NY State Senate Bill 2015-S6983

Archive: Last Bill Status - In Senate Committee Consumer Protection Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Mar 11, 2016	referred to consumer protection

2015-S6983 (ACTIVE) - Details

Current Committee:: Senate Consumer Protection
Law Section:: General Business Law
Laws Affected:: Add Art 32-A §§676 - 677-e, Gen Bus L

2015-S6983 (ACTIVE) - Summary

Regulates the conducting of business of multilevel distribution companies and their participants; grants the department of law the authority to regulate and oversee the operation of such companies.

2015-S6983 (ACTIVE) - Sponsor Memo

                                 BILL NUMBER:  S6983

 TITLE OF BILL :

An act to amend the general business law, in relation to regulating
multilevel distribution companies

 PURPOSE :

The purpose of this legislation is to create a new article 32-A in
general business law to ensure transparency in multilevel distribution
companies to allow investors and recruits to better distinguish
between legitimate companies and unlawful pyramid schemes.

 SUMMARY OF PROVISIONS :

Section 676: Adds section 676 to provide a definition for "multilevel
distribution companies". The companies are defined as business
entities that sell or distribute goods or services through independent
agents, contractors or distributors who: (1) have the right to recruit
prospective independent agents, contractors, or distributor and (2)
earn compensation based on the sales they generate in addition to the
sales generated by their recruits.

Section 677: Adds section 677 to enumerate multilevel distribution
company disclosure requirements. By March first of each year, each

multilevel distribution company must file a disclosure statement
containing information on any open investigations against the company
or its principals, officers, partners, or directors and six major data
points in plain language to the department of law. Participating and
prospective agents, contractors, or distributors can only receive a
copy of the statement after it is filed with the department of law

The six data points include, information for the previous year on:

(1) the total number of agents, contractors, or distributors said
company had in the state;

(2) the number of new of agents, contractors, or distributors added by
said company in the state;

(3) the total sales generated by agents, contractors, or distributors
of said company in the state;

(4) the number and percent of sales generated by purchases made by
agents, contractors, or distributors of said company in the state;

(5) the number and percent of sales generated by purchases made by
persons who are not agents, contractors, or distributors of said
company in the state;

(6) the average and median amount of income earned by agents,
contractors, or distributors of said company in the state;

Section 677-a: Adds section 677-a to establish contract requirements.
Multilevel distribution companies must provide all prospective
participants a statement with the benefits, risks, and actual effects
of each product, service, and business opportunity in addition to the
financial disclosure statement from section 2 at least 5 days before
entering into a business contract or agreement with a prospective
participant. The statement must be in the prospective participant's
primary language, and in clear and easily understandable language.

Section 677-b: Adds section 677-b to regulate the use of recruitment
and sales materials. Pamphlets, circular, form letter, advertisement,
presentation, or other recruitment or sales literature or
communication intended for prospective participants cannot be
distributed until the disclosure statement is filed with the
department of law.

Section 677-c: Adds section 677-c to regulate supervision. Multilevel
distribution companies must provide and engage in the direct
supervision of its participants to ensure compliance with the
provisions of the article, and to prevent fraudulent, deceptive, and
unlawful acts by such participants.

Section 677-d: Adds section 677-d to impose penalties on violators.
Multilevel distribution companies or participants who knowingly
violate any provision of this article or any associated rules or
regulations created by the Department of Law are subject to a fine
ranging from $500 to $1000 for a first offense, $1000 to $5000 for a
second offense, and $5000 to $10000 for a third offense.

Section 677-e: Adds section 677-e to provide the attorney general the
authorization to impose any rules and regulations necessary to
implement the provisions of this article.

 JUSTIFICATION :

This past Spring a Bronx resident of Hispanic descent filed a
complaint asking for an investigation into the multilevel distribution
company Herablife International due to its deceitful and fraudulent
business practices. The Bronxite was invited by an Herbalife
distributor to attend a meeting where she would be taught how to lose
weight while operating a business that could generate $14,000 per
month in income. The Herbalife recruiters promised to assist her in
identifying clients and with time, they promised, she would be able to
earn financial rewards on sales generated by her recruits and continue
to move up the Herbalife distributor hierarchy.  To accelerate her
path to success, the Bronx resident was coerced into making an initial
$4,000 investment in product purchases, and subsequently open a
"nutrition club" costing her close to $10,000.  After struggling to
make her business thrive with no support from Herbalife, the Bronx
resident had no other option but to give up. In the end, the resident
suffered close to $100,000 in financial losses.

Upon investigation into the issue, the Office of Senator Klein
discovered that there are hundreds like this Bronxite all across the
state. Herbalife distributors convince prospective participants to
make large initial investments of close to $4,000 because the
Herbalife compensation scheme compensates distributors only after
their new recruits reach a particular level of monthly sales close to
$4,000. Herbalife does not track whether a new recruit's initial
purchase order is immediately intended to be for end users or if it
becomes inventory. According to the investigative findings, the vast
majority of new recruits at first do not have the clientele to sell
$4,000 worth of products; instead the products become inventory. In
seeking assistance to sell the products, their recruiters encourage
them to lie about the medical benefits of the products to promote
sales and to recruit new individuals to continue the cycle.

According to a press release sent out by Make the Road New York in
2013, "the multilevel distribution company has been accused of
operating an illegal pyramid scheme that uses deceptive practices that
target minority groups, particularly Latino immigrants who are lured
into investing hundreds, and often thousands of dollars, with promises
of easy money and jobs that don't require English or work
authorization in the U.S. Herbalife advertises itself as a business
opportunity and promises wealth and success, however, our research
shows that the vast majority of its members generate virtually no
income and lose money after dedicating massive amounts of time and
energy."
The purpose of this legislation is to mitigate the potential harm
suffered by participants in multilevel distribution companies such as
Herbalife, and to curb some of the worst abuses that are prevalent in
the industry.

 LEGISLATIVE HISTORY :

New Bill.

 FISCAL IMPLICATION :

To be determined.

 EFFECTIVE DATE :
On January first, next succeeding the date upon which it shall have
become a law.

2015-S6983 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  6983

                            I N  S E N A T E

                             March 11, 2016
                               ___________

Introduced  by  Sen.  KLEIN  -- read twice and ordered printed, and when
  printed to be committed to the Committee on Consumer Protection

AN ACT to amend the general business  law,  in  relation  to  regulating
  multilevel distribution companies

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The general business law is amended by adding a new article
32-A to read as follows:
                               ARTICLE 32-A
                         MULTILEVEL DISTRIBUTION
                                COMPANIES
SECTION 676. DEFINITIONS.
        677. DISCLOSURE REQUIREMENTS.
        677-A. CONTRACT REQUIREMENTS.
        677-B. RECRUITMENT AND SALES MATERIALS.
        677-C. SUPERVISION.
        677-D. PENALTIES.
        677-E. RULES AND REGULATIONS.
  S 676. DEFINITIONS. AS USED IN THIS ARTICLE:
  1. "DEPARTMENT" MEANS THE DEPARTMENT OF LAW.
  2. "MULTILEVEL DISTRIBUTION COMPANY" MEANS ANY PERSON, FIRM,  PARTNER-
SHIP,  LIMITED  LIABILITY  COMPANY, CORPORATION OR OTHER BUSINESS ENTITY
WHICH SELLS, DISTRIBUTES OR SUPPLIES FOR VALUABLE CONSIDERATION GOODS OR
SERVICES THROUGH INDEPENDENT  AGENTS,  CONTRACTORS  OR  DISTRIBUTORS  AT
DIFFERENT LEVELS:
  (A)  WHEREBY SUCH INDEPENDENT AGENTS, CONTRACTORS AND DISTRIBUTORS MAY
RECRUIT PROSPECTIVE INDEPENDENT AGENTS,  CONTRACTORS  AND  DISTRIBUTORS;
AND
  (B)  WHEREIN  COMMISSIONS,  BONUSES,  REFUNDS, DISCOUNTS, DIVIDENDS OR
OTHER CONSIDERATIONS ARE OR MAY BE  PAID  TO  SUCH  INDEPENDENT  AGENTS,
CONTRACTORS  AND  DISTRIBUTORS  FOR  THE SALE OF SUCH GOODS AND SERVICES
AND/OR FOR THE RECRUITMENT, ACTIONS OR PERFORMANCE OF OTHER  INDEPENDENT
AGENTS, CONTRACTORS AND DISTRIBUTORS.

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD14587-02-6

S. 6983                             2

  3. "PARTICIPANT" MEANS AN INDEPENDENT AGENT, CONTRACTOR OR DISTRIBUTOR
OF A MULTILEVEL DISTRIBUTION COMPANY.
  S  677.  DISCLOSURE  REQUIREMENTS.  1.  EVERY  MULTILEVEL DISTRIBUTION
COMPANY SHALL, ON OR BEFORE MARCH FIRST OF  EACH  YEAR,  FILE  WITH  THE
DEPARTMENT A FINANCIAL DISCLOSURE STATEMENT, WRITTEN IN PLAIN AND UNDER-
STANDABLE  ENGLISH AND SPANISH, WHICH SHALL INCLUDE THE FOLLOWING INFOR-
MATION FOR THE PRECEDING CALENDAR YEARS:
  (A) THE NAME OF THE MULTILEVEL DISTRIBUTION COMPANY,  THE  NAME  UNDER
WHICH  SUCH  COMPANY IS DOING OR INTENDS TO DO BUSINESS, AND THE NAME OF
ANY PARENT OR AFFILIATED COMPANY THAT WILL  ENGAGE  IN  BUSINESS  TRANS-
ACTIONS WITH PARTICIPANTS;
  (B)  THE  MULTILEVEL DISTRIBUTION COMPANY'S PRINCIPAL BUSINESS ADDRESS
AND THE NAME AND ADDRESS OF ITS PARTICIPANTS IN THIS STATE AUTHORIZED TO
RECEIVE PROCESS;
  (C) A STATEMENT AS TO WHETHER THE MULTILEVEL DISTRIBUTION COMPANY  AND
ITS PRINCIPALS, OFFICERS, PARTNERS, DIRECTORS, OR ANY OTHER PERSON IDEN-
TIFIED IN THE APPLICATION FOR REGISTRATION:
  (1)  HAS  BEEN  CONVICTED OF A FELONY, OR PLEADED NOLO CONTENDERE TO A
FELONY CHARGE, OR HELD LIABLE OR ENJOINED IN A CIVIL ACTION BY  A  FINAL
JUDGMENT  IF  SUCH CIVIL ACTION INVOLVED FRAUD, EMBEZZLEMENT, FRAUDULENT
CONVERSION OR MISAPPROPRIATION OF PROPERTY.
  (2) IS SUBJECT TO ANY CURRENTLY EFFECTIVE ORDER OF THE  UNITED  STATES
SECURITIES  AND  EXCHANGE  COMMISSION OR THE SECURITIES ADMINISTRATOR OF
ANY STATE DENYING THE REGISTRATION OF OR BARRING, REVOKING OR SUSPENDING
THE REGISTRATION OF SUCH PERSON AS A SECURITIES  BROKER  OR  DEALER,  OR
INVESTMENT ADVISOR, OR SECURITIES AGENT OR REGISTERED REPRESENTATIVE, OR
IS  SUBJECT  TO ANY CURRENTLY EFFECTIVE ORDER OF ANY NATIONAL SECURITIES
ASSOCIATION OR NATIONAL SECURITIES EXCHANGE, AS DEFINED IN  THE  SECURI-
TIES  AND EXCHANGE ACT OF 1934, SUSPENDING OR EXPELLING SUCH PERSON FROM
MEMBERSHIP IN SUCH ASSOCIATION OR EXCHANGE.
  (3) IS SUBJECT TO A CURRENTLY EFFECTIVE ORDER OR RULING OF THE FEDERAL
TRADE COMMISSION.
  (4) IS SUBJECT TO ANY CURRENTLY EFFECTIVE  INJUNCTIVE  OR  RESTRICTIVE
ORDER  RELATING TO BUSINESS ACTIVITY AS A RESULT OF AN ACTION BROUGHT BY
A PUBLIC AGENCY OR DEPARTMENT, INCLUDING,  WITHOUT  LIMITATION,  ACTIONS
AFFECTING A LICENSE AS A REAL ESTATE BROKER OR SALESMAN.
  SUCH  STATEMENT SHALL SET FORTH THE COURT, DATE OF CONVICTION OR JUDG-
MENT, ANY PENALTY IMPOSED OR DAMAGES ASSESSED, OR THE DATE,  NATURE  AND
ISSUER OF SUCH ORDER;
  (D) THE TOTAL NUMBER OF PARTICIPANTS SUCH COMPANY HAS IN THE STATE;
  (E)  THE  TOTAL  NUMBER OF NEW PARTICIPANTS OF SUCH COMPANY DURING THE
CALENDAR YEAR;
  (F) THE TOTAL SALES OF SUCH COMPANY IN THE STATE;
  (G) THE PERCENT OF SALES IN THE STATE GENERATED BY  SALES  TO  PARTIC-
IPANTS OF SUCH COMPANY;
  (H)  THE  PERCENT OF SALES IN THE STATE THAT ARE GENERATED BY SALES TO
PERSONS WHO ARE NOT PARTICIPANTS OF SUCH COMPANY; AND
  (I) THE AVERAGE AND MEDIAN COMMISSIONS EARNED BY PARTICIPANTS OF  SUCH
COMPANY.
  2. A COVER PAGE DISCLAIMER SHALL BE ATTACHED TO EACH DISCLOSURE STATE-
MENT  FILED  PURSUANT  TO THIS SECTION. SUCH DISCLAIMER SHALL STATE THAT
THE STATE OF NEW YORK DOES NOT  RECOMMEND  THE  MULTILEVEL  DISTRIBUTION
COMPANY, NOR DOES THE STATE CONFIRM THAT IT HAS VERIFIED THE INFORMATION
IN THE DISCLOSURE STATEMENT.
  S 677-A. CONTRACT REQUIREMENTS. 1.  NO MULTILEVEL DISTRIBUTION COMPANY
SHALL  ENTER  INTO  ANY CONTRACT OR AGREEMENT WITH A PROSPECTIVE PARTIC-

S. 6983                             3

IPANT, UNLESS AND UNTIL SUCH PROSPECTIVE  PARTICIPANT  SHALL  HAVE  BEEN
PROVIDED  WITH  A  STATEMENT,  IN  THE PROSPECTIVE PARTICIPANT'S PRIMARY
LANGUAGE, AND IN CLEAR AND EASILY UNDERSTANDABLE LANGUAGE, OF THE  BENE-
FITS,  RISKS  AND  ACTUAL  EFFECTS  OF EACH PRODUCT, SERVICE OR BUSINESS
OPPORTUNITY THAT MAY BE PROVIDED PURSUANT TO  THE  FINANCIAL  DISCLOSURE
STATEMENT  APPROVED  BY  THE  DEPARTMENT PURSUANT TO SECTION SIX HUNDRED
SEVENTY-SEVEN OF THIS ARTICLE.
  2. A COPY OF SUCH CONTRACT OR AGREEMENT AND DISCLOSURE STATEMENT SHALL
BE PROVIDED TO A PROSPECTIVE PARTICIPANT NOT LESS THAN FIVE  DAYS  PRIOR
TO THE SIGNING OF THE CONTRACT OR AGREEMENT.
  S  677-B. RECRUITMENT AND SALES MATERIALS. NO PAMPHLET, CIRCULAR, FORM
LETTER, ADVERTISEMENT,  PRESENTATION,  OR  OTHER  RECRUITMENT  OR  SALES
LITERATURE  OR  COMMUNICATION  ADDRESSED  TO OR INTENDED FOR PROSPECTIVE
PARTICIPANTS SHALL BE ISSUED OR DISTRIBUTED BY ANY  MULTILEVEL  DISTRIB-
UTION  COMPANY  UNTIL THE DISCLOSURE STATEMENT HAS BEEN SUBMITTED TO THE
DEPARTMENT.
  S 677-C.  SUPERVISION.  EACH  MULTILEVEL  DISTRIBUTION  COMPANY  SHALL
PROVIDE  AND  ENGAGE  IN  THE  DIRECT SUPERVISION OF ITS PARTICIPANTS TO
ENSURE COMPLIANCE WITH THE PROVISIONS OF THE  ARTICLE,  AND  TO  PREVENT
FRAUDULENT, DECEPTIVE AND UNLAWFUL ACTS BY SUCH PARTICIPANTS.
  S 677-D. PENALTIES. ANY MULTILEVEL DISTRIBUTION COMPANY OR PARTICIPANT
WHICH  KNOWINGLY  VIOLATES  ANY PROVISION OF THIS ARTICLE OR ANY RULE OR
REGULATION PROMULGATED PURSUANT THERETO, SHALL BE SUBJECT TO A  FINE  OF
NOT  LESS  THAN  FIVE HUNDRED DOLLARS NOR MORE THAN ONE THOUSAND DOLLARS
FOR EACH SUCH VIOLATION FOR A FIRST OFFENSE; AND A FINE OF NOT LESS THAN
ONE THOUSAND DOLLARS NOR MORE THAN FIVE THOUSAND DOLLARS FOR  EACH  SUCH
VIOLATION  FOR  A SECOND OFFENSE WITHIN A PERIOD OF ONE YEAR; AND A FINE
OF NOT LESS THAN FIVE  THOUSAND  DOLLARS  NOR  MORE  THAN  TEN  THOUSAND
DOLLARS FOR EACH SUCH VIOLATION FOR A THIRD OR SUBSEQUENT OFFENSE WITHIN
A PERIOD OF ONE YEAR.
  S  677-E. RULE AND REGULATIONS. THE ATTORNEY GENERAL IS AUTHORIZED AND
DIRECTED TO PROMULGATE ANY SUCH RULES AND REGULATIONS AS SHALL BE NECES-
SARY TO IMPLEMENT THE PROVISIONS OF THIS ARTICLE.
  S 2. This act shall take effect on the first of January next  succeed-
ing  the  date  on  which  it shall have become a law; provided, however
that, effective immediately, the addition, amendment  and/or  repeal  of
any  rule  or regulation necessary for the implementation of this act on
its effective date are authorized and directed to be made and  completed
on or before such effective date.

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Senate Bill S6983

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Archive: Last Bill Status - In Senate Committee Consumer Protection Committee

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2015-S6983 (ACTIVE) - Details

2015-S6983 (ACTIVE) - Summary

2015-S6983 (ACTIVE) - Sponsor Memo

2015-S6983 (ACTIVE) - Bill Text download pdf

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Sponsored By

Jeffrey D. Klein

Archive: Last Bill Status - In Senate Committee Consumer Protection Committee

Actions

2015-S6983 (ACTIVE) - Details

2015-S6983 (ACTIVE) - Summary

2015-S6983 (ACTIVE) - Sponsor Memo

2015-S6983 (ACTIVE) - Bill Text download pdf

Comments