The Federal Trade Commission investigated Amway through the 1970s on the question of whether it was an illegal pyramid scheme, and in 1979 an administrative law judge ruled that it was not.
The reasoning turned on three rules the company had adopted.
The buy-back rule: the company would repurchase unsold inventory from a distributor leaving the business. The seventy percent rule: a distributor had to sell or use at least seventy percent of purchased product before ordering more. And the ten-customer rule: a distributor had to make sales to at least ten retail customers each month to receive bonuses.
Together these were held to ensure that compensation derived from retail sales to consumers rather than from recruitment, which is the legal distinction between direct selling and a pyramid.
The same decision found that Amway had fixed prices and had misrepresented distributor earnings, and ordered it to stop. In 1986 the company paid a hundred thousand dollars in civil penalties for violating the earnings-representation part of that order.
The ruling became the template. Multi-level marketing companies structure themselves around the Amway safeguards, and the FTC's subsequent enforcement — including chapter 269 — has largely turned on whether those safeguards operate in practice.
Frequently they do not. The rules are self-reported and unaudited: a distributor attests to their retail sales, and the company's incentive is not to check. Personal consumption by distributors counts as sales, so a network can be entirely self-consuming and still satisfy a seventy percent rule on paper.
The persuasive engine, meanwhile, was untouched, and it is what this chapter is about.
Recruitment runs on income testimony: a person on a stage describing what the business did for them, in front of an audience of people who could be that person. Every such account is true. The population of speakers is selected entirely from the top of a distribution whose lower ninety-nine percent is not represented on stages.
That is the availability heuristic of chapter 150 operating as a business model. Probability is judged by the ease with which instances come to mind, and the instances available are vivid, recent, personal and uniformly successful. The losers are not on the stage, have not written testimonials, and have generally stopped attending.
Optimism bias completes it. Weinstein's work established that people systematically judge themselves less likely than others to experience negative outcomes, so even a recruit who is told the base rate frequently locates themselves outside it.
The FTC's order requiring average-income disclosure is the correct instrument, and the next chapter is what those disclosures show.
Cross-ref: Defense — Demanding the Base Rate