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Hearing from Corporate and Field Leaders
Many industry leaders are concerned about the lack of uniformity of the MLM laws throughout the country. "Normally I wouldn't want the federal government in my life or in my industry,"
says Peter Hirsch, author of Living with Passion, "but I
believe Network Marketing is at a critical juncture: either our industry
must be made to conform to some significant ethical standards or be prepared
to lose some of our best people."
Although he admittedly has mixed emotions, Steve Lund, President of Nu
Skin Enterprises, believes a uniform regulatory program is needed for
the direct selling companies. "That has to be better than the current
gridlock of several complex federal regulations combined with 50 conflicting
state regulations. However, my skepticism is that the federal government
would be able to understand the complexity of our industry sufficiently
to create such a framework without doing damage to the fundamentals of
the business."
"I would also like to see federal legislation that actually legitimized
the industry," adds Jerry Campisi. "Right now, with 50 different regulations
in 50 different states that govern the networking industry, it's absurd.
Just like franchising in the sixties, it was difficult to get through
Congress because the representatives thought it was just another way of
getting an up-front fee. Little did they realize it was an entirely new
way of doing business. Today hundreds of millions of dollars are generated
through the franchising industry with it representing about one third
of the Gross National Profit. It has gained worldwide acceptance, but
this came as a result of Congress legitimizing the industry by putting
laws into place that regulated everyone equally. I see that coming very
soon for Network Marketing."
How You can assist the DSA in Regulating our Industry
Leaders from the DSA are dealing assertively with the question by lobbying
state legislatures to clarify their "anti-pyramid" statutes. "We now have
an anti-pyramid substitute for the language we've been using in the industry
that has been enacted by the 1999 Montana State Legislature and signed
by the State's Governor," Neil Offen proudly reports. DSA is prepared
to go, state by state, to develop a uniform code of anti-pyramid law,
and once and for all determine a uniform policy for the rules governing
multi-level direct sales in the United States. I encourage State legislators,
lobbyists, and concerned citizens to download the 1999 Montana House Bill
#121 introduced by B. Krenzler. Then, if you are inclined, you may want
to work with the DSA to introduce a similar bill into the next legislative
session in your state. If you want to help with this process, contact
your state legislator and forward this bill to him or her along with this
request by going to www.house.gov/writerep
and leaving your name, address, and information about this matter. It
is going to take this kind of grass roots effort, person by person, state
by state, and country by country, to effect this much-needed uniformity
for our industry.
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Montana 56th Regular Session
1999 MT H 121
Enacted
19990316
Krenzler
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1999 Montana Legislature
HOUSE BILL NO. 121
INTRODUCED BY B. KRENZLER
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BY REQUEST OF THE STATE AUDITOR AN ACT PROHIBITING PYRAMID
PROMOTION SCHEMES AND PROVIDING CRIMINAL PENALTIES; AND REQUIRING MULTILEVEL
DISTRIBUTION COMPANIES TO FILE A NOTICE OF ACTIVITY WITH THE SECURITIES
COMMISSIONER AND TO CONSENT TO SERVICE OF PROCESS. BE IT ENACTED BY THE
LEGISLATURE OF THE STATE OF MONTANA:
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Section 1. Definitions. As used in [sections 1
through 3], the following definitions apply:
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(1) (a) "Compensation" means the reciept of money,
a thing of value, or a financial benefit.
(b) Compensation does not include:
(i) payments to a participant based upon the sale of
goods or services by the participant to third persons when the goods or
services are purchased for actual use or consumption; or
(ii) payments to a participant based upon the sale of
goods or services to the participant that are used or consumed by the
participant.
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(2) (a) "Consideration" means the payment of money,
the purchase of goods or services, or the purchase of intangible property.
(b) Consideration does not include:
(i) the purchase of goods or services furnished at cost
that are used in making sales and that are not for resale; or
(ii) a participant's time and effort expended in the
pursuit of sales or in recruiting activities.
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(3) (a) "Multilevel distribution company" means a person
that:
(i) sells, distributes, or supplies goods or services
through independent agents, contractors, or distributors at different
levels of distribution;
(ii) May recruit other participants in the company; and
(iii) is eligible for commissions, cross-commissions,
override commissions, bonuses, refunds, dividends, or other consideration
that is or may he paid as a result of the sale of goods or services or
the recruitment of or the performance or actions of other participants.
(b) The term does not include an insurance producer,
real estate broker, or salesperson or an investment adviser, investment
adviser representative, broker-dealer, or salesperson, as defined in 30-10-103,
operating in compliance with this chapter.
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(4) "Participant" means a person involved in a sales
plan or operation.
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(5) "Person" means an individual, corporation, partnership,
limited liability company, or other business entity.
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(6) (a) "Pyramid promotional scheme" means a sales plan
or operation in which a participant gives consideration for the opportunity
to receive compensation derived primarily from obtaining the participation
of other persons in the sales plan or operation rather than from the sale
of goods or services by the participant or the other persons induced to
participate in the sales plan or operation by the participant.
(b) A pyramid promotional scheme does not include a sales
plan or operation that:
(i) does not compensate a participant solely for obtaining
the participation of other persons in the sales plan or operation;
(ii) subject to the provisions of subsection (6)(b)(vi),
provides Compensation to a participant based primarily upon the sale of
goods or services by the participant, including goods or services used
or consumed by the participant, and provides compensation to the participant
based upon the sale of goods or services by persons whose participation
in the sales plan or operation has been obtained by the participant;
(iii) does not require a participant to purchase goods
or services in an amount that unreasonably exceeds an amount that can
be expected to be resold or consumed within a reasonable period of time;
(iv) is authorized to use a federally registered trademark
or servicemark that identifies the company promoting the sales plan or
operation, the goods or services sold, or the sales plan or operation;
(v) (A) provides each person joining the sales plan or
operation with a written agreement containing or a written statement describing
the material terms of participating in the sales plan or operation;
(B) allows a person at least 15 days to cancel the person's
participation in the sales plan or operation plan; and
(C) provides that if the person cancels participation
within the time provided and returns any required items, the person is
entitled to a refund of any consideration given to participate in the
sales plan or operation; and
(vi.) (A) provides for, upon the request of a participant
deciding to terminate participation in the sales plan or operation, the
repurchase, at not less than 90% of the amount paid by the participant,
of any currently marketable goods or services sold to the participant
within 12 months of the request that have not been resold or consumed
by the participant; and
(B) if disclosed to the participant at the time of purchase,
provides that goods or services are not considered currently marketable
if the goods have been consumed or the services rendered or if the goods
or services are seasonal, discontinued, or special promotional items.
Sales plan or operation promotional materials, sales aids, and sales kits
are subject to the provisions of this subsection (6)(b)(vi) if they are
a required purchase for the participant or if the participant has received
or may receive a financial benefit from their purchase.
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Section 2. Operating pyramid promotional scheme
unlawful (1) A person may not conduct or promote or cause to be conducted
or promoted a pyramid promotional scheme.
(2) A person who violates the provisions of subsection
(1) shall be fined an amount not more than $10,000 or be imprisoned for
not more than 10 years, or both.
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Section 3. Notice of activity -- consent to service.
(1) A multilevel distribution company with a participant that is a resident
of this state shall file annually with the securities commissioner on
a form prescribed by the commissioner and designating the commissioner
as its agent for service of process for any alleged violation of (section
2). Compliance with this section may not by itself subject a company to
the provisions of any other statute of this state or to any taxes, licenses,
or fees.
(2) The commissioner may require a multilevel distribution
company to disclose only the following substantive information:
(a) the names, addresses, and titles of the multilevel
distribution company's officers, directors, and trustees;
(b) the corporate name; the headquarters street, mailing,
and e-mail addresses, as well as telephone and telefax numbers; and the
state of domicile and state of incorporation of the multilevel distribution
company;
(c) a detailed description of the levels of distribution
in the multilevel distribution company, the manner of compensating participants,
and the compensation structure of the marketing plan.
(3) This section does not preclude the commissioner
from obtaining information required of participants during the course
of an investigation or proceeding initiated under this chapter.
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Section 4. Codification instruction. [Sections
1 through 3] are intended to be codified as an integral part of Title
30, chapter 10, part 3, and the provisions of Title 30, chapter 10, part
3, apply to [sections 1 through 3].
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