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Introduced Version House Bill 3100 History

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Key: Green = existing Code. Red = new code to be enacted
H. B. 3100


(By Delegates Rodighiero, Reynolds,

Eldridge and Louisos)

[Introduced March 12, 2009; referred to the

Committee on Government Organization then the Judiciary.]




A BILL to amend and reenact the Code of West Virginia, 1931, as amended, by adding thereto a new article, designated §47-25-1, §47-25-2, §47-25-3, §47-25-4 and §47-25-5; and to amend said code by adding thereto a new section, designated §61-3-59, all relating to requiring all multilevel marketers within the State of West Virginia to post bond with the Office of the West Virginia Secretary of State, and criminal penalties for failure to do so.

Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended by adding thereto a new article, designated
§47-25-1, §47-25-2, §47-25-3, §47-25-4 and §47-25-5; and that said code be amended by adding thereto a new section, designated §61-3-59, all to read as follows:
CHAPTER 47. REGULATION OF TRADE.

ARTICLE 25. Multilevel Marketing Act.
§47-25-1. Findings.
The Legislature finds:
It is sometimes difficult to distinguish legal and reputable multilevel marketers from illegal pyramid or Ponzi schemes;
Multilevel marketers operate in the United States, in all fifty states, and in more than one hundred other countries;
Many multilevel marketers engage in activities that comply with all applicable laws within the State of West Virginia;
However, many pyramid or Ponzi schemes try to present themselves as legitimate multilevel marketing businesses;
Therefore, the State of West Virginia must regulate these businesses for the protection of the overall business climate and consumers of this state.
§47-25-2. Definitions.
Pursuant to this article, the following words shall have the following definitions:
(a) "Agents" - Individuals who sell in the name of the
company and earn commissions.
(b) "Company" - An entity that supplies consumer products, owning the brand name, and utilizes a sales organization.
(c) "Consumer" means any natural person who, in contracts covered by this article, acting for purposes which are outside his or her trade, business or profession;
(d) "Dealers" - Individuals who are independent direct sellers buying from the company and selling in their own name to consumers, earning margins.
(e) "Direct Sellers" - Individuals who are considered salesmen and saleswomen of company products, including representatives, agents, dealers, managers, distributors and multilevel marketing participants.
(f) "Direct Selling" - The marketing of consumer goods and services directly to consumers in their homes (the homes of friends, at their workplace or any other place similar places away from the company's place of business), through explanation or demonstration by a salesperson, for the consumer's use or consumption.
(g) "Distributors" - Independent Direct Sellers in a dealer organization buying from the company and selling in their own name to consumers and/or dealers (or other distributors), earning margins and overrides.
(h) "Doorstep contract" means any contract concerning goods or services concluded between a supplier and a consumer away from business premises;
(i) "Downline" - A multilevel marketing term that refers to the distributors sponsored directly in your group, as well as those sponsored by other distributors below.
(j) "Earnings" - Includes salaries of representatives,
commissions of agents, margins of dealers, overrides of managers, dealers and distributors, rewards as incentives for direct sellers.
(k) "Levels" - Individuals who comprise of the buying and/or selling parties in dealer organizations, including the company, distributor, dealer and the final consumer.
(l) "Multilevel marketing" - A system of direct selling in which consumer products are sold to consumers by their upline (distributors), usually in customers' homes. Agents, direct sellers and dealers are also encouraged to build and manage a sales force by promoting, recruiting, sponsoring, motivating, supplying, and training others in their downline to sell company products or services. Agents, direct sellers, and dealers earnings are then based on the sales of the entire sales force in their downline, in addition to personal sales.
(m) "Participants" - Multilevel marketing entities including:
(1) Dealers and distributors;
(2) Independent contractors;
(3) Free, independent and self-employed direct sellers(agents, managers, dealers, distributors) paying their own expenses and taxes, being responsible for times of illness, unemployment and old age for example.
(n) "Promote" or "promotion" means the initiation, preparation, operation, advertisement, or the recruitment of any person or persons in the furtherance of any pyramid promotional scheme as defined in subsection (a) of this section.
(o) "Recruiting" - The act of negotiating with an individual to make it join a direct selling company's sales organization by signing a direct seller's agreements.
(p) "Representatives" - Individuals who employ direct sellers selling in the name of the company and earning salaries which are subject to withholding taxes and social security charges.
(q) "Selling" - Activities that include:
(1) Contacting of potential customers;
(2) Explaining and demonstrating products person-to-person or at parties; and
(3) Advising and taking of orders.
(r) "Sponsoring" - The acts of recruiting in a multilevel marketing organization, including the training, motivating and assisting or the independent dealers in the direct recruiting line.
A sponsor, usually part of an upline, sponsors a new participant, and thereby starts a downline chain of sponsorships or
generations.
(s) "Supplier" means any natural or legal person who in contracts covered by this article, is acting in his commercial or professional capacity.
(t) "Upline" - A network marketing term for all independent distributors who are above a representative's genealogy, including his or her sponsor.
§47-25-3. Posting of bond with Secretary of State.
(a) Each and every business organization, whether it be sole proprietor, partnership, corporation, or any other business organization, who shall operate a business model defined pursuant to this article as multilevel marketing shall register said organization with the Secretary of State, and post a bond with the Secretary of State as follows:
(1) Cash bond of $100,000, or
(2) Continuous surety bond of $200,000, or
(3) An individual pursuant to this article may, in lieu of posting either the cash bond or continuous surety bond required by this subsection provide proof of financial responsibility acceptable to the Secretary of State. The proof of financial responsibility shall demonstrate the absence of circumstances indicating risk with the collection of any fine or judgment from the individual. However, proof of $750,000 net worth shall constitute evidence of financial responsibility in lieu of posting the required bond. Net worth is calculated on a business, not individual basis.
(4) An applicant for a licensed activity listed under this subsection that has established with the State Tax Division a good filing record that is accurate, complete and timely for the preceding eighteen months shall be granted a waiver of the requirement to file either a cash bond or continuance surety bond. However, when a licensee that has been granted a waiver of the requirement to file a bond violates this article, the licensee shall file the applicable bond as stated in this subsection.
(b) Any business organization who disagrees with the secretary's decision requiring new or additional security pursuant to this article may seek a hearing by filing a petition with the clerk of the circuit court of Kanawha County.
(c) The surety must be authorized by the Secretary of State to engage in business of multilevel marketing within this state. The cash bond and the continuous surety bond are conditioned upon faithful compliance with this article, including the filing of the returns and payment of all taxes prescribed by this code. The cash bond and the continuous surety bond shall be approved by the Secretary of State.
(d) Any surety on a continuous surety bond furnished hereunder shall be relieved, released and discharged from all liability accruing on the bond after the expiration of sixty days from the date the surety shall have lodged, by certified mail, with the Secretary of State a written request to be discharged. Discharge from the continuous surety bond shall not relieve, release or discharge the surety from liability already accrued or which shall accrue before the expiration of the sixty-day period. Whenever any surety seeks discharge as herein provided, it is the duty of the principal of the bond to supply the Secretary of State with another continuous surety bond or a cash bond prior to the expiration of the original bond. Failure to provide a new continuous surety bond or a cash bond shall result in the Secretary of State canceling each license and registration previously issued to the person.
§47-25-4. Nonexclusivity with pyramid schemes statute.
Notwithstanding any other provision in this code, this article shall not exclude the prosecution of any party pursuant to article fifteen, chapter forty-seven of this code.
§47-25-5. Rulemaking.
The Secretary of State shall propose rules regarding this article for legislative approval in accordance with the provisions of article three, chapter twenty-nine-a of this code.
CHAPTER 61. CRIMES AND THEIR PUNISHMENT.

ARTICLE 3. CRIMES AGAINST PROPERTY.
§61-3-59. Operation of multilevel marketing organization without posting bond with Secretary of State.
(a) It shall be unlawful for the officer of any business organization to engage in multilevel marketing within the State of West Virginia and not post the required security as prescribed in article twenty-five, chapter forty-seven of this code.
(b) Any individual found to have violated subsection (a) of this section is guilty of a misdemeanor and, upon conviction thereof, shall be fined not less than $100 nor more than $500, or confined in jail for not more than one year, or both fined and confined.
(c) Any individual found to have committed a second or subsequent violation of subsection (a) of this section is guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000 or imprisoned for not less than one year, or both fined and imprisoned.




NOTE: The purpose of this bill shall require all multilevel marketers within the State of West Virginia to post bond with the Office of the West Virginia Secretary of State, and provides for criminal penalties for failure to do so.

Strike-throughs indicate language that would be stricken from the present law, and underscoring indicates new language that would be added.
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