Regulates multilevel distribution companies

Section 2: Prohibits multilevel distribution companies from basing a participant's commission or compensation on a patterned practice of recruitment, engaging in an act of inventory loading defined as the coercion of individuals to purchase inventory in bulk as a prerequisite to participate in marketing and sales plan, making false income claims and statements unless the company has documented data to substantiate the claims, or require a large upfront investment. Requires that multilevel distribution companies put on all advertising or sales materials and/or state at all live presentations the following phrase: "financial success of other participants does not guarantee a similar result." Mandates that multilevel distribution companies provide all prospective participants a disclosure statement with information about length of time the company has been in operation, description of expectations for each level of distribution, the manner, extent, and/or amount in which participants will be compensated. The disclosure statement must be translated into the primary language of the prospective participant, if requested.

Section 3: Mandates that multilevel distribution companies maintain on record, for a period of three years, participant's contract, disclosure document, marketing and advertisement materials, business handbook, compensation plan documents, materials pertaining to participant conduct requirements, and rules for participants.

Section 4: Requires all contracts and disclosure documents between a multilevel distribution company and a participant be in writing and a copy given to the participant at the time of execution. Multilevel distribution companies must repurchase goods that are unused and unencumbered for a period of 12 months at a price that is at least 90 percent of the original price paid by the participant.

Section 5: Mandates the Division of Consumer Protection in conjunction with the Office of New Americans to produce an outreach education program with information about the risks and advantages of becoming a multilevel distribution company participant. The division in conjunction with the office can partner with community-based organizations, religious groups, and other community leaders to disseminate relevant information.

Section 6: Grants the state attorney general the right to bring a civil action against a company that violates one or more provisions of the new section 396-a-1 in article 26 of the general business law. The attorney general can audit the records of a multilevel distribution company at his or her discretion, or upon receipt of complaints. Courts may impose a civil penalty of not more than $5,000 per violation, which will be used to fund the community outreach programs operated by the Division of Budget in conjunction with the Office of New Americans. Allows for it to be a rebuttable presumption that a multilevel distribution company has not violated the prohibitions outlined in section 2, if during a legal proceeding such company can produce an anti-inventory loading business policy, proof of a business policy that limits large upfront investments, proof of a business practice that encourages actual selling of products to individuals other than contracted participants, and proof of the company's repurchasing policy.

Justification

This legislation is to mitigate the potential harm suffered by participants in multilevel distribution companies, and to curb some of the worst abuses that are prevalent in the industry.

Legislative history

New Bill.

Fiscal implication

To be determined.

Effective date

On January first, next succeeding the date upon which it shall have become a law.