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
§47-25-3, §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
CHAPTER 47. REGULATION OF TRADE.
ARTICLE 25. Multilevel Marketing Act.
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.
Pursuant to this article, the following words shall have the
(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,
(e) "Direct Sellers" - Individuals who are considered salesmen
and saleswomen of company products, including representatives,
agents, dealers, managers, distributors and multilevel marketing
(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
(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
(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
(s) "Supplier" means any natural or legal person who in
contracts covered by this article, is acting in his commercial or
(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
(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.
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
(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
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