La. Admin. Code tit. 16 § III-503

Current through Register Vol. 50, No. 11, November 20, 2024

Section III-503 - Multi-Level Distribution and Chain Distributor Marketing Schemes

A. Definitions. For the purpose of this Section, the following definitions shall apply.

Chain Distributor Scheme-a sales device whereby a person, upon a condition that he make an investment, is granted a license or right to recruit for profit one or more additional persons who also are granted such license or right upon condition of making an investment and may further perpetuate the chain of persons who are granted such license or right upon such condition. A limitation as to the number of persons who may participate, or the presence of additional conditions affecting eligibility for the above license or right to recruit or the receipt of profits therefrom, does not change the identity of the scheme as a chain distributor scheme.

Investment-any acquisition, for a cause or consideration other than personal services, of movable or personal property, tangible or intangible, for profit or business purposes, and includes, without limitation, franchises, business opportunities and services. It does not include real estate, securities registered in accordance with Louisiana law, or sales demonstration equipment and materials furnished at cost for use in making sales and not for resale.

Multi-Level Distribution Scheme-a scheme whereby goods or services are distributed through independent agents, contractors or distributors at different levels, wherein any one level enjoys a different rate of pricing or discounting from that of any other level, and wherein participants in the marketing program may recruit other participants and wherein commissions, cross-commissions, bonuses, refunds, discounts, dividends or other consideration in the marketing program may be paid as a result of the sale of such goods and services or the recruitment, actions or performances of additional participants.

Pyramid Sales Marketing Scheme-the conduct of any business in trade and commerce wherein a multi-level distribution scheme or a chain distributor scheme, or a combination of these schemes, is used.

B. Prohibitions

1. Any marketing scheme utilizing a chain distributor scheme, as defined in this rule, is per se an unfair and deceptive trade practice, in violation of R.S. 51:1405(A).

2. It shall also be an unfair and deceptive trade practice, in violation of R.S. 51:1405(A), for any person using any pyramid sales marketing scheme to do any of the following:

a. to fail to provide in the contract of participation in bold face type of a minimum size of 10 points a statement substantially indicating that such contract may be canceled for any reason at any time by a participant upon notification in writing to the company of his election to cancel. If the participant has purchased products while the contract of participation was in effect, all products in a resalable condition then in the possession of the participant shall be repurchased. The repurchase shall be at a price of not less than 90 percent of the original net cost to the participant returning such goods, taking into account any sales made by or through such participant prior to notification to the company of the election to cancel; or

b. to require participants in its marketing program to purchase products or services or pay any other cause or consideration in order to participate in the marketing program unless such products or services are in reasonable quantities in relation to the rate at which they actually sell and unless it agrees:

i. to repurchase all or part of any products which are in a resalable condition at a price of not less than 90 percent of the original net cost to the participant; and

ii. to repay not less than 90 percent of the original net cost of any services purchased by the participant; and

iii. to refund not less than 90 percent of any other consideration paid by the participant in order to participate in the marketing program; or

c.

i. to operate or, directly or indirectly, participate in the operation of any multi-level marketing program wherein the financial gains to the participants are primarily dependent upon the continued, successive recruitment of other participants and where sales to nonparticipant are not required as a condition precedent to realization of such financial gains; or

ii. to offer to pay, pay, or authorize the payment of any finder's fee, bonus, refund, override, commission, cross-commission, dividend or other cause or consideration to any participants in a multi-level marketing program solely for the solicitation or recruitment of other participants therein; or

iii. to offer to pay, pay, or authorize the payment of any finder's fee, bonus, refund, override, commission, cross-commission, dividend or other cause or consideration to any participants in a multi-level marketing program in connection with the sale of any product or service unless such participant performs a bona fide and essential supervisory, distributive, selling or soliciting function in the sale or delivery of such product or services to the ultimate consumer; or

iv. to offer to pay, pay, or authorize the payment of any finder's fee, bonus, refund, override, commission, cross-commission, dividend or other cause or consideration to any participant where payment thereof is or would be dependent on the element of chance dominating over the skill or judgment of such participant, or where no amount of judgment or skill exercised by the participant has any appreciable effect upon any finder's fee, bonus, refund, override, commission, cross-commission, dividend or other cause or consideration which the participant may receive, or where the participant is without that degree of control over the operation of such plan as to enable him substantially to affect the amount of finder's fee, bonus, refund, override, commission, cross-commission, dividend or other cause or consideration which he may receive or be entitled to receive; or

d. to represent, directly or indirectly, that participants in a multi-level marketing program will earn or receive any stated gross or net amount, or represent in any manner, the past earnings of participants; provided, however, that a written or verbal description of the manner in which the marketing plan operates shall not, standing alone, constitute a representation of earnings, past or future; or

e. to represent, either directly or indirectly, that additional distributors or sales personnel are easy to secure or retain, or that all or substantially all participants will succeed; or

f. to fail to comply with all Louisiana corporation registration laws, if applicable, or, in any case, to fail to notify the Consumer Protection Section of the Louisiana Department of Justice of any of the following, prior to its doing business in this state:

i. that it will be doing business in Louisiana;

ii. each place within Louisiana where it will actually be doing business;

iii. the full name and mailing and permanent address of its authorized agent for service of process within Louisiana, which it is also required to have at all times herein;

iv. that the Consumer Protection Section of the Louisiana Department of Justice and its representatives are authorized and invited to attend any and all of its opportunity meetings, recruitment meetings, training sessions, or any other meeting wherein a prospective participant or any participant is explained the marketing system, and are authorized and invited to visit, at any reasonable time, any and all places wherein it keeps files, records, data, communications, or information and to inspect same.

C. All rules and regulations or parts thereof in conflict herewith are hereby repealed.

D. If any part of this rule is ever legally declared to be invalid for any reason, the remainder of the rule shall continue in full force and effect, and to this end, this rule is declared to be severable.

La. Admin. Code tit. 16, § III-503

Promulgated by the Department of Justice, Consumer Protection Section, LR 21:950 (September 1995).

AUTHORITY NOTE: Promulgated in accordance with R.S. 51:1401 et seq.