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.
Read the History of the FTC's Amway Pyramid Case
Remember when Smoking was Harmless?
The Amway Myth
The government of England says that Amway, as it currently operates with its multi-level marketing pay plan, is pernicious and inherently objectionable and should be shut down and banned from the country.
In 2005, the country of China banned Amways multi-level pay plan, allowing the company to operate only as a retail sales operation, not an MLM. China studied the Amway/MLM model and determined that it was a prescription for fraud. In summary, China agreed with England.
In the USA, where Amway is based, Amway was prosecuted by the US government in 1975-79 as a pyramid scheme fraud, just as England now claims it is and China recently determined it to be. The US Federal Trade Commission ended up allowing Amway to continue but only on the condition that it operate fundamentally as a retail-based business that sold products to the general public, not primarily as a recruitment-based scheme that sold a business opportunity.
In 2006-8, lawsuits were filed by a group of Amways top insiders and by one of Americas premier law firms charging that Amway is not retail-based but is exactly what the US government charged that it was in 1979, and that England and China say it is now a fraudulent pyramid scheme.
And finally, indisputable statistical evidence is now available showing that 99% of all Amway sales representative never earn even one penny in profit. This is true for every year and in every country that Amway operates its MLM scheme. The data also show that few Amway sales people ever retail any products to customers. They only self-consume and then, if they can, recruit other self-consumers. In other words, Amway is not a direct selling business. It is a invest-and-recruit scheme.
What sustains Amway in the face of the evidence and the charges for fraud, deception and harm?
Government payoffs to stave off investigation and prosecution? Yes. Amways political influence-buying is well known.
There is also the fear of disrupting a pyramid of this size, $6 billion! Were it to collapse all at once from a government prosecution, many current and hopeful participants would loudly scream. They would blame regulators and unfair publicity for the collapse. Lawsuits would explode in numbers. Government officials would resign. Some Amway executives would likely go to jail. Avoidance of these momentous consequences similar to those when Enron fell apart, or when the fraudulent real estate loan schemes collapsed in America keep Amways house of cards intact, for now.
But there is another factor, perhaps even larger than the role of regulators and judges. It is the popular myth surrounding Amway.
The Amway myth may be stated as follows:
-- Amway is a sales company that sells product to people who want its products.
-- Amway offers a great income opportunity to millions of people based on selling Amway products to retail customers.
-- Amway has integrity, tells the truth and operates on the principles of Christianity.
-- Amway's offers success, happiness, and freedom and is a caing community.
-- Amway is a legal and legitimate business that is respected and revered by business organizations and political and religious leaders worldwide.
Now, obviously the charges of the government of England cannot be correct that Amway is pernicious and inherently objectionable if the statements above are true.
The myth cannot be true if the claims in the lawsuits from Amways own insiders that the company is a fraudulent money trap and pyramid scheme are accurate. Amway cannot be viable and legal and a pyramid fraud at the same time.
Amway cannot be based on Christian principles if it is true that it promotes an insidious and entrapping lie about product sales.
The business community cannot respect Amway if it is true that it is merely a pyramid scheme that hawks a bogus income promise.
So the greatest factor sustaining Amway is not sales, since it has no customers, only a revolving group of failed sales people.
It cannot be sustained by providing a viable income opportunity, since it is now undeniably demonstrated that 99% of all Amway sales people never earn even one penny of profit and more than half quit within a year, having lost money. The government of England revealed this data and it has been verified in the USA also.
What sustains Amway is a widespread belief in the Amway myth. While people believe, few government officials England and China excepted will have the political courage to enforce the law on Amway. To enforce the law means not only eliminating a fraud, but also dashing beliefs, taking away the dream, the illusion, and the hope that Amway represents to many people.
And, if the belief is revealed to be a lie, an economic earthquake will occur, and few judges want to prompt that cataclysm.
Reporters rarely report the facts, even when they know them and can prove them, if the facts strongly conflict with deeply held beliefs of their readers. They dare not challenge the beliefs. It is a force stronger than censorship. It is a rare publication that will challenge its readers. The whistle blower is not loved.
Amway stands naked in front of the world wearing only its myth and it dares anyone to tell the truth about its naked frauds. As in the story of the emperor in the parade wearing no clothes, the crowds see the nakedness but no one will acknowledge the fact. Fear overcomes evidence and soon most will swear the emperor was dressed beautifully in magnificent robes (sales to retail customers and income to the salespeople).
The longer the Amway myth endures, the harder it is to unveil. How could it be untrue if so many people believe it and for so many years? Many victims prefer the myth to the truth of being scammed and fooled. Politicians on the take use the myth as legal protection and to allow them to receive Amways campaign contributions. Law firms and PR companies promote and defend the myth for fat retainers. Advertisers love the myth as they get paid by Amway. Public speakers stand at the podium and reinforce the myth after receiving generous speakers fees from Amway. Amways home state allows the myth because it offers jobs and tax money.
Only one bothersome factor prevents the myth from reigning supreme. The truth.
Perhaps an analogy can help.
For decades much longer than the Amway myth has existed the cigarette industry cultivated and maintained the myth that smoking was harmless, pleasurable and sexy. Its executives, lawyers, PR people, in-house scientists and allied politicians all knew or strongly suspected that cigarettes were addictive and deadly. But they maintained the famous lie that cigarettes are harmless. Most people believed it.
To propagate the myth, the industry bought massive amounts of advertising in magazines and newspapers that showed healthy-looking people enjoying smoking. The news magazines, in turn, omitted articles about cancer or research on cigaretterelated illnesses (lung cancer, heart disease, damge to fetuses, etc.). The industry paid to show beautiful and sexy movie stars smoking on and off the silver screen. It gave cigarettes to soldiers during war time so they got addicted and brought the habit home to their families.
It cleverly advertised to children to get them addicted as teenagers, knowing that the earlier one started smoking the more difficult it was to ever stop. Meanwhile the industry claimed it had no advertising at all aimed at young people. It even claimed that advertising really did not influence people, Everyone freely chose to smoke, they claimed, and accepted the personal risks, if there were any, which was not proven, they reminded us.
The cigarette industry suppressed research on cancer and produced bogus research to prove there was no proof that cigarettes caused cancer. The industry enjoyed endorsements from movie stars, support among Congressmen and the applause of charitable organization who received donations from tobacco industry foundations. Universities also were given money and so most did not teach courses on cigarette-related deaths or about the addiction to nicotine. The myth prevailed. Everybody believed cigarettes were basically harmless. Those who doubted, were generally not vocal or were not treated as authorities. They were cast as anti-tobacco.
Millions of smokers denied or ignored the mounting medical and scientific evidence of the harm of smoking. The truth, if revealed and accepted, would mean that they had made a terrible error in judgment, had harmed themselves, and had been horribly misled.
Many smokers who were sick and dying and who were told to stop smoking by their doctors, denied any role of cigarettes in health problems. They believed the industry, the movie stars and the politicians who all said it was okay or at least acted as if it were. Smokers believed the advertising that portrayed healthy and happy people smoking, even as they looked in the mirror and saw deep lines, unhealthy skin, and as they coughed violently each morning. Even when the Marlboro Man got lung caner and denounced the cigarette industry and apologized for his role in the ads that promoted smoking as cool and masculine, many would not change their views. They held to their belief in the myth about cigarettes.
The ability of seemingly good and honest business and political leaders to produce mass delusion, to deny the truth, the suppress the truth, and to spin a terrible and harmful lie and the willingness of good and honest people to believe the lie and to reject the truth are well established. Other examples? We all know of many. Amway is not alone and not the first in successfully promoting the big lie.
But just as the cigarette myth gradually crumbled and then collapsed and is now seen as a national disgrace, so too the Amway myth is falling apart. Now, a few governments are willing to tell the truth and act on it.. Lawsuits are mounting. Insiders are blowing the whistle. Facts are being gathered and published. Books are being written. And soon, the US Congress may be led by members who are not on the take from Amways lobbyists. Time is running out on Amway.
We may soon look back myth of Amway as a "sales" company that offered millions of people a "unique income opportunity" as we now do the days when smoking was thought to be fun, harmless, sexy, and cool.
-- A class action lawsuit has was filed against Quixtar (Amway) by plaintiffs who are at the bottom of the Amway/Quixtar pyramid. These charges against Amway/Quixtar assert that there is no retail "direct selling" opportunity, only an endless chain recruitment program. The suit was brought by Boies, Schiller and Flexner.
-- Police officials in India raided offices of Amway in the largest state in the South of India. The police are charging that Amway is deceiving Indian citizens and causing large-scale financial losses by perpetrating a pyramid scheme.
-- China, the largest market in the world, has effectively shut Amway out of that country. The government of China allowed Amway to gain a licence but strictly prohibited Amway from using its pyramid recruitment pay plan. No Amway distributor can earn money from purchases of others in a downline. Without the false lure of the endless chain, Amway's sales will wither in China.
-- Amway founders and top guns have contributed millions to Republican congress members and to President Bush. This was rewarded in 2001 with Pres. Bush's appointment of Timothy Muris, an attorney that worked for Amway, as chairman of the FTC. Muris has since left the FTC and several key Amway protectors in Congress (e.g. Rich Santorum in PA and Tom Delay in TX) were defeated. Dick Devos, the son of Amway founder Richard Devos, ran for governor of Michigan but was defeated.
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