CHAPTER 86

FORMERLY

HOUSE BILL NO. 36

AN ACT TO AMEND TITLE 6, CHAPTER 25, DELAWARE CODE, BY ADDING A NEW SUBCHAPTER VI DEALING WITH PYRAMID OR CHAIN DISTRIBUTION SCHEMES.

WHEREAS, the promotional use of pyramid or chain sales distribution schemes serves as a lure to improvident and uneconomical investment in that many small investors lack commercial expertise and anticipate unrealistic profits through use of the chance to further perpetuate a chain of distributors, without regard to actual market conditions affecting further distribution and sale of the property purchased by them or its market acceptance by final users or consumers ; and

WHEREAS, substantial economic losses to participating distributors have occurred and will inevitably occur by reason of their reliance on the perpetuation of a pyramid or chain distribution scheme as a source of profit;

NOW, THEREFORE,

Be it enacted by the General Assembly of the State of Delaware:

Section 1. Amend Title 6, Chapter 25, Delaware Code, by adding a new Subchapter b entitled "Pyramid or Chain Distribution Schemes", which shall read as follows:

SUBCHAPTER VI. PYRAMID OR CHAIN DISTRIBUTION SCHEMES

§ 2561. Definitions

As used in this chapter—

(a) 'Pyramid or Chain Distribution Scheme' means a sales device whereby a person, upon a condition that he part with money, property or any other thing of value, is granted a franchise license, distributorship or other right and who may further perpetuate the pyramid or chain of persons who are granted such franchise, license, distributorship or right upon such condition. A limitation as to the number of persons who may participate, or the presence of additional conditions upon the eligibility for such a franchise, license, distributorship or other right recruit or upon the receipt of profits therefrom, does not change the identity of the scheme as a pyramid or chain distribution scheme.

(b) 'Person' includes an individual, corporation, trust, estate, partnership, unincorporated association, or any other legal or commercial entity.

§ 2562. Unlawful practice

The use of a pyramid or chain sales distribution scheme in connection with the solicitation of investments in the form of money, property or any other thing of value is hereby declared to be an unlawful practice under Section 2513 of this Title.

§ 2563. Prohibition

(a) No person, either directly or through the use of agents or other intermediaries, shall promote, sell, attempt to sell, offer or grant participation in a pyramid or chain distribution scheme.

(b) Whoever, directly or through the use of agents, or intermediaries, violates subsection (a) of this section shall be fined not more than $5,000, or imprisoned not more than three years, or both.

(c) The Superior Court shall have exclusive jurisdiction of offenses under this section.

§ 2564. Contracts void; civil liability

(a) Any contract made in violation of Section 2563 of this subchapter shall be void and any person who, directly or through the use of agents or intermediaries, induces or causes another person to participate in a pyramid or chain distribution scheme shall be liable to that person in an amount equal to the sum of :

(1) twice the amount of any consideration paid; and

(2) in the case of any successful action to enforce such liability, the costs of the action together with a reasonable attorney's fee, as determined by the Court.

(b) An action under this section may be brought in any court in this State otherwise having jurisdiction over the dollar amount being sought by way of recovery within one year from the date on which the consideration was paid.

Section 2. If any provision of this Act or its application to any person or circumstance is held invalid, the remainder of this Act, or its application to other persons or circumstances shall remain unaffected.

Approved June 19, 1973.