STATE OF NEW JERSEY
217th LEGISLATURE
PRE-FILED FOR INTRODUCTION IN THE 2016 SESSION
Sponsored by:
Assemblyman JERRY GREEN
District 22 (Middlesex, Somerset and Union)
Assemblyman DANIEL R. BENSON
District 14 (Mercer and Middlesex)
Assemblyman PAUL D. MORIARTY
District 4 (Camden and Gloucester)
Co-Sponsored by:
Assemblymen Gusciora, Conaway, Wisniewski, Greenwald, Wolfe, Diegnan, Bramnick, Assemblywoman Jimenez, Assemblymen Caputo and Johnson
SYNOPSIS
Establishes criminal penalties for operating or participating in pyramid promotional schemes.
CURRENT VERSION OF TEXT
Introduced Pending Technical Review by Legislative Counsel.
An Act concerning pyramid promotional schemes and supplementing chapter 20 of Title 2C of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. As used in this section:
"Appropriate inventory repurchase program" means a program by which a plan or operation repurchases, upon request at the termination of a participant's business relationship with the plan or operation and based upon commercially reasonable terms, current and marketable inventory purchased and maintained by the participant for resale, use or consumption, and plan or operation clearly describes the program in its recruiting literature, sales manual, or contracts with participants, including the manner in which the repurchase is exercised, and disclosure of any inventory that is not eligible for repurchase under the program.
"Commercially reasonable terms" means the repurchase of current and marketable inventory within 12 months from date of purchase at not less than 90 percent of the original net cost to the participant, less appropriate set-offs and legal claims, if any. In the case of service products, the repurchase of the service products shall be on a pro rata basis, unless clearly disclosed otherwise to the participant, to be within the meaning of "commercially reasonable terms."
"Compensation" means payment of any money, thing of value, or financial benefit.
"Consideration" means the payment of cash or the purchase of goods, services, and intangible property, and does not include the purchase of goods or services furnished at cost to be used in making sales and not for resale or the time and effort spent in pursuit of sales or recruiting activities.
"Current and marketable" includes inventory that in the case of consumable or durable goods, is unopened, unused, and within its commercially reasonable use or shelf-life period; and in the case of services and intangible property, including Internet websites, represents the unexpired portion of any contract or agreement. "Current and marketable" does not include inventory that has been clearly described to the participant prior to purchase as seasonal, discontinued, or special promotion products not subject to the plan or operation's inventory repurchase program.
"Inventory" includes both goods and services, including company-produced promotional materials, sales aids, and sales kits that the plan or operation requires independent salespersons to purchase.
"Inventory loading" means that the plan or operation requires or encourages its independent salespersons to purchase inventory in an amount that unreasonably exceeds that which the salesperson can expect to resell for ultimate consumption, or to use or consume, in a reasonable time period.
"Participant" means a person who joins a plan or operation.
"Person" means an individual, a corporation, a partnership, or any association or unincorporated organization.
"Promote" means to contrive, prepare, establish, plan, operate, advertise or to otherwise induce or attempt to induce another person to be a participant.
"Pyramid promotional scheme" means any plan or operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants in the plan or operation, rather than from the sales of goods, services, or intangible property by the participant or by participants to others.
b. A person commits a crime of the third degree if he knowingly promotes or sells a pyramid promotional scheme. It is a crime of the fourth degree if a person knowingly participates in a pyramid promotional scheme, except that if the amount of consideration which the person contributed to the pyramid promotional scheme was $100 or less, it is a disorderly persons offense.
c. Nothing in this section shall be construed to prohibit a plan or operation, or to define a plan or operation as a "pyramid promotional scheme," based upon the fact that participants in the plan or operation give consideration in return for the right to receive compensation based upon purchases of goods, services, or intangible property by participants for personal use, consumption, or resale, and the plan or operation does not promote inventory loading and implements an appropriate inventory repurchase program.
2. This act shall take effect immediately.
STATEMENT
This bill establishes criminal penalties for promoting and participating in “pyramid promotional schemes.” A pyramid promotional scheme requires participants to recruit other individuals into the scheme in order for the original participants to receive any compensation. The scheme is designed to compensate only those participants who initially join the pyramid, while later participants lose money.
The bill makes it a crime of the third degree to knowingly promote or sell a pyramid promotional scheme. Under the bill, a "pyramid promotional scheme" is defined as any plan or operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants in the plan or operation, rather than from the sales of goods, services, or intangible property by the participant or by participants to others. "Consideration" is defined as the payment of cash or the purchase of goods, services, and intangible property, and does not include the purchase of goods or services furnished at cost to be used in making sales and not for resale.
The bill also provides that knowing participation in a pyramid promotional scheme is a crime of the fourth degree, unless the amount the person contributed to the scheme was $100 or less, in which case it is a disorderly persons offense.
The bill specifically exempts plans or operations in which consideration is given by participants in return for the right to receive compensation based on their sales or personal use of goods, services, or intangible property. The bill also exempts plans and operations that implement an appropriate inventory repurchase program and that do not promote inventory loading.