S-4517

AN ACT Relating to the prohibition of chain letters, pyramid schemes, gifting clubs, and pyramid sales schemes; adding a new chapter to Title 9A RCW; repealing RCW 19.102.010 and 19.102.020; prescribing penalties; and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. PURPOSE AND INTENT. The legislature concludes that pyramid schemes, chain letters, and related schemes constitute a threat to the health, welfare, and safety of our citizens and their communities. These schemes are fertile ground for deception and, in the end, can lead to serious financial loss, destroyed relationships, and breach of the peace. Flexible regulation resulting in prohibition of such schemes is necessary in order to:

(1) Protect the unsuspecting citizen from falling prey to these schemes; and

(2) Ensure certainty for law enforcement and affected agencies, that must protect our citizens and educate the public on the risks and threats posed by involvement in these fraudulent schemes and illegal acts.

Therefore, it is the intent of the legislature to enact a comprehensive prohibition of pyramid schemes and related activities to protect the public's strong interest in their eradication and provide for a balance of public and private remedies to ensure that such schemes do not obtain a foothold in the state of Washington.

NEW SECTION. Sec. 2. DEFINITIONS. The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Compensation" means payment of money, anything of value, or financial benefit. Compensation does not include:

(a) Payment to participants based upon sales of products purchased for actual use and consumption; or

(b) Payment to participants under reasonable commercial terms.

(2) "Consideration" means anything of value including in circumstances where no bona fide product or service is offered for sale by participants, an agreement or promise to abide by the plan's rules or policies, except it shall not include: (a) The purchase of goods or services furnished at cost for use in making sales, but not for resale; (b) the purchase of products where the seller offers to repurchase the participant's products under reasonable commercial terms; or (c) time and effort spent in the pursuit of sales or recruiting activities.

(3) "Consumers" are those persons who are not participants in the plan, and those who are not purchasing in order to participate in the plan.

(4) "Participant" means a person who contributes anything of value into a pyramid scheme.

(5) "Person" means an individual, a corporation, a partnership, or any association or unincorporated organization.

(6) "Promote" means:

(a) To contrive, prepare, establish, plan, operate, advertise, or organize; or

(b) To induce or attempt to induce other persons to be a participant.

(7) "Pyramid scheme" means any gift, sales, or marketing plan or operation, including chain letters and gifting clubs, by whatever means communicated, that includes the recruitment of additional participants, regardless of number, to participate in the same or related gift, sales, or marketing plan or operation, whereby a participant:

(a) Pays, gives, or promises a consideration of any kind, including anything of value, or makes an investment of any kind or value; and

(b) Acquires the chance or opportunity to receive compensation that is derived primarily from the person's introduction of other persons into the plan or operation rather than from the sale of goods, services, or other property sold in bona fide sales to consumers or participants under reasonable commercial terms.

(8) "Reasonable commercial terms" means repurchase by the seller, at the participant's request, and upon termination of the business relationship or contract with the seller, of all unencumbered products purchased by the participant from the seller within the previous twelve months that are unused and in commercially resalable condition, provided that repurchase by the seller shall be for not less than ninety percent of the actual amount paid by the participant to the seller of the products, less any consideration received by the participant for purchase of the products that are being returned. A product shall not be deemed nonresalable solely because the product is no longer marketed by the seller, unless it is clearly disclosed to the participant at the time of the sale, that the product is seasonal, discontinued, or a special promotional product, and not subject to the repurchase obligation.

NEW SECTION. Sec. 3. PROMOTING PYRAMID SCHEMES, CHAIN LETTERS, OR RELATED SCHEMES--PROHIBITED AS ILLEGAL LOTTERIES--PENALTY. Pyramid schemes are deemed illegal lotteries. Whoever shall participate in any such pyramid scheme by organizing, becoming a participant of, or affiliating with any such group or organization, or who shall solicit any person for participation or affiliation in any such group or organization, shall be deemed to be engaged in professional gambling as defined in RCW 9.46.0269 and subject to the penalties set forth in chapter 9.46 RCW for such conduct.

NEW SECTION. Sec. 4. MISREPRESENTATION OF LEGALITY--INTEGRATED SCHEMES. (1) Any person who, while participating in any such pyramid scheme, as described in sections 2 and 3 of this act, misrepresents the legality of such a scheme, or represents that it has been approved, reviewed, screened by, or in any way sanctioned by any governmental authority, or misrepresents the benefits attending participation or the longevity or durability of such a plan or scheme, shall be guilty of a gross misdemeanor.

(2) All pyramid schemes offered by the same person, or agents or employees thereof, or any person controlled by or affiliated with such person, for the same type of consideration, at substantially the same period of time and for the same general purpose, shall be deemed to be one integrated pyramid scheme, even though such pyramid schemes may be given different names or other designations.

NEW SECTION. Sec. 5. CIVIL ACTION--CONSUMER PROTECTION VIOLATION. The legislature finds that the prohibition of pyramid schemes as defined in this chapter are matters vitally affecting the public interest for purposes of applying the consumer protection act, chapter 19.86 RCW. A violation of this act is not reasonable in relation to the development and preservation of business. A violation of this act is an unfair or deceptive act or practice in trade or commerce and an unfair method of competition for the purpose of applying the consumer protection act, chapter 19.86 RCW.

NEW SECTION. Sec. 6. The following acts or parts of acts are each repealed:

(1) RCW 19.102.010 (Definitions) and 1973 1st ex.s. c 33 s 1; and

(2) RCW 19.102.020 (Chain distributor schemes prohibited--Unfair practice) and 1973 1st ex.s. c 33 s 2.

NEW SECTION. Sec. 7. Captions used in this act are not any part of the law.

NEW SECTION. Sec. 8. Sections 1 through 5 and 7 of this act constitute a new chapter in Title 9A RCW.

NEW SECTION. Sec. 9. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.