S3449

An Act concerning multi-level marketing companies and supplementing P.L.1960, c.39 (C.56:8-1 et seq.).

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. As used in P.L. , c. (C. ) (pending before the Legislature as this bill):

"Director" means the Director of the Division of Consumer Affairs in the Department of Law and Public Safety.

“Division” means the Division of Consumer Affairs in the Department of Law and Public Safety.

“Multi-level marketing” means a marketing arrangement in which consumer merchandise is distributed and sold to or through direct sellers that is not a pyramid promotional scheme.

“Multi-level marketing company” means any business engaged in the practice of multi-level marketing.

“Pyramid promotional scheme” is any scheme or course of conduct by which a person gives consideration for the opportunity to receive compensation that is derived primarily from a person's introduction of another person to participate in the scheme or course of conduct rather than from the sale of merchandise by a person introduced into the scheme or course of conduct.

2. a. A person who is recruiting others to participate in a multi-level marketing company shall not make any false statement or intentionally misrepresent:

(1) the multi-level marketing company;

(2) the amount or nature of the income the person has earned through participation in the multi-level marketing company; or

(3) any other material fact relating to the multi-level marketing company.

b. A person associated with a multi-level marketing company shall disclose to an individual being recruited to participate in a multi-level marketing company, at the time that individual is approached to participate in the multi-level marketing company, the profit or potential profit that the person may earn by recruiting an individual to the multi-level marketing company.

c. A person who sells or advertises merchandise through or on behalf of a multi-level marketing company shall not make any statement that is false or intentionally misleading. A statement that is false or intentionally misleading pursuant to this subsection shall include, but not be limited to:

(1) unproven claims of health benefits purported to result from use of the advertised merchandise;

(2) deceptive or false images purporting to show a person before and after the use of the advertised merchandise; and

(3) false stories purporting to illustrate the effectiveness of the advertised merchandise.

3. The division shall establish a web page concerning the dangers of multi-level marketing companies which shall include information on:

a. the economic impact of participation in a multi-level marketing company;

b. how to identify multi-level marketing companies; and

c. the predatory practices of multi-level marketing companies.

4. The division shall establish a process by which persons may file with the division a complaint alleging a violation of the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill).

5. a. Any person who violates any provision of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be liable, in a civil action brought by the director in a court of competent jurisdiction, for a penalty of not less than $500 and not more than $5,000 for the first violation, not less than $1,000 and not more than $10,000 for the second violation, and not less than $5,000 and not more than $50,000 for each subsequent offense. The penalty shall be collected pursuant to the "Penalty Enforcement Law of 1999," P.L.1999, c.274 (C.2A:58-10 et seq.). The court shall also award court costs and reasonable attorneys' fees to the director. Penalties collected pursuant to this section shall be paid to the director and used to fund the division’s investigation of future complaints filed with the division pursuant to section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill).

b. In addition to the penalties imposed pursuant to subsection a. of this section, the director shall direct any person who violates any provision of P.L. , c. (C. ) (pending before the Legislature as this bill) more than twice to immediately cease all activities concerning the multi-level marketing company to which the violation relates.

c. Any person found liable pursuant to the private right of action established pursuant to section 6 of P.L. , c. (C. ) (pending before the Legislature as this bill) shall be deemed to have violated the provisions of this section and the person shall be subject to a penalty of the maximum value appropriate pursuant to subsection a. of this section.

6. A person who suffers economic damages as a result of a violation of P.L. , c. (C. ) (pending before the Legislature as this bill) may bring an action or assert a counterclaim therefor in any court of competent jurisdiction. The court may award the value
of the economic damages sustained as a result of the violation of P.L. , c. (C. ) (pending before the Legislature as this bill) and reasonable attorney’s fees.

7. This act shall take effect on the 180th day next following the date of enactment.

STATEMENT

This bill regulates persons associated with companies engaged in multi-level marketing. The bill defines “multi-level marketing” to mean a marketing arrangement in which consumer merchandise is distributed and sold to or through direct sellers that is not a pyramid promotional scheme.

Under the bill, it is a violation for any person recruiting others to participate in a multi-level marketing company to make a false statement or intentionally misrepresent:

(1) the multi-level marketing company;

(2) the amount or nature of the income the person has earned through participation in the multi-level marketing company; or

(3) any other material fact relating to the multi-level marketing company.

In addition, the bill stipulates that it is a violation for any person associated with a multi-level marketing company to fail to disclose to an individual being recruited to participate in a multi-level marketing company the profit or potential profit that the person may earn by recruiting the individual.

It is also a violation for any person who sells or advertises merchandise through or on behalf of a multi-level marketing company to make any statement that is false or intentionally misleading. A statement that is false or intentionally misleading includes, but is not limited to:

(1) unproven claims of health benefits purported to result from use of the advertised merchandise;

(2) deceptive or false images purporting to show a person before and after the use of the advertised merchandise; and

(3) false stories purporting to illustrate the effectiveness of the advertised merchandise.

The bill also requires the Division of Consumer Affairs (“division”) to establish a web page concerning the dangers of multi-level marketing companies. In addition, the division is to establish a process by which persons may file with the division a complaint alleging a violation of the provisions of the bill.

A violation of the bill is punishable by a monetary penalty of not less than $500 and not more than $5,000 for the first violation, not less than $1,000 and not more than $10,000 for the second
violation, and not less than $5,000 and not more than $50,000 for each subsequent offense. In addition, the bill establishes a private right of action for persons who suffered economic damages resulting from violation of the provisions of the bill.