HOUSEBILL2843BySargentANACTtoamendTennesseeCodeAnnotated,Title39andTitle47,relativetomultilevelinvestments.BEITENACTEDBYTHEGENERALASSEMBLYOFTHESTATEOFTENNESSEE:SECTION1.TennesseeCodeAnnotated,Section47-18-104(b),isreplacedbydeletingsubdivision(20)initsentiretyandbysubstitutinginsteadthefollowinglanguage:(20)AnyviolationoftheTennesseeMultilevelandPyramidDistributorshipAct.SECTION2.TennesseeCodeAnnotated,Title39,Chapter17,isamendedbyaddingSections3through18ofthisbillasanewpartthereto.SECTION3.Thispartshallbeknownandmaybecitedasthe“TennesseeMultilevelandPyramidDistributorshipAct.”SECTION4.Asusedinthispart,unlessthecontextotherwiserequires:(1)“Customer”meansaconsumerofproductsorservicesofacompanythatdoesnotoccupyapositioninthecompany’slineofsponsorshipanddoesnotpossesstheopportunitytoearncommissionsorotherconsiderationwiththecompanythroughanylateractionorconduct;

(COMMENT:IgotthiswordingfromoneofGeraldNehra’sarticles,“

MLMLegalityTest2005”availableat:http://www.mlmatty.com/legal.php

)



(2)“Distributor”meansanyindependentcontractedperson,agent,employeeorparticipantthatoccupiesapositioninamultileveldistributioncompany’s

lineofsponsorship;(3)“Documentarymaterial”meanstheoriginaloracopyofanybook,record,report,memorandum,paper,communication,tabulation,map,chart,photograph,mechanicaltranscription,othertangibledocumentorrecording,reproductionsofinformationstoredmagnetically,filelayout,codeconversiontables,computerprogramstoconvertfiletoreadableprintout,whereversituate;(4)"Endlesschain"meansanyschemeorplanforthedisposalordistributionofpropertyorserviceswherebyaparticipantpaysavaluableconsiderationforthechancetoreceivecompensationforintroducingone(1)ormoreadditionalpersonsintoparticipationinthesameschemeorplanorforthechancetoreceivecompensationwhenthepersonintroducedbytheparticipantintroducesanewparticipant.Anymultileveldistributioncompanythatrequiresitsdistributorstopurchasearequisiteamountofproducteachmonthasaconditionprecedentforfinancialgains,withoutanyrequirementforcustomersales,shallbepresumedtobeoperatinganendlesschain;(5)“Lineofsponsorship”meansanorganizationalhierarchyofdistributorswhereindistributorsareorganizedinuniquepositionswithintheorganizationdeterminedbytheirsponsor.Thelineofsponsorshipincludes,butisnotlimitedto,thestructureandenrollmentactivityofalldistributororganizations;(6)“Multileveldistributioncompany”meansanyperson,firm,corporationorotherbusinessentitythatsells,distributesorsuppliesgoodsorservicesthroughindependentagentswhooccupydifferentlevelsinacompensationplanthatallowssuchagentstorecruitadditionalparticipants,andwherebycommissions,cross-commissions,bonuses,refunds,discounts,dividendsorotherformsofconsiderationarepaidasaresultofthesaleofsuchgoodsorservicesbytheadditionalparticipants;(7)“Multileveldistributoragreement”meansanyexpressorimpliedagreementinwhichapersonagreestotermswiththemultileveldistributioncompanyinexchangefortherighttooccupyapositioninthecompany’slineofsponsorship;

(8)"Pyramidscheme"meansabusinessenterprisecharacterizedbythepaymentofmoneybyparticipantsinreturnforwhichtheyreceivetherighttosellproductsandrecruitparticipantsandtherighttoreceiverewardswithoutanyconditionprecedentofcustomersales.Themereactofhavingacustomerrequirementdoesnotserveasanabsolutedefenseintheeventthere’sapatternofconductdemonstratingalackofenforcement;(9)“Resalablecondition”meansproductsthatwillpasswithoutobjectioninthetrade,orarestillfitfortheordinarypurposesforwhichtheproductsareused;and(10)“Salesaids”meanstoolsprovidedbythemultileveldistributioncompanydesignedtoassistdistributorswiththefunctionsofsellingandrecruiting.Salesaidsinclude,butarenotlimitedto,books,magazines,audiorecordings,DVDs,personalizedwebsites,andotherelectronicorInternetbasedpromotional,motivational,educational,ortrainingmaterial.SECTION5.Itisanoffenseforanypersontoknowinglycontrive,prepare,setup,proposeoroperateanendlesschainorpyramidscheme.SECTION6.Everymultileveldistributioncompanyshallprovideinitsmultileveldistributoragreementthattheagreementmaybecancelledforanyreason,atanytimebyaparticipantupontheparticipantprovidingwrittennoticetothecompanyoftheparticipant'selectiontocancel.Iftheparticipantpurchasedproductswhilethemultileveldistributoragreementwasineffect,allunencumberedproductsinaresalableconditiontheninthepossessionoftheparticipantshallberepurchasedbythemultileveldistributioncompanyiftheparticipantrequeststhatanysuchproductsberepurchased.Therepurchaseshallbeatapriceofnotlessthanninetypercent(90%)oftheoriginalnetcosttotheparticipant.Everymultileveldistributioncompanyshallprovideinitsmultileveldistributoragreementarequirementforalldistributorstomakearequisiteamountofcustomersalesasaconditionprecedenttoearningcommissionsfromtheirrecruits’productvolume.Everymultileveldistributioncompanyshallenforcetherequisitesalesruleandprovideproperdocumentationevidencingsuchenforcementupontherequest