James R. and Janet M. Landrum - Page 5

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          terminated the activity for lack of profit.  In late 1995,                  
          petitioners were introduced to Amway a fourth time by friends of            
          Mrs. Landrum.  This fourth Amway experience is the subject of the           
          present controversy.                                                        
               Petitioners understood the Amway structure and compensation            
          technique throughout the years in issue.  Mr. Landrum summarized            
          it in terms of a 6-4-2 illustration.  He explained that the Amway           
          participant should purchase his own household products from                 
          Amway.  If he buys $100 of merchandise monthly, he receives a               
          bonus.  He then recruits six other persons to use $100 of Amway             
          merchandise monthly, and consequently the initial Amway                     
          participant receives appropriate bonus amounts with respect to              
          those six persons.  He is “upline” from them, and they are                  
          “downline” from him.  If each of the six downline recruits then             
          enlists four subrecruits, each of whom uses $100 of products                
          monthly, the initial Amway participant receives bonus as to usage           
          from this larger group (1 + 6 + 24 for a total of 31).  Finally,            
          in this illustration, if each of the 24 subrecruits persuades two           
          additional people to participate in Amway and purchase $100 of              
          product monthly, the group relevant to the computation of the               
          initial Amway participant’s monthly bonus will be expanded to an            
          even larger number (1 + 6 + 24 + 48 for a total of 79).  In the             
          6-4-2 illustration, if each participant continues to purchase               

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