A. Amway Tool Scam – Executive Summary and Website Overview

Be sure to visit my new blog that is focused on the UK: http://www.amwayukblog.wordpress.com Here’s some other blogs that uncover scams with other MLMs:

EXECUTIVE SUMMARY This blog is designed to educate others and provide an opportunity to take action to shut down the Amway Tool Scam (ATS, defined in the Glossary), including: 1. Anybody thinking about becoming an IBO to prevent you from being ripped off, or 2. Former IBOs who have already been ripped off, or 3. Anybody else on the World Wide Web who is curious. The ATS is in direct violation of FTC rules, Section 5 (http://itlaw.wikia.com/wiki/Section_5_of_the_FTC_Act), which charges the FTC with stopping “Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” It is also RICO fraud.

In addition to the ATS, Amway, and virtually every MLM for that matter, have overpriced products, which usually results in little to no retail sales to external customers for most distributors, which is an illegal pyramid. The normal exception to this rule are MLMs that operate under the party plan, such as The Pampered Chef and Tupperware. The legal judgement that best defines the key issues can be found here, pay particular attention to definitions F & G on page 3: 1999_03_fivestarfinalj

Both the FTC and SEC websites back up this position, as well as numerous court precedents. The applicable FTC website information can be viewed at https://www.ftc.gov/tips-advice/business-center/guidance/multilevel-marketing and states, “In multilevel or network marketing, individuals sell products to the public — often by word of mouth and direct sales. Typically, distributors earn commissions, not only for their own sales, but also for sales made by the people they recruit.

Not all multilevel marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multilevel marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s not. It’s a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”

The similar SEC website information is at http://www.sec.gov/enforce/investor-alerts-bulletins/investoralertsia_pyramidhtm.html#.VSF7ufldWSo and states, “When considering joining an MLM program, beware of these hallmarks of a pyramid scheme:

  • No genuine product or service. MLM programs involve selling a genuine product or service to people who are not in the program. Exercise caution if there is no underlying product or service being sold to others, or if what is being sold is speculative or appears inappropriately priced.
  • No demonstrated revenue from retail sales. Ask to see documents, such as financial statements audited by a certified public accountant (CPA), showing that the MLM company generates revenue from selling its products or services to people outside the program.

There are numerous court precedent examples, most notably the 1979 Amway decision, in which the judge determined Amway was not an illegal pyramid, partly because there was a 10 customer/month retail requirement (which is not enforced today, and it is dubious it was enforced in 1979), the decision can be found here: http://www.mlmlaw.com/library/cases/mlm/ftc/amway.htm which states, “The Amway system is based on retail sales to consumers. (Findings 72­75, 144) Respondents have avoided the abuses of pyramid schemes by (1) not having a ‘headhunting’ fee; (2) making product sales a precondition to receiving the performance bonus; (3) buying back excessive inventory; and (4) requiring that products be sold to consumers.

The more recent BurnLounge decision reinforces the criticality of having retail sales to non-distributors, which can be found here: https://www.ftc.gov/sites/default/files/documents/cases/2011/07/110701stmt.pdf and states, “The Court therefore finds the fact that the products had some value is relevant to the calculation of consumer harm, but only insofar as those products were purchased for their value as ultimate user products, and not for the conjoined business opportunity. 16 To individuals who considered the bundled products as merely incidental to the business opportunity, the Court finds the products were of no relevant value.” In other words, the product value has to stand on its own because customers outside the organization buy them, and not because the products are not connected (conjoined) to the future hope of becoming wealthy (the business opportunity).

An explanation of the importance of retail sales can be found here: https://stoptheamwaytoolscam.wordpress.com/frequently-asked-questions/ search for $10,000.

This blog includes my opinions, facts, logic, and documentation that substantiate the FTC Section 5 rules regarding the prohibition of fraudulent, unfair, and deceptive ATS practices, which consists of 16 years experience as an Amway/Quixtar IBO, research/analysis of the ATS since 2005 specifically and MLM in general, and the highlights of that effort incorporate the primary sources/references found here. In addition, the fraudulent, unfair, and deceptive acts and practices are being conducted cooperatively between Amway and the upline LCKs, in violation of the RICO Act (http://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act) Before proceeding, be sure to read and understand the Legal Notice found here: https://stoptheamwaytoolscam.wordpress.com/about/, as I won an important court decision against Amway, with some minor constraints, pay particular attention to the pdf link, items 5-11. Here’s a summary of what has been going on since about the 1960s, keep reading other sections for more detailed information: The Amway Tool Scam (ATS) refers to the hidden business behind the Amway business. When a prospect is shown the Amway business, they are NOT shown the much more lucrative ATS business. The ATS consists of various meetings, CDs, books, web site access, voice mail, etc., commonly referred to as “tools,” or more formally as BSM (Business Support Materials) sold by the upline IBOs (Independent Business Owners, e.g., distributors) to the downline within the Amway MLM, at huge profit margins. Only the top 1-2% of the upper level Amway IBOs make a profit from the ATS. The Amway business puts money in the IBOs’ pockets, the ATS extracts this money, and more. For the past 4 decades, literally millions of IBOs have been ripped off for 10s to 100s of billions of dollars. Well over 99% of IBOs are known to operate at a net loss, thanks to the ATS and other practices which dramatically increase overhead costs. The upper level IBOs make 2 to 9+ TIMES more from the ATS than from Amway. Amway’s cofounder Rich DeVos spoke out against the ATS in 1983, but little has been done in the U.S. about this issue. In fact, in 2002, Amway instructed the upper level IBOs that only a maximum of 2% of high level IBOs should make money from the ATS, and the remaining 98% IBOs should not even be aware there is an opportunity to make money from the ATS, which is clearly a RICO fraud. The UK government ruled in 2008 that zero profit is to be made from the tools, and India’s Amway rules since 2005 have price limits on the tools that make tools a small fraction of the U.S. prices, virtually eliminating profit. No similar action has been taken in the U.S. The benefit for Amway with this arrangement is Amway can keep their product prices inflated and bonus payout low, both of which increase their profit. The upline IBOs don’t want to “rock the boat” over these issues, as they are cleaning up via the ATS. This results in a win-win-lose scenario, with Amway winning by maximizing their profit, the top 1-2% of IBOs winning by double dipping Amway and ATS profits, and the 99+% losing money to both the Amway higher prices/lower bonus and high tool costs. The high Amway product prices results in little to no sales to non-IBOs; required by Amway rules but in North America is much less than 3.4% of the total volume, according to a 2006 3rd party confidential study disclosed through one of many lawsuits Amway has earned. Amway relies on written policies that the tools are optional, the upline must support IBOs whether or not they buy the tools, and a generic statement that some IBOs make money from the tools. However, the same rules require any information shown to prospects to be approved by Amway, and any conflict with Amway or an ATS owner be taken to Amway’s arbitration process, which has been called “unconscionable” and “illusory” by at least 7 U.S. judges across the country. In practice the tools are promoted VERY strongly, with the upline making statements such as, “The tools are optional, but so is success,” which means an IBO will not succeed without the tools. It is my personal experience the upline ignores IBOs who don’t buy the tools. Most new IBOs don’t have the knowledge, ability, or time to develop their own tools, nor do they have the ability to decipher the complex Amway rules, so they naturally use the upline ATS system. Numerous lawsuits among the high level IBOs have occurred over the years, mostly related to one individual or group stopping tool payments to other high level IBOs. This results in these groups experiencing rapid upheaval and destruction. The recent Pokorny class action lawsuit, one of very few that represented the “other 99%,” ended with a whimper, with no changes to the ATS, despite repeated requests to the court to take action against the ATS. I was an IBO from January 1993 until I was voluntarily terminated in September 2009, and have studied the ATS since early 2005. I KNOW what I am talking about. I do not exaggerate or make things up. I deal only in facts. The facts are I lost well over $100,000 and more importantly, a dozen years of my life chasing an illusion and RICO fraud.

However, I am blessed. I have often said the only thing worse than failing at Amway is succeeding at Amway, and this story is an illustration of why I say this: http://www.forbes.com/sites/walterpavlo/2014/06/16/fmr-kpmg-partner-scott-london-shares-cautionary-tale-before-prison/Here is my comment: This is exactly why I say the only thing worse than failing at Herbalife, Amway, etc., is succeeding at it: “At first the audience has their arms crossed believing they have nothing to learn, then they slowly start to engage in the presentation, then by the end their jaws drop thinking, ‘That could have been me.’” The reason for this is in order to succeed, you have to rip off others. I failed at Amway, and I am glad I did, because, had I succeeded, “That could have been me.” The key difference is the guy in the Forbes article knew he was breaking the law. In my case, and the case of most people just starting in MLM, I didn’t know Amway was an illegal pyramid scheme, nor did I even know about the ATS. As soon as I found out about the ATS, I withdrew from the uplines’ tools, and as soon as I was aware of the lack of retail sales being an illegal pyramid, I began speaking out about that issue as well.

For the details of these MLM scams, google “stop the amway tool scam wordpress” My letters and other communications complaining about the ATS to Amway, the FTC, FBI, DSA, Texas and Michigan AGs, U.S. Senator, Texas State representative, Collin County DA, numerous media outlets, and others have resulted in form letters, and no results. Amway sued me for exercising my First Amendment right, and informed IBOs about the ATS. If you want more information, contact me at stoptheamwaytoolscam@yahoo.com. ARE YOU A MEMBER OF THE PRESS, LAW ENFORCEMENT, LEGISLATURE, OR DO YOU KNOW SOMEONE WHO IS? CONTACT ME AT STOPTHEAMWAYTOOLSCAM@YAHOO.COM AND WE’LL BLOW THE LID OFF OF THE AMWAY TOOL SCAM. ALSO, IF YOU WOULD LIKE A PRESENTATION FOR YOUR BENEFIT, WHETHER IT BE A CHURCH, CLUB, NEIGHBORHOOD GROUP, ETC., JUST LET ME KNOW AND WE’LL WORK SOMETHING OUT.

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