amway seeking to provide for themselves and their families, only to lose time and money and wind up with cabinets full of products they don’t want or need,” Brown said.
As part of the settlement, Amway sellers will be required to sell 70% of their products each month to avoid artificially inflating Amway’s sales and will receive “substantially reduced” compensation if other sellers they recruit buy products but do not resell them. Amway’s sales records will be audited regularly by an independent outside auditor, and the company must train sellers on the new rules.
Amway has not admitted any wrongdoing or liability.
The Amway spokesperson said the settlement “reaffirms” the strength of Amway’s business model.
“This settlement, like all settlements, required compromise,” the spokesperson said. “Resolution positions us to move forward and focus our energy where it belongs: on our customers, (independent business owners) and employees.”
Alexis Weisend: [email protected]. Alexis Weisend covers business news for The Seattle Times.