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.