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"The 1979 Amway ruling has had enormous consequences, almost all of them damaging to participants and their families." —Jon Taylor On the page: Opportunity Lost – a Chance for the FTC to Stop Endless Chain Recruitment Schemes > > Despite the Amway Ruling, De Facto or Market Saturation Is Very Real. The "Amway Rules" Have Never Worked – They Are Too Impractical and Do Not Address the Root Problems.
MLM – the truth!
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Opportunity Lost – a Chance for the FTC to Stop Endless Chain Recruitment Schemes The FTC once had the opportunity to stop the growth of “recruiting MLM’s,” but failed to act appropriately, according to experts knowledgeable in this field. In 1979, the FTC charged that Amway, the pre-eminent MLM company, was conducting a pyramid scheme, since it allowed endless chain recruitment of distributors (“entrepreneurial chain”) that would ultimately doomed to collapse from market saturation. Amway attorneys argued that, as in other distribution business, Amway's recruitment was merely replacing distributors who dropped out and that saturation had not occurred in the many years Amway had been in business. The FTC judge dropped the charge that Amway was a pyramid scheme, subject to "retail rules" that specified that (1) 70% of products had to be sold to non-distributors, (2) each distributor had to have 10 customers, and (3) reasonable buy-back provisions be permitted. [93 F.T.C. 618, 716-17 (1979)]. Despite the Amway Ruling, De Facto or Market Saturation Is Very Real. Three problems with this ruling stand out. First, the saturation issue was poorly addressed, showing a lack of understanding of market forces. A town of 10,000 people would not need, nor could it absorb, 10,000 distributors. This would be absurd; perhaps 10 or 20 distributors at most might operate at a profit. With the addition of each new distributor, the opportunity to succeed is lessened. So de facto saturation, or perceived market saturation, is very possible with even a few distributors. (In franchising, strict limits are placed on territories covered to protect against de facto saturation of the marketplace.) The "Amway Rules" Have Never Worked – They Are Too Impractical and Do Not Address the Root Problems. The second problem with the ruling is with the “Amway rules” themselves, which are virtually unenforceable and therefore ineffective – without addressing the problem of endless chain recruitment and others of the “5 Red Flags” of product-based pyramid schemes, as reflected in their compensation plans. The “Amway rules” are routinely ignored by Amway and other MLM’s, and the FTC and other law enforcement agencies are inclined to look the other way, as it is virtually impossible to enforce. The 1979 Amway ruling has had enormous consequences, almost all of them damaging to participants and their families. The beneficiaries have been those at the top of their respective pyramids and the MLM companies that share in the spoils of this system. The FTC Will Not Reconsider the Amway Decision Any Time Soon – and May Not Now Be Able to Take Appropriate Action If It Tried. So the third problem with the ruling is with the refusal of FTC officials to reconsider the decision in the light of experience since 1979. Perhaps it is too late, as Amway has the resources and the political influence to blow away most any legal challenges. When FTC officials were asked about the possibility of reopening the Amway case, Fitzpatrick was told that it would be at least ten years before such action could be considered. Worldwide losses by then could be staggering, unless the public uses web sites such as these to counter the threat. It appears that the FTC, as effective as it may be in less complex cases, has essentially capitulated to MLM fraud and abuse. And only a handful of states have dared to challenge the major MLM companies with their powerful legal teams. Since few complain, there is little incentive to do so – as I explained in TOP TEN THINGS I LEARNED FROM TEN YEARS' RESEARCH ON MLM. For more information about the Amway case, go to www.falseprofits.com. There Robert Fitzpatrick, president of Pyramid Scheme Alert, makes available two insightful books, Pyramid Nation: The Growth, Acceptance, and Legalization of Pyramid Schemes in America and The Case for Reopening the Amway Pyramid Scheme Case: An Inquiry into the Legality of Multi-level Marketing. Links for several other sites reporting on Amway/quixtar can be found in the Annotated List of RECOMMENDED WEB SITES © 2004 Jon M. Taylor PLEASE HELP! I believe this site presents information about MLM/network marketing that is as close to the truth as can be found. It can save you much time, money, and grief, as it has done for many others. And since law enforcement has essentially looked the other way on this type of consumer abuse, it is left to informed consumers to inform and warn their friends and relatives about the potential losses they could suffer from participation in a “recruiting MLM.” So please print and distribute at least 5 copies of the answer cards to those you care about – and ask each of them to share answer cards with 5 people, and each of them with 5 more, etc., etc. . . . In this way, you can influence many people for good – through an endless chain of truth-telling. Click here to see these great answer cards (4 to choose from) that you can print and distribute now – as well as carry with you for those awkward moments when you are recruited by a well-meaning friend or relative. For more information, click on the appropriate links above. |