Amway has agreed to settle a suit by some of its "independent business owners" (IBOs) alleging that the direct sales giant operated as a pyramid scheme. On November 3, the company announced it would pay $34 million in cash and provide $22 million worth of products to settle the class action suit which began in 2007.
The Amway lawsuit was actually filed against Quixtar, the name formerly used by Amway, by IBOs who claimed the company used unfair and illegal business practices and mislead them about their ability to make money and how much it would cost to be part of the business, reports The Grand Rapids Press. Amway is based in Ada, Michigan.
The company did not admit to any wrongdoing under the settlement and "categorically reject[ed]" claims it calls "disagreeable allegations." According to The Press, however, the company says it takes responsibility for past issues that the IBO's had with the structure of the company and has agreed to make significant changes.
Some of the changes the company will make include tripling investment in IBO education programs; expanding a money-back guarantee to include all products and training materials purchased by IBOs in their first 90 days and more than doubling the number of professional trainers teaching IBOs best business practices.
These changes will address the claims made by plaintiffs that Amway/Quixtar placed too much emphasis on recruiting new IBOs and selling training manuals as opposed to the actual sales of products, reports The Press. A business model that relies on new investors or sellers as opposed to actual products or services is one of the classic indications of a pyramid scheme.
The Press reports that under the terms of the settlement of the Amway lawsuit, IBOs who lost more than $2,500 while working with Quixtar could apply for cash payments of up to $15,000 to cover their losses.
In a letter to business owners, company execs said: "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."
- Amway to settle lawsuit alleging unfair and illegal business practices (Michigan Public Radio)
- Ponzi Scheme (FindLaw's LawBrain)