Worse Than Madoff: Amway Launches Domestic Revival

While the alleged Ponzi scheme of New York investment manager Bernie Madoff has claimed significant parts of the fortunes of celebrities, B-list millionaires, charities, and foundations, another outfit has left a trail of a slightly different sort over the years: the broken dreams of middle-class wannabe entrepreneurs left only with garages full of products, motivational tapes, and get-rich-quick books doing little but gathering dust.

If you’ve watched any television at all since the holidays, you might have wondered why a company called Amway Global ran so many commercials. Were these ads for the same company that has, over the years, been widely accused of running a pyramid scheme, paid nearly $20 million in fines in a Canadian criminal fraud case, and whose image with the public in recent years soured faster than a carton of cottage cheese in the sun?

More recently, two former Quixtar distributors filed a class-action suit in the US District Court (Northern District of California), charging Quixtar and several of its high-level distributors with fraud and racketeering. According to a report at CaseWatch (“Your Guide to Health Fraud- and Quackery-Related Legal Matters”), the allegations of the complaint include:

“Quixtar is an illegal pyramid scheme because most of its sales are to distributors rather than to retail customers.”

“The defendants recruit distributors by making false or misleading statements.”

“Quixtar products would be difficult to sell to unaffiliated consumers because they cost much more than similar products at retail outlets.”

“Quixtar’s lowest-level distributors are instructed not to waste time on marketing and retailing the products, but instead to focus on consuming the products themselves and recruiting others to be distributors.”

“Most products are purchased by Quixtar distributors for their own use, and any profit is eliminated by the costs of buying instructional materials.”

“Quixtar has ‘unconscionable’ arbitration policies that prevent most distributors from recovering their losses if problems arise.”

Despite these controversies, and after virtually dropping out of sight in the United States around the turn of the last century, Amway—currently known as “Amway Global”—appears to be heading back home. Can the company, which celebrates its fiftieth anniversary this year, stage a successful comeback in the U.S., or are they throwing a very desperate Hail Mary?

“Heart-Wrenching Testimonials”

Eric Scheibeler, author of Merchants of Deception: An Insider’s Look at the Worldwide, Systematic, Conspiracy of Lies That is Amway/Quixtar and their Motivational Organizations—available free on the author’s Web site—told me that the controversies stalking the company continue to this day. Scheibeler said that he had “worked with local victims and initiated a UK government investigation in which the DTI/BERR (Department of Trade and Industry/Business, Enterprise & Regulatory Reform) took legal action against Amway and is waiting for an appeals court decision to potentially ban them from the country.”

According to Scheibeler (a high-level “Emerald” Amway member who uncovered fraud and deception within the company and was ostracized for it):

UK Justice Norris found in 2008 that out of an IBO [Independent Business Owners] population of 33,000, “only about 90 made sufficient incomes to cover the costs of actively building their business.” That’s a 99.7% loss rate for investors. The scheme appears to be falling apart in the US, UK, and Australia hence the beefed up prime-time ads in the US.

Many of [Amway’s] highest-level distributors have left to join other multilevel marketing groups, and I now have an internal management document detailing a five year 96% dropout rate. Thousands of Amway victims from countless nations have sent me heart-wrenching testimonials. Quite a few involve losses in excess of $10,000.

Through his time selling Amway products, Scheibeler, who had developed a business that extended from North America to Europe, South America, and the Philippines, met a number of politically powerful Republican politicians and conservative religious leaders, including former House Speaker Newt Gingrich, former Iran/Contra figure Oliver North, and then-Senator Rick Santorum. Religious leaders like Charles Stanley (a former distributor), Dr. Robert Schuller and the late Dr. D. James Kennedy of Florida’s Coral Ridge Ministries—a multimedia, multimillion dollar ministry—gave the company and its founders a credibility that seemed to be beyond reproach. Former US presidents Ronald Reagan, Gerald Ford, and George H.W. Bush also spoke to Amway distributors.

In 1959, the Ada, Michigan-based Amway—an abbreviation of American Way—was founded by two high school buddies from Grand Rapids, Michigan, Richard DeVos and the late Jay Van Andel. In 2000, it became part of an umbrella company called Alticor Inc., which does business as Quixtar in the United States and Canada and as Amway Corp. throughout the rest of the world. Whatever name it goes by, Amway is in the process of launching a major comeback in the United States.

A Scam by Any Other Name

Over the last four decades of the 20th century, Amway became a phenomenally successful company, and is now the second-largest direct sales company in the world. In 2007, Amway Global and other companies under the Alticor umbrella reported sales of $7.2 billion, marking the company’s sixth straight year of growth.

Van Andel and DeVos used a portion of their wealth as a de facto insurance policy, becoming major financiers of Republican Party candidates and religious right causes. According to Progress for America, Amway’s founders contributed $4,000,000 to conservative 527 groups during the 2004 election cycle. In April 2005, Rolling Stone reported that Amway CEO and co-founder Richard DeVos was connected with the Dominionist political movement in the United States and that DeVos had given more than $5 million to Coral Ridge Ministries.

Despite the controversies and legal challenges the company continues to face, it never went out of business; it merely shifted the bulk of its efforts to overseas markets. These days, the company’s three hotspots are Russia, China, and India. “In the late 1980s, about three-quarters of our business was here in the U.S.,” Steve Van Andel, Alticor’s co-chief executive (and son of one of its founders), recently told the AP. “Now about 80 percent of it is outside the country.”

According to the Associated Press, Alticor is “shelving the inert Quixtar label and pouring millions of dollars into reviving the Amway brand in North America with market research, national television commercials, and ads in newspapers, magazines, and online.”

The privately-owned company, which is called Amway Global—though it intends to revert back to Amway in about a year—has several goals. Not least among them, the corporation seeks to refurbish its tarnished image and to reacquaint the public with the company’s extensive product line of health and beauty items, home care products, jewelry, and water purifiers.

“We thought, well, if we’re going to build a brand, build the brand that everybody knows already,” Alticor president and co-CEO Doug DeVos said in an interview with the AP. “It’s going to be much more successful and cost a lot less and happen a lot faster.”

While times may be tough economically for a sustained rebirth, company officials “hope to repeat in the United States the kind of growth they’ve seen abroad in the past—and to revive the mystique that helped the company spread throughout the Midwest and, by the mid-1960s, the rest of the United States. Amway’s hundreds of thousands of distributors dreamed of getting rich by selling cleaning products and by recruiting their acquaintances to join the fold,” the AP reported.

According to the AP, the company is still “operating on that basic model, including prices that tend to be higher than those of their competitors, Amway saw global sales revenue top $7.1 billion in its 2007 financial year. The company predicts another $1 billion increase this year. And most of its recent growth, in such developing Asian markets as China, India, and Russia, has been under the Amway name.”

Despite hiring marketing executives to help revitalize the relaunch—and despite the fact that an FTC examination into Amway’s business practices concluded in 1979 that it was not an illegal pyramid scheme (because compensation is based on retail sales to consumers, and because salespeople are not paid for recruiting new colleagues)—government investigations are still underway in England, India, and China.

Political Kingmakers

There is no question that the Amway story is a unique Horatio Alger-like American success story. What makes it even more fascinating is that the company’s founders—and their progeny—have become political kingmakers along the way.

In October, former Amway Corp. chief Dick DeVos held a private benefit, featuring President George W. Bush, to raise money for the National Republican Congressional Committee and the Republican National Committee. For nearly 40 years, the DeVos family has been a major benefactor to both the religious right and the Republican Party. Shortly before the 1994 election, the Amway Corporation gave the GOP $2.5 million which, at the time, was “the largest political donation in recent American history,” according to the Washington Post. And, in 1996, the company donated $1.3 million to the San Diego Convention and Visitor’s Bureau “to help fund a Republican cable TV show to be aired during the party’s national convention,” the Associated Press reported. The program featured “rising GOP stars as ‘reporters,’” and aired on the Pat Robertson-owned Family Channel.

The Richard and Helen DeVos Foundation, which was founded in 1970, has provided major funding for such right-wing groups as Concerned Women for America, the late Paul Weyrich’s Free Congress Foundation, Michigan Right to Life, Dr. James Dobson’s Focus on the Family, and Tony Perkins’ DC-based lobbying group the Family Research Council. Foundations with the DeVos family name attached to it now include the Dick and Betsy DeVos Foundation (1990), the Daniel and Pamela DeVos Foundation (1992), and the Douglas and Maria DeVos Foundation (1992).

There is also a DeVos connection to Blackwater USA, the world’s most powerful mercenary army, and the largest contractor providing security in Iraq. That company too is currently up to its neck in Iraq-related legal problems. Blackwater was founded by former Navy SEAL Erik Prince, the son of Edgar Prince, a wealthy Michigan auto-parts supplier. The elder Prince is described by Jeremy Scahill, in his bestselling book Blackwater: The Rise of the World’s Most Powerful Mercenary Army, as a “radical right-wing Christian mega-millionaire” who was a strong financial backer of President George W. Bush, as well as a donor to a host of conservative Christian political causes.

In the 1980s, the Prince family merged with the DeVos family as Eric’s older sister Betsy married Dick DeVos, whose father Richard was a co-founder of Amway, according to Scahill. Together, the two families became one of the “greatest bankrollers of far-right causes in US history, and with their money they propelled extremist Christian politicians and activists to positions of prominence.”

In 2006, former Amway President Dick DeVos decided to run for governor of Michigan. Running as a Republican against Michigan Governor Jennifer Granholm, DeVos was soundly defeated by 56 to 42 percent of the popular vote. He recently announced that he would not run again in 2010.

“Although Bernard Madoff allegedly swindled $50 billion from about 8,000 victims, he seems to be an amateur in comparison to Amway,” Eric Scheibeler noted. “Amway has brought in far in excess of that amount from tens of millions of consumers who invested in ‘their own Amway business’ and it seems nearly all did so and continue to do so at a loss. The difference is that the Madoff pipeline is shut down, while you may be recruited to an Amway meeting tomorrow.”

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Note: We contacted Amway Global with several questions, including ones about the UK suit and its political donations. A public-relations spokesperson answered a few general questions and said that he would pass the rest on to other company officials. We have not heard from any other company officials.

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