S T A T E   O F   N E W   Y O R K
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                                  8125

                            I N  S E N A T E

                              June 13, 2016
                               ___________

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

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.
  2. (A) NO MULTILEVEL DISTRIBUTION COMPANY SHALL:

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

                                                           LBD14587-07-6

S. 8125                             2

  (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.

S. 8125                             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;

S. 8125                             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.