The British subsidiary of one of the world's biggest marketing groups was accused yesterday of breaking company law by "selling a dream" of unachievable wealth.
Amway, which had 39,000 selling agents in Britain during 2005-06, is "inherently objectionable", operates as a lottery and is trading unlawfully, the Companies Court was told.
Mark Cunningham, QC, on behalf of John Hutton, the Secretary of State for Business, Enterprise and Regulatory Reform, told the court that the Government was seeking to wind up Amway in the public interest following an investigation into its business practices.
The allegations are seriously damaging to the international group, which claims to have a worldwide salesforce of more than three million people and a turnover of $6.4 billion (£3.2 billion).
The Government investigation claims to have revealed that just 10 per cent of Amway's agents in Britain make any profit, with less than one in ten selling a single item of the group's products. It claims that Amway's main activity is encouraging other people to join its salesforce so that they pay the registration fee and buy marketing materials.
Mr Cunningham said that Amway attracted new agents, known as Independent Business Owners (IBOs), by offering "substantial financial rewards or easy money". He said that promise of wealth was "illusionary" and amounted to "dream selling".
The group, which has been operating in Britain since 1973, claims that agents can earn a substantial income from selling its range of dietary supplements, cosmetics, jewellery and water purifiers. They are also offered bonuses for recruiting other agents. However, an investigation by the Department for Business, Enterprise and Regulatory Reform showed that only 6 per cent of agents bought Amway products to sell on, the court was told.
Mr Cunningham said that the vast majority of products offered by Amway to its agents were overpriced even before they were expected to add a further 20 to 25 per cent for retail. "The unattractive pricing explains some the graver vices that are at the centre of the winding-up application," Mr Cunningham said.
Agents were encouraged to buy instructions on how to grow their businesses by attracting new agents. The material contained images of success such as luxury cars, boats and foreign holidays.
Mr Cunningham told the court: "The prospect of substantial rewards and easy money has been at all times, and remains, illusionary."
The investigation discovered that 71 per cent of agents made no income from Amway in the year 2005-06 and that 90 per cent had made a loss after paying the £18 fee to renew their registration. In fact, just 101 of the agents shared 75 per cent of the bonuses.
"The reality of being an IBO is that a substantial majority make minimal financial returns," Mr Cunningham said. "Our case is founded on the selling of the dream on one hand and the loss or minimal financial return on the other."
Mr Cunningham told the court that Amway operates a "pernicious" scheme, which encourages agents to recruit family, friends and colleagues to the group so that they themselves could move up to "that very narrow group that makes any money".
He said that the Amway scheme involved targeting the "gullible", "deluded" and "vulnerable" to join the scheme and accused the group of "dream selling."
"Amway presents itself to be life changing and life enhancing - if you choose to participate," Mr Cunningham told the court. "The millions of aspirational achievers, the idea that this is a success in global terms - we will show otherwise."
One marketing presentation authorised by Amway offered the opportunity for a "small secondary income or an income which would rank in the top 2 per cent of money earners." It added that such money "is being achieved in the same time it takes to study for a degree".
However, Amway's own records showed that only Trevor and Jackie Lowe, and Jerry and Mandy Scriven among its agents earned more than the £78,000 required to place them in the top 2 per cent of earners, the court was told. The records showed that it takes at least 14 years to make it into the top 20. The top 12 new joiners since 2001 earned an average of just £164 a week, said Mr Cunningham. The "snapshot" of Amway's records showed that of the 25,000 agents operating at that time, just 37 made more than £25,000 a year.
Amway has claimed that it has substantially changed it business model since the department lodged its petition to wind up the company in April. Richard De Vos, who founded the group in the United States in 1959, has an estimated personal fortune of $3.6billion.
Countdown
39,000
agents working for Amway
27,000
(71%) had no income
11,410
(30%) earned something
7,492
(of the 11,410) received average of £13.53 per year
101
agents received 75 per cent of bonuses
£116Kv paid to top earner Trevor Lowe
26
number of years Mr Lowe was an agent
Source: Evidence at companies court hearing
