Utah - DOUGLAS M. BROOKS

The Utah Criminal Code defines a “pyramid scheme” as a “sales device or plan under which a person gives consideration to another person in exchange for compensation or the right to receive compensation that is derived primarily from the introduction of other persons into the sales device or plan rather than from the sale of goods, services, or other property.” The insertion of the word “primarily” provides substantial wiggle room for MLM plans, but more critically, the term “compensation” does not include the “sale of goods or services to anyone purchasing the goods or services for actual personal use or consumption.” This definition neatly resolves, in favor of MLM companies, the question of whether an MLM distributor can also be a bona fide retail customer. While the FTC’s Koscot decision requires that commissions be based on sales to non-participants, the Utah statute permits MLM plans where there are no sales to non-participants.

Utah Criminal Code 76-6a-101 Definitions.

As used in this chapter:

(1)(a) (i) “Compensation” means money, money bonuses, overrides, prizes, or other real or personal property, tangible or intangible.

(ii) “Compensation” does not include payment based on the sale of goods or services to anyone purchasing the goods or services for actual personal use or consumption.

(b) “Consideration” does not include:

(i) payment for sales demonstration equipment or materials furnished at cost for use in making sales and not for resale; or

(ii) time or effort spent in selling or recruiting activities.

(d) “Pyramid scheme” means any sales device or plan under which a person gives consideration to another person in exchange for compensation or the right to receive compensation that is derived primarily from the introduction of other persons into the sales device or plan rather than from the sale of goods, services, or other property.

(2) Terms defined in Section 76-1-101.5 apply to this part.

76-6a-102 Conducting pyramid scheme — Violation as deceptive consumer sales practice — Prosecution of civil violation.

(1) Terms defined in Section 76-1-101.5 apply to this section.

(2) An actor commits the offense of conducting a pyramid scheme if the actor knowingly organizes, establishes, promotes, or administers a pyramid scheme.

(3) A violation of Subsection (2) is a third degree felony.

(4) It is not a defense to an action brought under this section that:

(a) the sales device or plan limits the number of persons who may be introduced into the sales device or plan;

(b) the sales device or plan includes additional conditions affecting eligibility for introduction into the sales device or plan or when compensation may be received from the sales device or plan; or

(c) a person receives property or services in addition to the compensation or right to receive compensation in connection with a pyramid scheme.

(5) The appropriate county attorney or district attorney has primary responsibility for investigating and prosecuting a criminal violation of this section.

(6) (a) A violation under this section constitutes a violation of Section 13-11-4.

(b) A criminal conviction under this section is prima facie evidence of a violation of Section 13-11-4.

(c) In addition to prosecution under this section, a violation of this section shall be civilly investigated and prosecuted as prescribed by Title 13, Chapter 11, Utah Consumer Sales Practices Act.

76-6a-103 Participating in pyramid scheme — Violation as deceptive consumer sales practice — Prosecution of civil violation.

(1) Terms defined in Section 76-1-101.5 apply to this section.

(2) An actor commits the offense of participating in a pyramid scheme if the actor participates in a pyramid scheme only by receiving compensation for the introduction of another person into the pyramid scheme rather than from the sale of goods, services, or other property.

(3) A violation of Subsection (2) is a class B misdemeanor.