The FTC and the state of Washington just announced the largest monetary recovery the agency has ever obtained from a multi-level marketing organization. Amway Corp. and two affiliated "approved provider" groups, World Wide Group and Leadership Team Development, will pay $225 million to settle allegations that they misled recruits, known as Independent Business Owners or IBOs, about likely earnings and pressured them into buying product they had no real opportunity to sell to consumers.

The complaint, filed contemporaneously with the stipulated order, alleges that IBOs were told to expect $40,000 or more a year, or income that would replace a full-time job, when most recent recruits spent more than they made. It also alleges inflated claims about recruiting success and access to mentoring from top performers.

The complaint's explanation for why those earnings never materialized is the more interesting allegation. It alleges Amway's products are priced at premium levels that make them genuinely hard to sell to non-IBOs, quoting an Amway executive's own 2019 presentation conceding that selling to customers is "not rewarded, not taught by leaders and difficult." Rather than address that issue, the complaint alleges WWG and LTD leaders instructed IBOs to buy a set volume of product every month to generate bonus-qualifying points and to recruit others to do the same, a practice the complaint says is known internally as "duplication." The result, per the complaint, is that Amway has sold more than three-quarters of its U.S. product volume to its own IBOs in recent years, not to retail customers, and IBOs stop buying almost entirely the moment they realize the costs of purchasing products is greater than the value of any bonus. Layered on top of that is the fabricated sales reporting allegation, that WWG and LTD instructed IBOs to falsely report that their self-purchases were ultimately sold to actual customers, so the business would look retail-driven rather than recruitment and inventory-driven.

The proposed order's injunctive provisions provide that IBOs must resell at least 70 percent of monthly purchases, recruiter compensation must drop when recruits buy but don't resell, sales must be reported promptly at actual prices with customer receipts, IBOs who fake sales must be terminated, and an independent auditor must periodically review sales records going forward.

The client takeaway extends well past multi-level marketing. As I advised in my post about the FTC's settlement with Publishing.com, any advertiser touting earnings claims to recruit salespeople should treat this order as a reminder that the FTC expects these types of claims to be tied to what typical, recent participants actually experienced, not to the best outlier or an aspirational average. The order's insistence on prompt, verifiable, third-party audited reporting also signals that self-reported performance data is losing credibility with the agency generally, not just in the MLM context. If a business relies on its own participants or customers to report results that get folded into marketing claims, that reporting pipeline is now fair game for scrutiny.