S T A T E   O F   N E W   Y O R K
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                                  10735

                          I N  A S S E M B L Y

                              June 14, 2016
                               ___________

Introduced  by  COMMITTEE  ON  RULES -- (at request of M. of A. Moya) --
  read once and referred  to  the  Committee  on  Consumer  Affairs  and
  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 section
396-a-1 to read as follows:
  S  396-A-1.  MULTILEVEL DISTRIBUTION COMPANIES. 1. FOR THE PURPOSES OF
THIS SECTION:
  (A) "INVENTORY" SHALL MEAN GOODS PROVIDED BY A MULTILEVEL DISTRIBUTION
COMPANY TO A PARTICIPANT FOR SALE PURPOSES.
  (B) "INVENTORY LOADING" SHALL OCCUR  WHEN  A  MULTILEVEL  DISTRIBUTION
COMPANY OR ITS AGENTS OR ITS REPRESENTATIVES COERCES, DECEPTIVELY INCEN-
TIVIZES,  AND/OR MANIPULATES A PARTICIPANT TO PURCHASE A LARGE VOLUME OF
INVENTORY FROM SUCH MULTILEVEL  DISTRIBUTION  COMPANY,  AS  A  CONDITION
PRECEDENT  FOR SUCH PARTICIPANT TO ATTAIN THE RIGHT TO PARTICIPATE OR BE
PROMOTED TO THE NEXT LEVEL IN SUCH MULTILEVEL DISTRIBUTION COMPANY.
  (C) "MULTILEVEL DISTRIBUTION COMPANY" SHALL  MEAN  ANY  PERSON,  FIRM,
PARTNERSHIP,  LIMITED  LIABILITY  COMPANY, CORPORATION OR OTHER BUSINESS
ENTITY WHICH SELLS, DISTRIBUTES, OR SUPPLIES FOR VALUABLE  CONSIDERATION
GOODS  OR  SERVICES THROUGH INDEPENDENT AGENTS, CONTRACTORS OR DISTRIBU-
TORS AT DIFFERENT LEVELS:
  (I) WHEREBY SUCH INDEPENDENT AGENT,  CONTRACTOR  OR  DISTRIBUTORS  MAY
RECRUIT PROSPECTIVE INDEPENDENT AGENTS, CONTRACTORS AND/OR DISTRIBUTORS;
AND
  (II)  WHEREIN  COMMISSION,  BONUSES,  REFUNDS, DISCOUNTS, DIVIDENDS OR
OTHER CONSIDERATION ARE OR MAY  BE  PAID  TO  SUCH  INDEPENDENT  AGENTS,
CONTRACTORS  AND/OR DISTRIBUTORS FOR THE SALE OF SUCH GOODS AND SERVICES
AND FOR THE RECRUITMENT ACTIONS  OR  PERFORMANCE  OF  OTHER  INDEPENDENT
AGENTS, CONTRACTORS AND/OR DISTRIBUTORS.
  (D) "PARTICIPANT" MEANS AN INDEPENDENT AGENT, CONTRACTOR, OR DISTRIBU-
TOR OF A MULTILEVEL DISTRIBUTION COMPANY.

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

                                                           LBD14587-07-6

A. 10735                            2

  2. (A) NO MULTILEVEL DISTRIBUTION COMPANY SHALL:
  (I)  HAVE  A PATTERN AND/OR PRACTICE OF BASING A PARTICIPANT'S COMMIS-
SION, BONUS, REFUND, DISCOUNT,  DIVIDEND,  FINANCIAL  GAIN,  AND/OR  ANY
OTHER  CONSIDERATION  SOLELY UPON THE CONTINUED, SUCCESSIVE RECRUITMENT,
OR SOLICITATION OF OTHER PARTICIPANTS;
  (II) ENGAGE OR OTHERWISE PROMOTE ANY INVENTORY LOADING BUSINESS  PRAC-
TICES OR ACTIVITIES;
  (III) REQUIRE LARGE UPFRONT INVESTMENT FEES IN ORDER FOR A PARTICIPANT
TO PARTAKE IN A MULTILEVEL DISTRIBUTION COMPANY; OR
  (IV)  REPRESENT  THAT  THE  MULTILEVEL DISTRIBUTION COMPANY PROVIDES A
SPECIFIC NET OR GROSS AMOUNT OF INCOME OR AN EARNING  POTENTIAL  OF  ANY
KIND,  UNLESS THE MULTILEVEL DISTRIBUTION COMPANY HAS DOCUMENTED DATA TO
SUBSTANTIATE THE CLAIMS OF SUCH INCOME OR EARNING POTENTIAL.
  (B) A MULTILEVEL DISTRIBUTION COMPANY SHALL PUT ON ALL ADVERTISING  OR
SALES  MATERIALS  AND  STATE  AT  ALL  LIVE  PRESENTATIONS THE FOLLOWING
PHRASE:
  "PRIOR FINANCIAL SUCCESS OF OTHER PARTICIPANTS DOES  NOT  GUARANTEE  A
SIMILAR RESULT."
  (C)  PRIOR TO ANY CONTRACT EXECUTION BETWEEN A MULTILEVEL DISTRIBUTION
COMPANY AND A  PARTICIPANT,  A  MULTILEVEL  DISTRIBUTION  COMPANY  SHALL
PROVIDE  IN  A  SEPARATE EIGHT AND ONE-HALF INCH BY ELEVEN INCH PAPER, A
DISCLOSURE DOCUMENT TO A PARTICIPANT CONTAINING THE FOLLOWING:
  (I) THE LENGTH OF TIME THE MULTILEVEL DISTRIBUTION COMPANY HAS:
  A. BEEN ENGAGED IN MULTILEVEL DISTRIBUTION BUSINESS; AND
  B. BEEN ENGAGED IN MULTILEVEL DISTRIBUTION BUSINESS INVOLVING THE TYPE
OF INVENTORY CURRENTLY OFFERED TO THE PARTICIPANT;
  (II) A DETAILED DESCRIPTION OF THE LEVELS OF DISTRIBUTION  WITHIN  THE
MULTILEVEL  DISTRIBUTION COMPANY. THIS ENTAILS INFORMATION REGARDING THE
RELEVANT ACTIVITIES, SALES, AND SKILLS THAT ARE NECESSARY IN ORDER FOR A
PARTICIPANT TO MOVE FROM ONE LEVEL OF DISTRIBUTION TO ANOTHER; AND
  (III) THE MANNER, EXTENT, AND/OR AMOUNT IN WHICH PARTICIPANTS WILL  BE
COMPENSATED.
  SUCH DISCLOSURE DOCUMENT SHALL BE SIGNED AND DATED BY BOTH THE PARTIC-
IPANT  AND  A  REPRESENTATIVE OF THE MULTILEVEL DISTRIBUTION COMPANY, IN
CHARGE OF THE EXECUTION OF THE CONTRACT.
  (D) SUCH DISCLOSURE DOCUMENT AND ANY OTHER CONTRACT BETWEEN  A  MULTI-
LEVEL  DISTRIBUTION  COMPANY  AND PARTICIPANT SHALL BE IN CLEAR, CONCISE
AND PLAIN LANGUAGE; AND OFFERED TO A PARTICIPANT IN BOTH ENGLISH AND, IF
REQUESTED, IN A  TRANSLATED  FOREIGN  LANGUAGE.  IN  THE  EVENT  THAT  A
CONTRACT  BETWEEN  THE MULTILEVEL DISTRIBUTION COMPANY AND A PARTICIPANT
IS CONDUCTED ELECTRONICALLY, THEN SUCH REQUIRED DISCLOSURE SHALL  APPEAR
PRIOR TO THE ELECTRONIC SIGNING SCREEN OF SUCH CONTRACT OR AGREEMENT.
  3.  A MULTILEVEL DISTRIBUTION COMPANY SHALL KEEP OR MAINTAIN A RECORD,
FOR A PERIOD OF THREE YEARS FROM EITHER THE DATE OF EXECUTION OR SIGNING
OF SUCH DOCUMENTS OR MATERIALS LISTED HEREIN,  OR  FROM  THE  DATE  SUCH
DOCUMENTS  OR MATERIALS WERE DISTRIBUTED OR OTHERWISE USED IN A BUSINESS
TRANSACTION BETWEEN A MULTILEVEL DISTRIBUTION COMPANY AND A PARTICIPANT.
SUCH DOCUMENTS AND/OR MATERIALS SHALL INCLUDE:
  (A) PARTICIPANT'S CONTRACT;
  (B) DISCLOSURE DOCUMENT;
  (C) MARKETING AND ADVERTISEMENTS MATERIALS SUCH AS CATALOGS AND  SALES
MATERIALS, AND/OR SALES AND MARKETING PLAN; AND
  (D)  BUSINESS  HANDBOOK, COMPENSATION PLAN DOCUMENTS, AND/OR MATERIALS
PERTAINING TO BUSINESS CONDUCT REQUIREMENTS, BUSINESS RULES FOR  PARTIC-
IPANTS.

A. 10735                            3

  4.  (A)  ALL  CONTRACTS  AND DISCLOSURE DOCUMENTS BETWEEN A MULTILEVEL
DISTRIBUTION COMPANY AND A PARTICIPANT SHALL BE IN WRITING  AND  A  COPY
SHALL BE GIVEN TO A PARTICIPANT AT THE TIME OF EXECUTION.
  (B)  IF,  AS  DETERMINED  BY  THE  MULTILEVEL DISTRIBUTION COMPANY THE
PARTICIPANT HAS MADE A GOOD FAITH EFFORT TO SELL SUCH GOODS OR SERVICES,
AND SUCH GOODS OR SERVICES HAS NOT SOLD FOR A PERIOD  OF  TWELVE  MONTHS
AFTER  THE  FIRST  RECEIPT OF SUCH GOODS OR SERVICES THE PARTICIPANT MAY
CANCEL THE CONTRACT AND IF THE PARTICIPANT HAS  PURCHASED  GOODS  AND/OR
SERVICES  FROM  THE  MULTILEVEL  DISTRIBUTION  COMPANY,  THE  MULTILEVEL
DISTRIBUTION COMPANY SHALL REPURCHASE ALL GOODS AND/OR  SERVICES  IN  AN
UNUSED  AND  UNENCUMBERED  COMMERCIALLY RESALABLE OR REUSABLE CONDITION,
EXCLUDING PERISHABLE GOODS AND SERVICES, AT A PRICE  THAT  IS  AT  LEAST
NINETY PERCENT OF THE ORIGINAL PRICE PAID BY THE PARTICIPANTS.
  5. THE DIVISION OF CONSUMER PROTECTION IN CONSULTATION WITH THE OFFICE
OF NEW AMERICANS SHALL DEVELOP, ESTABLISH, AND IMPLEMENT A PUBLIC AWARE-
NESS  CAMPAIGN  REGARDING  THE  RISKS AND ADVANTAGES OF TAKING PART IN A
MULTILEVEL DISTRIBUTION COMPANY AS A PARTICIPANT. THE  PUBLIC  AWARENESS
CAMPAIGN  SHALL  BE  MADE  AVAILABLE  TO  THE PUBLIC BY ANY MEANS DEEMED
APPROPRIATE BY THE DIVISION OF CONSUMER PROTECTION AND THE OFFICE OF NEW
AMERICANS, INCLUDING BUT NOT LIMITED TO, BILLBOARDS, POSTERS,  INTERNET,
RADIO,  AND  PRINT  ADVERTISING.  THE DIVISION OF CONSUMER PROTECTION IN
CONSULTATION WITH THE OFFICE OF NEW AMERICANS SHALL  ALSO  IDENTIFY  AND
PARTNER,  WHERE  FEASIBLE,  WITH OTHER STATE, LOCAL AND FEDERAL AGENCIES
AND COMMUNITY ORGANIZATIONS TO DISSEMINATE THE INFORMATION  RELATING  TO
THE PUBLIC AWARENESS CAMPAIGN.
  6.  (A)  WHERE THE ATTORNEY GENERAL HAS DETERMINED THAT ANY MULTILEVEL
DISTRIBUTION COMPANY, ITS AGENTS OR REPRESENTATIVES HAS VIOLATED ONE  OR
MORE  PROVISIONS OF THIS SECTION, THE ATTORNEY GENERAL MAY BRING A CIVIL
ACTION IN THE NAME OF THE PEOPLE OF NEW YORK STATE AGAINST SUCH  COMPANY
TO  ENJOIN  AND/OR  RESTRAIN  SUCH  COMPANY  FROM FURTHER VIOLATION. THE
ATTORNEY GENERAL MAY AUDIT THE  RECORDS  OF  A  MULTILEVEL  DISTRIBUTION
COMPANY, AT ITS DISCRETION, OR UPON RECEIPT OF COMPLAINTS FROM ACTIVE OR
FORMER  PARTICIPANTS  IN  THE MULTILEVEL DISTRIBUTION COMPANY.   WHERE A
COURT OF COMPETENT JURISDICTION HAS FOUND THAT SUCH COMPANY HAS VIOLATED
ANY PROVISION OF THIS SECTION, THE COURT MAY IMPOSE A CIVIL  PENALTY  OF
NOT  MORE  THAN  FIVE  THOUSAND  DOLLARS FOR EACH VIOLATION, WHICH SHALL
ACCRUE TO THE STATE OF NEW YORK AND BE PLACED IN A SPECIAL FUND FOR  THE
USE OF FUNDING COMMUNITY OUTREACH PROGRAMS OPERATED BY THE OFFICE OF NEW
AMERICANS AND/OR THE DIVISION OF CONSUMER PROTECTION.
  (B)  NOTHING  CONTAINED  IN  THIS SECTION SHALL BE CONSTRUED TO LIMIT,
MODIFY, OR REPEAL ANY PROVISION OF ARTICLE TWENTY-THREE-A OF THIS  CHAP-
TER.
  (C)  NOTHING  CONTAINED IN THIS SECTION SHALL BE CONSTRUED TO PREEMPT,
LIMIT, OR MODIFY ANY PROVISIONS OF THE FEDERAL TRADE COMMISSION  ACT  OR
UNITED  STATES  SECURITIES EXCHANGE ACT, OR THE RULES AND REGULATIONS OF
THE FEDERAL TRADE COMMISSION OR THE UNITED  STATES  SECURITIES  EXCHANGE
ACT.
  (D)  IT SHALL BE A REBUTTAL PRESUMPTION THAT A MULTILEVEL DISTRIBUTION
COMPANY HAS NOT VIOLATED THE PROHIBITIONS SET FORTH IN THIS ARTICLE,  IF
DURING  A  LEGAL  PROCEEDING  SUCH  MULTILEVEL  DISTRIBUTION COMPANY CAN
PRODUCE THE FOLLOWING INFORMATION:
  (I) AN ANTI-INVENTORY LOADING BUSINESS POLICY;
  (II) PROOF OF A BUSINESS POLICY THAT LIMITS LARGE  UPFRONT  INVESTMENT
FEES  IN  ORDER FOR PARTICIPANTS TO PARTAKE IN A MULTILEVEL DISTRIBUTION
COMPANY;

A. 10735                            4

  (III) PROOF OF A BUSINESS PRACTICE THAT ENCOURAGES ACTUAL  SELLING  OF
PRODUCTS  TO  INDIVIDUALS OTHER THAN CONTRACTED PARTICIPANTS. SUCH PROOF
SHALL INCLUDE THE FOLLOWING INFORMATION:
  (A) THE TOTAL NUMBER OF PARTICIPANTS SUCH COMPANY HAS IN THE STATE;
  (B)  THE  TOTAL  NUMBER OF NEW PARTICIPANTS OF SUCH COMPANY DURING THE
CALENDAR YEAR;
  (C) THE TOTAL SALES OF SUCH COMPANY IN THE STATE;
  (D) THE PERCENT OF SALES IN THE STATE THAT ARE GENERATED BY  SALES  TO
PERSONS WHO ARE NOT PARTICIPANTS OF SUCH COMPANY; AND
  (E)  THE  AVERAGE AND MEDIAN COMMISSION EARNED BY PARTICIPANTS OF SUCH
COMPANY; OR
  (IV) PROOF OF A PRODUCT REPURCHASING POLICY.
  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.