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Senate committee approves bill to clarify pyramid‑scheme rules, add seller protections
Summary
The Senate Insurance & Commerce Committee passed SB176, presented by Senator Trent Garner, which narrows the legal definition of pyramid schemes, requires bona fide inventory‑repurchase programs and adds protections (including a 90% buyback in specified cases) for direct sellers.
Senator Trent Garner told the Insurance & Commerce Committee that Senate Bill 176 is designed to draw a clear legal line between legitimate direct‑selling businesses and frauds commonly called pyramid schemes. "The purpose of SB176 is to make a clear line distinction between legitimate direct sale of businesses and true pyramid schemes," Garner said in committee testimony.
Garner described key provisions that would replace an "outdated and very broad" statutory definition with more specific terms, require a bona fide inventory repurchase program, prohibit inventory‑loading practices and limit compensation structures that primarily reward recruitment rather than product sales. He said the bill would require companies to provide transparent rules to sellers in manuals and other resources and would include a buyback mechanism so that sellers are not left holding unsellable inventory.
John Webb of the Direct Selling Association told the committee the association supports the bill and that similar laws exist in roughly two dozen states. Webb said regulators have used related language in prosecutions and described the repurchase protection as important for distributors who over‑purchase. "This is a good law," Webb told the committee, adding that the 90% repurchase protection provides recourse for sellers who find they cannot sell inventory.
Committee members raised several concerns during questioning. Senator Teague said he had received many emails from direct‑sell organizations and voiced caution about trusting industry advocacy. Senator Chesterfield questioned whether the 90% repurchase requirement — repurchase of current, marketable inventory within 12 months at no less than 90% of original net cost — could impede startups that lack capital. Garner and Webb responded that similar provisions have operated in other states without preventing startups from entering the market, and they said the buyback excludes unsellable or perishable items.
The committee acted on the bill after discussion. Senator Johnson moved to pass SB176; the motion was seconded and the committee passed the bill by voice vote with no roll call.
Next steps: SB176 will move to the full Senate for further consideration; Senator Garner said he would follow up with the committee on penalty provisions and other cross‑references that may be in separate sections of state law.
