Pyramid Scheme Alert (PSA) provides current and historical news items that are of interest to our members and visitors. None of the reports or commentaries is intended to imply that any of the referenced companies have been charged or convicted as illegal pyramid schemes.
Amway/Quixtar Sued as Pyramid Scheme
In a crucial development that could rock the entire multi-level marketing business, a class action lawsuit has been filed this month against Quixtar (Amway) charging that the company is running an illegal pyramid scheme. (filed in US District court in the northern district of California on January 10, 2007, case number 3:07-cv-00201-EMC.)
The charges against Amway/Quixtar go to the very heart of the company's business practices and most other multi-level marketing (MLM) schemes', that there is no retail "direct selling" opportunity, only an endless chain recruitment program.
The charges are being brought by one of America's most powerful law firms, Boies, Schiller and Flexner. David Boies of this firm represented Vice-President Al Gore in front of the US Supreme Court in the world famous case, Gore vs. Bush that contested the vote counting in Florida after the 2000 election. The other firm partnering with Boies, Schiller & Flexner in the suit is Gary, Williams, Parenti, Finney, Lewis, McManus, Watson, & Sperando, P.L.. in Stuart, Florida. This firm has a powerful track record of successful class action suits against large companies.
The suit is based on the very same charges that the Federal Trade Commission has brought against Equinox, SkyBiz and other MLMs that regulators shut down. The suit charges that the Quixtar program based upon selling products to recruits "for personal use", then authorizing them to recruit others to do the same while requiring or incentivizing them to maintain quota levels of monthly purchases, and then rewarding them in a multi-level compensation system is a fraud. The suit also attacks Quixtar's infamous "tools" business as a second pyramid scheme perpetrated on new recruits. The "tools" scheme was exposed in a 2004 special report on NBC Dateline.
Using Quixtar's own payout data a report published by Pyramid Scheme Alert has shown that 99% of all Quixtar recruits never earn any profit. In the report, "The Myth of MLM Income Opportunity," the 99% loss rate was shown to be caused by the pyramid recruitment model and the lack of retail sales, not the "failure" of the recruits.
Regarding the charge that the "non-retailing" business plan that most Quixtar recruits engage in is a scam, the FTC has prosecuted other MLMs on these grounds. FTC declarations have stated that if the majority of the money used to pay the "upliners" is gained primarily from the purchases of the downliners not from their retail customers the payments are de facto payments for recruiting. In such cases, the "business opportunity" is not to sell the MLM products but to recruit others into the "business opportunity" in an endless chain. Endless chains are considered "inherent frauds" since they cannot deliver on their promise of income to any but a few at the top; the vast majority are doomed from the start to financial losses; and the schemes must use deception to lure consumers into nearly certain financial losses.
Pyramid Scheme Alert has asked the FTC to reopen the case that it previously brought against Amway in which the FTC had charged that Amway operated a pyramid scheme. An Administrative Law Judge in 1979 ruled that Amway could continue to operate in the US, based on Amway's claims that its business was primarily based on retail sales (sales by Amway sales people (IBOS) to actual end-user customers). Amway claimed that the business was not based on each salesperson making money from the investments of other salespersons.
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