S T A T E O F N E W Y O R K
________________________________________________________________________
1826
2017-2018 Regular Sessions
I N A S S E M B L Y
January 13, 2017
___________
Introduced by 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 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.
§ 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
EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD07229-01-7
A. 1826 2
AND/OR FOR THE RECRUITMENT, ACTIONS OR PERFORMANCE OF OTHER INDEPENDENT
AGENTS, CONTRACTORS AND DISTRIBUTORS.
3. "PARTICIPANT" MEANS AN INDEPENDENT AGENT, CONTRACTOR OR DISTRIBUTOR
OF A MULTILEVEL DISTRIBUTION COMPANY.
§ 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, WHICH SHALL INCLUDE THE FOLLOWING INFORMATION 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.
A. 1826 3
§ 677-A. CONTRACT REQUIREMENTS. 1. NO MULTILEVEL DISTRIBUTION COMPANY
SHALL ENTER INTO ANY CONTRACT OR AGREEMENT WITH A PROSPECTIVE PARTIC-
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.
§ 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.
§ 677-C. SUPERVISION. EACH MULTILEVEL DISTRIBUTION COMPANY SHALL
PROVIDE SUPPORT TO ITS PARTICIPANTS TO ENSURE COMPLIANCE WITH THE
PROVISIONS OF THE ARTICLE, AND TO PREVENT FRAUDULENT, DECEPTIVE AND
UNLAWFUL ACTS BY SUCH PARTICIPANTS.
§ 677-D. PENALTIES. ANY MULTILEVEL DISTRIBUTION COMPANY WHICH KNOWING-
LY 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.
§ 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.
§ 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.