March 15, 2018, Introduced by Reps. Leutheuser, Lucido, Marino, Hornberger, Iden and Noble and referred to the Committee on Commerce and Trade.
A bill to prohibit pyramid promotional schemes; to provide for
the powers and duties of certain state and local governmental
officers and entities; and to prescribe penalties and provide
remedies.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"pyramid promotional scheme act".
Sec. 2. As used in this act:
(a) "Commercially reasonable terms" means the repurchase of
current and marketable inventory within 12 months after the date of
purchase at not less than 90% of the original net cost, less
appropriate setoffs and legal claims, if any.
(b) "Compensation" means a payment of any money, thing of
value, or financial benefit conferred in return for inducing an
individual to participate in a pyramid promotional scheme.
(c) "Consideration" means the payment of cash or the
purchase of goods, services, or intangible property. The term does
not include the purchase of goods or services furnished at cost to
be used in making sales and not for resale, or time and effort
spent in pursuit of sales or recruiting activities.
(d) "Inventory" includes both goods and services, including
company-produced promotional materials, sales aids, and sales kits
that a plan or operation requires participants to purchase.
(e) "Inventory loading" means the requirement or encouragement
by a plan or operation that its participants purchase inventory in
an amount that exceeds the amount that the participant can expect
to resell for ultimate consumption or to consume in a reasonable
time period, or both.
(f) "Inventory repurchase program" means a program by which a
plan or operation does all of the following:
(i) Promises to repurchase all current and marketable
inventory in the possession of a participant, upon request and upon
commercially reasonable terms, when the participant's business
relation is terminated.
(ii) Clearly communicates the terms described in subparagraph
(i) in its recruiting literature, sales manual, or contracts with
participants, including the manner in which the repurchase is to be
exercised and disclosure of any inventory that is not eligible for
repurchase under the program.
(g) "Participant" means an individual who joins a plan or
operation.
(h) "Promote" means to contrive, prepare, establish, plan,
operate, advertise, or otherwise induce or attempt to induce an
individual to participate in a pyramid promotional scheme.
(i) "Pyramid promotional scheme" means any plan or operation
by which an individual gives consideration for the opportunity to
receive compensation that is derived primarily from the
introduction of other individuals into the plan or operation rather
than from the sale and consumption of goods, services, or
intangible property by a participant or other individuals who are
introduced into the plan or operation. The term includes any plan
or operation under which the number of individuals who may
participate is limited either expressly or by the application of
conditions affecting the eligibility of an individual to receive
compensation under the plan or operation, or any plan or operation
under which an individual, on giving any consideration, obtains any
goods, services, or intangible property in addition to the right to
receive compensation.
Sec. 3. (1) A person shall not establish, promote, operate, or
participate in a pyramid promotional scheme. A limitation as to the
number of individuals who may participate or the presence of
additional conditions affecting eligibility for the opportunity to
receive compensation under a plan or operation does not change the
identity of the plan or operation as a pyramid promotional scheme.
(2) A person that establishes, promotes, or operates a pyramid
promotional scheme is guilty of a felony punishable by imprisonment
for not more than 4 years or a fine of not more than $5,000.00, or
both. A person that knowingly participates in a pyramid promotional
scheme is guilty of a misdemeanor punishable by imprisonment for
not more than 90 days or a fine of not more than $1,000.00, or
both.
Sec. 4. (1) If the attorney general has reasonable cause to
believe that a person has engaged or is about to engage in any act
or practice that violates this act, or any order issued under this
act, the attorney general may do any of the following:
(a) Issue a cease and desist order, with or without a prior
hearing, against any person engaged in the prohibited activities,
directing the person to cease and desist from further illegal
activities.
(b) Bring an action in the circuit court of the county in
which the violation is believed to have occurred to do any of the
following:
(i) Enjoin the acts or practices that violate this act.
(ii) Enforce compliance with this act or any order issued
under this act.
(c) Order payment of an administrative fine by any
person that is found in an administrative proceeding to have
violated this act or any order issued under this act. The amount of
an administrative fine under this subdivision shall not exceed
$10,000.00 for each violation. The attorney general may bring an
action in the circuit court of the county in which the violation
occurred to recover an administrative fine imposed under this
subdivision. The proceeds of any administrative fines under this
subdivision shall be paid to the state treasurer and credited to
the state general fund.
(2) The attorney general shall notify a person named in a
cease and desist order issued under subsection (1) of the person's
right to file, within 15 days after receiving the order, a written
notice for a hearing. If the attorney general does not receive a
written request for a hearing within the time specified, the cease
and desist order is permanent and the person named in the order is
considered to have waived all rights to a hearing.
(3) A cease and desist order issued under this section must
state all of the following:
(a) The effective date of the order.
(b) The intent or purpose of the order.
(c) The grounds on which the order is based.
(4) A person aggrieved by a final order issued under this
section may obtain a review of the order in the circuit court of
the county in which the violations of this act are found to have
occurred.
(5) Upon a proper showing to the appropriate circuit court, a
permanent injunction, temporary injunction, restraining order, or
writ of mandamus may be granted and a receiver or conservator may
be appointed for the person alleged to have violated this act or
the assets of the person alleged to have violated this act. In
addition, upon a proper showing by the attorney general, the
circuit court may enter an order of rescission, restitution, or
disgorgement directed to any person that has engaged in any act
violating this act or any order issued under this act.
(6) A circuit court may award to the attorney general court
costs and attorney fees in an action brought under this section.
(7) This section does not bar the attorney general or a
prosecuting attorney from proceeding under any other provision of
law against a pyramid promotional scheme or any person involved
with a pyramid promotional scheme.
Sec. 5. (1) This act shall not be construed to prohibit a plan
or operation, or to define a plan or operation as a pyramid
promotional scheme, based on the fact that participants in the plan
or operation give consideration in return for the right to receive
compensation based on purchases of goods, services, or intangible
property by participants for personal use, consumption, or resale
if both of the following conditions are satisfied:
(a) The plan or operation does not cause inventory loading.
(b) The plan or operation implements a bona fide inventory
repurchase program that meets the requirements of this section.
(2) A person must clearly describe an inventory repurchase
program in its recruiting literature, sales manual, or contracts
with participants. The recruiting literature, sales manual, or
contract must disclose any inventory that is not eligible for
repurchase under the program.
(3) An inventory repurchase program is not required to apply
to inventory that meets any of the following:
(a) It is no longer within the inventory's commercially
reasonable use or shelf life period.
(b) It has been used or opened.
(4) A person must clearly describe to a participant, before
the purchase, inventory that is excluded from the person's
inventory repurchase program as seasonal, discontinued, or special
promotion products that are not subject to the person's inventory
repurchase program.
Enacting section 1. This act takes effect 90 days after the
date it is enacted into law.
Enacting section 2. This act does not take effect unless all
of the following bills of the 99th Legislature are enacted into
law:
(a) Senate Bill No.____ or House Bill No. 5727 (request no.
04879'17 a).
(b) Senate Bill No.____ or House Bill No. 5729 (request no.
04879'17 b).