HB-5726, As Passed House, May 23, 2018

HB-5726, As Passed Senate, May 23, 2018

 

 

 

 

 

 

 

 

 

 

 

 

SUBSTITUTE FOR

 

HOUSE BILL NO. 5726

 

 

 

 

 

 

 

 

 

 

 

     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) "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.

 

     (b) "Consideration" means the payment of cash or anything of

 

value 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.

 

     (c) "Inventory" means goods, including company-produced

 

promotional materials, sales aids, and sales kits, that a plan or

 

operation requires participants to purchase.

 

     (d) "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.

 

     (e) "Inventory repurchase program" means a program that does

 

all of the following:

 

     (i) Upon request, repurchases all current and marketable

 

inventory in the possession of a participant within 12 months after

 

the date of purchase, at not less than 90% of the original net

 

cost, less appropriate setoffs, if any, when the participant's

 

business relation is terminated.

 

     (ii) Clearly and prominently communicates the terms of the

 

inventory repurchase program in its recruiting literature, sales

 

manual, or contracts with participants, including the manner in

 

which the repurchase is to be exercised and how any setoffs are

 

calculated.

 

     (iii) Clearly and prominently communicates to a participant,

 

before the purchase, in its recruiting literature, sales manual, or

 

contracts with participants, what inventory is excluded from the

 

inventory repurchase program, including inventory that is

 

classified as seasonal, discontinued, special promotion, is no


longer within the inventory's commercially reasonable use or shelf

 

life period, or is otherwise not eligible for repurchase under the

 

inventory repurchase program.

 

     (f) "Participant" means an individual who joins a plan or

 

operation.

 

     (g) "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.

 

     (h) "Pyramid promotional scheme" means any plan or operation

 

in which an individual gives consideration for the opportunity to

 

receive compensation that is derived primarily from recruiting

 

other individuals into the plan or operation rather than from the

 

sale of products or services to ultimate users or from the

 

consumption or use of product or services by ultimate users.

 

     (i) "Ultimate user" means an individual who consumes or uses a

 

product or service, whether or not the individual is a participant

 

in the plan or operation.

 

     Sec. 3. (1) A person shall not promote 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 promotes a pyramid promotional scheme is

 

guilty of a felony punishable by 1 or more of the following:

 

     (a) Imprisonment for not more than 7 years.

 

     (b) A fine of not more than $10,000.00 per violation.


     (3) 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) Subject to subsections (2) and (3), issue a cease and

 

desist order against any person that is engaged in the prohibited

 

activities, directing the person to cease and desist from further

 

illegal activities.

 

     (b) Bring an action in the circuit court for the county in

 

which the violation is believed to have occurred, or in the circuit

 

court for Ingham County, 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.

 

     (iii) Recover a civil fine of not more than $10,000.00 for

 

each violation. Fines assessed and recovered under this section

 

must be paid to the state treasurer and credited to the state

 

general fund.

 

     (2) 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.


     (3) A person aggrieved by a cease and desist order issued

 

under this section may obtain a review of the order in the Ingham

 

County circuit court.

 

     (4) Upon a proper showing to the circuit court, a permanent

 

injunction, temporary injunction, or restraining order may be

 

granted and a receiver or conservator may be appointed for a person

 

that is alleged to have violated this act or the assets of a person

 

that is 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 an act that violates this act or an

 

order issued under this act.

 

     (5) A circuit court may award to the attorney general court

 

costs and attorney fees in an action brought under this section.

 

     (6) 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 that is

 

involved with a pyramid promotional scheme.

 

     Sec. 5. There is a rebuttable presumption that a plan or

 

operation is not a pyramid promotional scheme if both of the

 

following conditions are satisfied:

 

     (a) The plan or operation does not cause inventory loading.

 

     (b) The plan or operation implements an inventory repurchase

 

program.

 

     Sec. 6. (1) If the attorney general has reasonable cause to

 

believe that a person has information or is in possession, custody,

 

or control of any document or other tangible object that is


relevant to an investigation of a violation of this act, the

 

attorney general, or a prosecuting attorney with the permission of

 

or at the request of the attorney general, may serve on the person,

 

before bringing any action in the circuit court, a written demand

 

to appear and be examined under oath, and to produce the document

 

or object for inspection and copying. The demand must include all

 

of the following:

 

     (a) Be served on the person in the manner required for service

 

of process in this state.

 

     (b) Describe the nature of the conduct constituting the

 

alleged violation under investigation.

 

     (c) Describe the document or object with sufficient

 

definiteness to permit it to be fairly identified.

 

     (d) If demanded, contain a copy of any written

 

interrogatories.

 

     (e) Prescribe a reasonable time at which the person must

 

appear to testify, within which to answer any written

 

interrogatories, or within which the document or object must be

 

produced, and advise the person that objections to or reasons for

 

not complying with the demand may be filed with the attorney

 

general, or with the prosecuting attorney with the permission of or

 

at the request of the attorney general, on or before that time.

 

     (f) Specify a place for the taking of testimony or for

 

production and designate the person that shall be custodian of the

 

document or object.

 

     (g) Contain a copy of subsection (2).

 

     (2) If a person objects to or otherwise fails to comply with a


written demand served on the person under subsection (1), the

 

attorney general, or a prosecuting attorney with the permission of

 

or at the request of the attorney general, may file an action to

 

enforce the demand in the circuit court of the county in which the

 

person resides or maintains a principal place of business in this

 

state. Notice of hearing the action and a copy of all pleadings

 

must be served upon the person, and the person may appear in

 

opposition. If the court finds that the demand is proper, that

 

there is reasonable cause to believe that there was or is presently

 

occurring a violation of this act, and that the information sought

 

or document or object demanded is relevant to the investigation,

 

the court shall order the person to comply with the demand, subject

 

to any modification the court may prescribe. On motion by the

 

person and for good cause shown, the court may make any further

 

order in the proceedings that justice requires to protect the

 

person from unreasonable annoyance, embarrassment, oppression,

 

burden, or expense.

 

     (3) The attorney general or a prosecuting attorney shall keep

 

any procedure, testimony taken, or material produced confidential

 

before bringing an action against a person under this act for a

 

violation under investigation, unless confidentiality is waived by

 

the person under investigation and the person that has testified,

 

answered interrogatories, or produced material, or unless

 

disclosure is authorized by the court.

 

     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) House Bill No. 5727.

 

     (b) House Bill No. 5729.