Prohibition on Multilevel Sales
Prohibition on Multilevel Sales as Unfair, Deceptive, and Unconscionable Trade Practices
The Pyramid Promotional Schemes Act, §§57-13-1 through -18, prohibits anyone from individuals establishing, operating, advertising, or promoting a pyramid promotional scheme.
A. What is a Pyramid Promotional Scheme?
A “Pyramid Promotional Scheme,” or “Pyramid Scheme,” refers to any plan or operation in which a participant gives consideration for the opportunity to receive compensation that is primarily derived from a participant’s introduction of others into the scheme, rather than from the sale of goods, services or intangible property. §57-13-2(C). An example of a Pyramid Scheme is a chain letter that asks each recipient to send a dollar to a person at the top of a list, and then to send copies of the chain letter to 10 friends so that the recipient can then receive a payout when each of the friends sends back a dollar. Another name for a Pyramid Scheme is a “Ponzi Scheme.”
B. Penalties/Remedies Available Under The Pyramid Promotional Schemes Act
A person who violates the Pyramid Promotional Schemes Act is guilty of a fourth degree felony. §57-13-7. The attorney general’s and the district attorneys’ offices may bring action against anyone believed to be violating the Act. §57-13-13. In such a case, the court may require that the violator make restitution to all persons of money, property or other things received from them in any transaction related to the unlawful practice. If a person who suffers losses due to a pyramid scheme is unknown to the court at the time that judgment is rendered, that person may petition the attorney general to receive restitution for such losses from the Pyramid Promotional Schemes Act Restitution Fund. §57-13-8.