Louisiana Administrative Code › Title 16 - COMMUNITY AFFAIRS › Part III - Consumer Protection › Chapter 5 - Unfair and Deceptive Trade Practices › Section III-503 - Multi-Level Distribution and Chain Distributor Marketing Schemes

Current through Register Vol. 50, No. 6, June 20, 2024
A. Definitions. For
						the purpose of this Section, the following definitions shall apply.
Chain Distributor Scheme
-a sales device
							whereby a person, upon a condition that he make an investment, is granted a
							license or right to recruit for profit one or more additional persons who also
							are granted such license or right upon condition of making an investment and
							may further perpetuate the chain of persons who are granted such license or
							right upon such condition. A limitation as to the number of persons who may
							participate, or the presence of additional conditions affecting eligibility for
							the above license or right to recruit or the receipt of profits therefrom, does
							not change the identity of the scheme as a chain distributor scheme.
Investment
-any acquisition, for a cause or
							consideration other than personal services, of movable or personal property,
							tangible or intangible, for profit or business purposes, and includes, without
							limitation, franchises, business opportunities and services. It does not
							include real estate, securities registered in accordance with Louisiana law, or
							sales demonstration equipment and materials furnished at cost for use in making
							sales and not for resale.
Multi-Level Distribution Scheme
-a scheme
							whereby goods or services are distributed through independent agents,
							contractors or distributors at different levels, wherein any one level enjoys a
							different rate of pricing or discounting from that of any other level, and
							wherein participants in the marketing program may recruit other participants
							and wherein commissions, cross-commissions, bonuses, refunds, discounts,
							dividends or other consideration in the marketing program may be paid as a
							result of the sale of such goods and services or the recruitment, actions or
							performances of additional participants.
Pyramid Sales Marketing Scheme
-the conduct
							of any business in trade and commerce wherein a multi-level distribution scheme
							or a chain distributor scheme, or a combination of these schemes, is
							used.
B. Prohibitions
1. Any marketing scheme utilizing a chain
						distributor scheme, as defined in this rule, is per se an unfair and deceptive
						trade practice, in violation of
						R.S.
						51:1405(A).
2. It shall also be an unfair and deceptive
						trade practice, in violation of
						R.S.
						51:1405(A), for any person
						using any pyramid sales marketing scheme to do any of the following:
a. to fail to provide in the contract of
						participation in bold face type of a minimum size of 10 points a statement
						substantially indicating that such contract may be canceled for any reason at
						any time by a participant upon notification in writing to the company of his
						election to cancel. If the participant has purchased products while the
						contract of participation was in effect, all products in a resalable condition
						then in the possession of the participant shall be repurchased. The repurchase
						shall be at a price of not less than 90 percent of the original net cost to the
						participant returning such goods, taking into account any sales made by or
						through such participant prior to notification to the company of the election
						to cancel; or
b. to require
						participants in its marketing program to purchase products or services or pay
						any other cause or consideration in order to participate in the marketing
						program unless such products or services are in reasonable quantities in
						relation to the rate at which they actually sell and unless it agrees:
i. to repurchase all or part of any products
						which are in a resalable condition at a price of not less than 90 percent of
						the original net cost to the participant; and
ii. to repay not less than 90 percent of the
						original net cost of any services purchased by the participant; and
iii. to refund not less than 90 percent of
						any other consideration paid by the participant in order to participate in the
						marketing program; or
c.
i. to operate or, directly or indirectly,
						participate in the operation of any multi-level marketing program wherein the
						financial gains to the participants are primarily dependent upon the continued,
						successive recruitment of other participants and where sales to nonparticipant
						are not required as a condition precedent to realization of such financial
						gains; or
ii. to offer to pay, pay,
						or authorize the payment of any finder's fee, bonus, refund, override,
						commission, cross-commission, dividend or other cause or consideration to any
						participants in a multi-level marketing program solely for the solicitation or
						recruitment of other participants therein; or
iii. to offer to pay, pay, or authorize the
						payment of any finder's fee, bonus, refund, override, commission,
						cross-commission, dividend or other cause or consideration to any participants
						in a multi-level marketing program in connection with the sale of any product
						or service unless such participant performs a bona fide and essential
						supervisory, distributive, selling or soliciting function in the sale or
						delivery of such product or services to the ultimate consumer; or
iv. to offer to pay, pay, or authorize the
						payment of any finder's fee, bonus, refund, override, commission,
						cross-commission, dividend or other cause or consideration to any participant
						where payment thereof is or would be dependent on the element of chance
						dominating over the skill or judgment of such participant, or where no amount
						of judgment or skill exercised by the participant has any appreciable effect
						upon any finder's fee, bonus, refund, override, commission, cross-commission,
						dividend or other cause or consideration which the participant may receive, or
						where the participant is without that degree of control over the operation of
						such plan as to enable him substantially to affect the amount of finder's fee,
						bonus, refund, override, commission, cross-commission, dividend or other cause
						or consideration which he may receive or be entitled to receive;
						or
d. to represent,
						directly or indirectly, that participants in a multi-level marketing program
						will earn or receive any stated gross or net amount, or represent in any
						manner, the past earnings of participants; provided, however, that a written or
						verbal description of the manner in which the marketing plan operates shall
						not, standing alone, constitute a representation of earnings, past or future;
						or
e. to represent, either directly
						or indirectly, that additional distributors or sales personnel are easy to
						secure or retain, or that all or substantially all participants will succeed;
						or
f. to fail to comply with all
						Louisiana corporation registration laws, if applicable, or, in any case, to
						fail to notify the Consumer Protection Section of the Louisiana Department of
						Justice of any of the following, prior to its doing business in this state:
i. that it will be doing business in
						Louisiana;
ii. each place within
						Louisiana where it will actually be doing business;
iii. the full name and mailing and permanent
						address of its authorized agent for service of process within Louisiana, which
						it is also required to have at all times herein;
iv. that the Consumer Protection Section of
						the Louisiana Department of Justice and its representatives are authorized and
						invited to attend any and all of its opportunity meetings, recruitment
						meetings, training sessions, or any other meeting wherein a prospective
						participant or any participant is explained the marketing system, and are
						authorized and invited to visit, at any reasonable time, any and all places
						wherein it keeps files, records, data, communications, or information and to
						inspect same.