By Wolens H.B. No. 2771 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 to prohibit pyramid promotional schemes and to provide a penalty 1-3 for promotion and participation in such schemes. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Sections 17.46(18) and 17.46(20), Business and 1-6 Commerce Code, are repealed. 1-7 SECTION 2. Chapter 17, Business and Commerce Code, is 1-8 amended by adding section 17.461 to read as follows: 1-9 Sec. 17.461. (a) As used in this section: 1-10 (1) "Participant" means a person who contributes money 1-11 into a pyramid promotional scheme but does not promote, organize or 1-12 operate the scheme; 1-13 (2) "Promoting a pyramid promotional scheme" means 1-14 inducing or attempting to induce one or more other persons to 1-15 become participants, or assisting another person in promoting a 1-16 pyramid promotional scheme by any means including the provision of 1-17 references. 1-18 (3) "Pyramid promotional scheme" means any plan or 1-19 operation by which a participant gives consideration for the 1-20 opportunity to receive compensation which is derived primarily from 1-21 any person's introduction of other persons into participation in 1-22 the plan or operation rather than from the sale of goods, services 1-23 or intangible property by the participants or other persons 2-1 introduced into the plan or operation. 2-2 (4) "Compensation" means payment of any money, thing 2-3 of value, or financial benefit. Compensation does not include 2-4 payment based on sales of products by the person or by other 2-5 participants in the plan to anyone, including a participant in the 2-6 plan, who is purchasing the products for actual use or consumption. 2-7 (5) "Consideration" means the payment of cash or the 2-8 purchase of products but does not include the purchase of products 2-9 furnished at cost to be used in making sales and not for resale, 2-10 the purchase of products where the seller offers to repurchase the 2-11 products acquired by the participant from the seller at reasonable 2-12 commercial terms nor does it include time and effort spent in 2-13 pursuit of sales or recruiting activities. 2-14 (6) "Products" means goods, services, or intangible 2-15 property of any kind. 2-16 (7) "Reasonable commercial terms" includes repurchase 2-17 of all unencumbered products which are in an unused, commercially 2-18 resalable condition within one year from the participant's date of 2-19 purchase; such repurchase shall be at a price not less than 90 2-20 percent of the original net cost to the participant of the products 2-21 being returned. For purposes of this paragraph, "original net 2-22 cost" means the amount actually paid by the participant for the 2-23 products, less any consideration received by the participant for 2-24 purchase of the products being returned. Products which are no 2-25 longer marketed by a program shall be deemed "resalable" if the 3-1 products are otherwise in an unused commercially resalable 3-2 condition and are returned to the seller within one year from the 3-3 participant's date of purchase; provided, however, that products 3-4 which are no longer marketed by a program shall not be deemed 3-5 "resalable" if the products are sold to participants as 3-6 non-returnable, discontinued, seasonal, or special promotion items 3-7 and the non-returnable nature of the products was clearly disclosed 3-8 to the participant prior to purchase. 3-9 (b) A person commits a crime if he contrives, prepares, 3-10 establishes, operates, advertises, sells, promotes or participates 3-11 in a pyramid promotional scheme. 3-12 (c)(1) Any person who violates subsection (b) of this 3-13 section by contriving, preparing, establishing, operating, 3-14 advertising or promoting a pyramid promotional scheme is guilty of 3-15 state jail felony. 3-16 (2) Any person who violates subsection (b) of this 3-17 section by participating in a pyramid promotional scheme is guilty 3-18 of a Class A misdemeanor except that if the amount of consideration 3-19 which the person contributed to a pyramid promotional scheme was 3-20 $100.00 or less, the person is guilty of a Class B misdemeanor. 3-21 (d)(1) It shall be no defense to a prosecution for a crime 3-22 under this section that the scheme or plan involved both a 3-23 franchise to sell a particular product and the authority to sell 3-24 additional franchises if the emphasis of the scheme is on the sale 3-25 of additional franchises. 4-1 (2) It shall be no defense to a prosecution for a 4-2 crime under paragraph (2) of subsection (b) of this section that 4-3 the person, after signing an agreement to participates, later 4-4 withdraws from the pyramid promotional scheme. 4-5 SECTION 2. This act shall take effect immediately. 4-6 SECTION 3. The importance of this legislation and the 4-7 crowded condition of the calendars in both houses create an 4-8 emergency and an imperative public necessity that the 4-9 constitutional rule requiring bills to be read on three several 4-10 days in each house be suspended, and thes rule is hereby suspended.