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S1237................................................by JUDICIARY AND RULES PYRAMID PROMOTIONAL SCHEMES - Amends existing law to revise terminology; to prohibit certain actions relating to pyramid promotional schemes; to revise definitions; and to provide that certain plans or operations shall not be prohibited or defined as pyramid promotional schemes. 01/27 Senate intro - 1st rdg - to printing 01/28 Rpt prt - to Jud 02/05 Rpt out - rec d/p - to 2nd rdg 02/06 2nd rdg - to 3rd rdg 02/11 3rd rdg - PASSED - 34-0-1 AYES -- Andreason, Bailey, Brandt, Bunderson, Burkett, Burtenshaw, Cameron, Compton, Darrington, Davis(Davis), Gannon, Geddes, Goedde, Hill, Ingram, Kennedy, Keough, Little, Lodge, Malepeai, Marley, McKenzie, McWilliams, Noble, Noh, Pearce, Richardson, Schroeder, Sorensen, Stegner, Stennett, Sweet, Werk, Williams NAYS -- None Absent and excused -- Calabretta Floor Sponsor - Richardson Title apvd - to House 02/12 House intro - 1st rdg - to Jud 03/01 Rpt out - rec d/p - to 2nd rdg 03/02 2nd rdg - to 3rd rdg 03/08 3rd rdg - PASSED - 67-0-3 AYES -- Andersen, Barraclough, Barrett, Bauer, Bayer, Bedke, Bell, Black, Block, Boe, Bolz, Bradford, Campbell, Cannon, Clark, Collins, Cuddy, Deal, Denney, Douglas, Eberle, Edmunson, Ellsworth, Eskridge, Field(18), Field(23), Gagner, Garrett, Henbest, Jaquet, Jones, Kellogg, Kulczyk, Lake, Langford, Langhorst, Martinez, McGeachin, McKague, Meyer, Miller, Mitchell, Moyle, Naccarato, Nielsen, Pasley-Stuart, Raybould, Ridinger, Ring, Ringo, Roberts, Robison, Rydalch, Sali, Sayler, Schaefer, Shirley, Skippen, Smith(30), Smith(24), Smylie, Snodgrass, Stevenson, Trail, Wills, Wood, Mr. Speaker NAYS -- None Absent and excused -- Crow, Harwood, Shepherd Floor Sponsor - Clark Title apvd - to Senate 03/09 To enrol 03/10 Rpt enrol - Pres signed 03/11 Sp signed 03/12 To Governor 03/16 Governor signed Session Law Chapter 51 Effective: 07/01/04
]]]] LEGISLATURE OF THE STATE OF IDAHO ]]]] Fifty-seventh Legislature Second Regular Session - 2004 IN THE SENATE SENATE BILL NO. 1237 BY JUDICIARY AND RULES COMMITTEE 1 AN ACT 2 RELATING TO PYRAMID SCHEMES; AMENDING SECTION 18-3101, IDAHO CODE, TO REVISE 3 TERMINOLOGY, TO PROHIBIT CERTAIN ACTIONS RELATING TO PYRAMID PROMOTIONAL 4 SCHEMES, TO DELETE THE DEFINITION FOR "CHAIN DISTRIBUTOR" OR "PYRAMID DIS- 5 TRIBUTOR SCHEME," TO DEFINE TERMS, TO REVISE DEFINITIONS, TO PROVIDE THAT 6 CERTAIN PLANS OR OPERATIONS SHALL NOT BE PROHIBITED OR DEFINED AS PYRAMID 7 PROMOTIONAL SCHEMES, TO PROVIDE CORRECT TERMINOLOGY AND TO MAKE A TECHNI- 8 CAL CORRECTION. 9 Be It Enacted by the Legislature of the State of Idaho: 10 SECTION 1. That Section 18-3101, Idaho Code, be, and the same is hereby 11 amended to read as follows: 12 18-3101. CHAIN ORPYRAMID DISTRIBUTORPROMOTIONAL SCHEMES PROHIBITED -- 13 PENALTIES -- SALE OF INTEREST VOIDABLE -- SCOPE OF REMEDY. (1) It is illegal 14 and prohibited for any person, or any agent or employee thereof, to establish, 15 promote, offer, operate, advertise or grant participation in a chain orany 16 pyramid distributorpromotional scheme. 17 (2) As used hereinin this section: 18 (a) A "chain distributor scheme" or a "pyramid distributor scheme" means19 any plan or operation whereby a person gives consideration for the oppor-20 tunity to receive consideration to be derived primarily from any person's21 introduction of other persons into participation in the plan or operation22 rather than from the sale of goods, services, or other intangible property23 by the person or other persons introduced into the plan or operation24 "Appropriate inventory repurchase program" means a program by which a plan 25 or operation repurchases, upon request at the termination of a 26 participant's business relationship with the plan or operation and based 27 upon commercially reasonable terms, current and marketable inventory pur- 28 chased and maintained by the participant for resale, use or consumption, 29 provided such plan or operation clearly describes the program in its 30 recruiting literature, sales manual, or contracts with participants, 31 including the manner in which the repurchase is exercised and disclosure 32 of any inventory that is not eligible for repurchase under the program. 33 (b) "Commercially reasonable terms" means the repurchase of current and 34 marketable inventory within twelve (12) months from the date of original 35 purchase at not less than ninety percent (90%) of the original net cost to 36 the participant, less appropriate set-offs and legal claims, if any. In 37 the case of service products, the repurchase of such service products 38 shall be on a pro rata basis, unless clearly disclosed otherwise to the 39 participant, in order to qualify as "commercially reasonable terms." 40 (c) "Compensation" means a payment of any money, thing of value, or 41 financial benefit. 42 (d) "Consideration" means anything of value,a payment of any money, or 43 the purchase of goods, services, or intangible property but shall not 2 1 include: 2 1. The not for profit sale of sales demonstration equipment and3 materials for usepurchase of goods or services furnished at cost to 4 be used in making sales and not for resale. 5 2. Time orand effort spent in sellingpursuit of sales or recruit- 6 ing activities. 7 (e) "Current and marketable" includes inventory that, in the case of con- 8 sumable or durable goods, is unopened, unused and within its commercially 9 reasonable use of shelf-life period. In the case of services and intangi- 10 ble property, including internet sites, "current and marketable" means the 11 unexpired portion of any contract or agreement. The term "current and mar- 12 ketable" does not include inventory that has been clearly described to the 13 participant prior to purchase as a seasonal, discontinued, or special pro- 14 motion product not subject to the plan or operation's inventory repurchase 15 program. 16 (f) "Inventory" includes both goods and services, including company- 17 produced promotional materials, sales aids and sales kits that the plan or 18 operation requires independent salespersons to purchase. 19 (g) "Inventory loading" means that the plan or operation requires or 20 encourages its independent salespersons to purchase inventory in an amount 21 that unreasonably exceeds that which the salesperson can expect to resell 22 for ultimate consumption, or to use or consume, in a reasonable time 23 period. 24 (h) "Participant" means a natural person who joins a plan or operation. 25 ( ci) "Person" means a natural person, partnership, corporation, trust, 26 estate, business trust, joint venture, unincorporated association, or any 27 other legal or commercial entity. 28 (j) "Promote" means to contrive, prepare, establish, plan, operate, 29 advertise or otherwise induce or attempt to induce another person to be a 30 participant. 31 (k) "Pyramid promotional scheme" means any plan or operation in which a 32 participant gives consideration for the right to receive compensation that 33 is derived primarily from the recruitment of other persons as participants 34 in the plan or operation rather than from the sales of goods, services or 35 intangible property to participants or by participants to others. 36 (3) A limitation as to the number of persons who may participate, or the 37 presence of additional conditions affecting eligibility, or upon payment of 38 anything of value by a person whereby the person obtains any other property in 39 addition to the right to receive consideration, does not change the identity 40 of the scheme as a chain orpyramid distributorpromotional scheme. 41 (4) Any person, or any agent or employee thereof who wilfullywillfully 42 and knowingly promotes, offers, advertises, or grants participation in a chain43 orpyramid distributorpromotional scheme shall be guilty of a felony. 44 (5) All chain orpyramid distributionpromotional schemes offered by the 45 same person, or agents or employees thereof, or any person controlled by or 46 affiliated with such person, for the same type of consideration, at substan- 47 tially the same period of time and for the same general purpose, shall be 48 deemed to be one (1) integrated chain orpyramid distributorpromotional 49 scheme, even though such chain orpyramid distributorpromotional schemes may 50 be given different names or other designations. 51 (6) Nothing in this section or in any rule promulgated pursuant to this 52 section shall be construed to prohibit a plan or operation, or to define such 53 plan or operation as a pyramid promotional scheme, based upon the fact that 54 participants in the plan or operation give consideration in return for the 55 right to receive compensation based upon purchases of goods, services or 3 1 intangible property by participants for personal use, consumption or resale, 2 provided the plan or operation implements an appropriate inventory repurchase 3 program and does not promote inventory loading. 4 (7) Any violation of this actsection shall also be deemed an unfair and 5 deceptive practice in violation of the Idaho consumer protection act. Any per- 6 son aggrieved by a violation of this section can recover monetary damages pur- 7 suant to the Idaho consumer protection act. 8 ( 78) The rights and remedies that are granted under the provisions of 9 this section to purchasers in chain orpyramid distributorpromotional schemes 10 are independent of and in addition to any other right or remedy available to 11 them in law or equity, and nothing contained herein shall be construed to 12 diminish or abrogate any such right or remedy.
STATEMENT OF PURPOSE RS 13717C1 This legislation amends Section 18-3101, Idaho Code, to more clearly define and strengthen the current law relating to the prohibition of pyramid promotional schemes in Idaho. This bill will differentiate between legitimate direct selling opportunities and inherently fraudulent pyramid schemes by creating a clear and specific set of definitions, and thus, protect Idaho residents from becoming potential victims of illegal pyramid promotional schemes by giving law enforcement better tools to prosecute. Not only will this bill protect the potential victims of current and future fraudulent pyramid schemes, but it will also protect the estimated 60,000 Idaho citizens who supplement their incomes through legitimate direct selling opportunities. FISCAL IMPACT There is no anticipated fiscal impact. Contact Name: Dean Heyl, Direct Selling Association Phone: (202) 220-9420 Name: Pam Eaton, Idaho Retailers Association Phone: (208) 342-0010 x2 S 1237