HOUSE OF REPRESENTATIVES

153rd GENERAL ASSEMBLY

HOUSE BILL NO. 162

AN ACT TO AMEND TITLE 6 OF THE DELAWARE CODE RELATING TO MULTILEVEL DISTRIBUTION COMPANIES.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend Subchapter VI, Chapter 25, Title 6 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

Subchapter VI. Pyramid or Chain Distribution Schemes

§ 2561. Definitions.

As used in this subchapter:

(1) “Consideration” includes all of the following: a finder’s fee, bonus, refund, override, commission, cross-commision, dividend, and any financial remuneration.

(2) “Multilevel distribution company” means :

a. Any person who does all of the following:

1. Sells, distributes, or supplies for valuable consideration a good or service through an independent agent, contractor, or distributor at different levels.

2. Pays consideration as a result of the sale of such goods or services or the recruitment, action, or performance of an of additional participant.

b. The term does not include a licensed insurance agent, insurance agency, licensed real estate broker, licensed real estate agent, licensed real estate agency, licensed securities dealer, licensed limited securities dealer, licensed securities salesperson, or licensed limited securities salesperson.

(3) “Multilevel marketing program” means the marketing program or plan of a multilevel distribution company.

§ 2565. Required disclosure by a multilevel distribution company; penalty for violation.

(a) At least 48 hours prior to the time the purchaser signs a business opportunity contract or at least 48 hours prior to the receipt of any consideration by the seller, whichever occurs first, the seller or the seller’s representative must provide the prospective purchaser a written document that contains all of the following:

(1) A first page that contains only the following language:

a. “DISCLOSURE REQUIRED BY DELAWARE LAW.” in at least 16-point boldface capital letters.

b. “The State of Delaware has not reviewed and does not approve, recommend, endorse, or sponsor any multilevel marketing program. The information contained in this disclosure has not been checked by the State. If you have any questions about this purchase, see an attorney or other financial adviser before you sign a contract or agreement.” in at least 12-point boldface capital letters

(2) The name of the seller, the name under which the seller is doing or intends to do business, and the name of any parent or affiliated company that will engage in a business transaction with a purchaser or accept responsibility for a multilevel marketing program.

(3) A complete description of the compensation plan, including any inventory purchase requirements.

(4) A full and detailed description of the actual service the seller will undertake to perform for the purchaser.

(5) When the seller makes any statement concerning earning or range of earnings that may be made through the multilevel marketing program, the statement: “No guarantee of earning or range of earning can be made.”

(6) The total number of participants who have received the earnings in the amount or range specified within the last 3 years.

(7) The total number of participants who have entered into this contract with the seller within the last 3 years.

(8) If training is promised by the seller, a complete description of the training and the length of the training.

(9) If the seller promises services to be performed in connection with the placement of the equipment, product, or supplies at a location where they will be sold or used, the full nature of those services as well as the nature of the agreements to be made with the owner or manager of the location where the purchaser’s equipment, product, or supplies will be placed.

(10) If the seller represents, when soliciting, offering for sale, or selling or leasing a multilevel marketing program, that there is a “buy-back” arrangement or that the initial payment is protected from loss or “secured,” the entire and precise nature of the “buy-back”, “protection”, or “security” arrangement.

(11) How many other purchasers are selling in each county of the State.

(12) The percentage of buyers who earn more than the initial payment and all inventory purchase requirements.

(13) The median and typical earnings of every person involved in the program.

(b) A violation of this section is deemed a violation of subchapter II of Chapter 25 of this title.

§ 2566. Repurchases required.

(a) A multilevel distribution company may not require a participant in its marketing program to buy a good or service or pay any other consideration to participate in the marketing program unless the multilevel distribution company agrees to repurchase the goods that are in resalable condition.

(b) A multilevel distribution company must state in writing in each contract of participation in its marketing program all of the following:

(1) A participant may cancel the contract for any reason within 3 months after the date of receipt of goods or services first ordered by notice to the multilevel distribution company. Notice may be sent by electronic mail or first-class mail.

(2) On cancellation, the multilevel distribution company will repurchase the goods.

(3) The repurchase price will be at least 90% of the original price paid by the participant.

(c) Any person who suffers damage or injury as a result of a violation of this section has a cause of action to recover 3 times the amount of actual damages, court costs, and reasonable attorney’s fees. Such treble damages shall be in addition to any other damages to which the victim is entitled pursuant to common law or other provisions of the Delaware Code.

SYNOPSIS

This Act defines a multilevel distribution company and multilevel marketing program for purposes of this Subchapter.

It sets forth mandatory disclosures that must be made by a multilevel distribution company to any potential purchaser that discloses details about the company, sometimes based on certain representations that the company makes.

It sets forth that a multilevel distribution company may not require a participant in its marketing program to buy a good or service or pay any other consideration to participate in the marketing program unless it agrees to repurchase the goods, under certain conditions. It permits a civil penalty to be imposed for violations of the required disclosures. It provides a private right of action for violation of the repurchase requirement, including treble damages, attorneys’ fees and costs to be awarded for a prevailing plaintiff.