Selling a Pyramid Scheme in NJ Could Soon Land you in Prison for 5 Years

pyrLegislation to outlaw pyramid schemes recently cleared the Assembly. It will now go to the Senate for further review.

The bill (A-449), sponsored by Assemblyman Jerry Green, makes it a crime of the third degree, punishable by three to five years’ imprisonment, for a person to promote or sell a pyramid scheme. This bill establishes criminal penalties for promoting and participating in “pyramid promotional schemes.”

Green notes in the bill that a pyramid promotional scheme requires participants to recruit other individuals into the scheme in order for the original participants to receive any compensation. The scheme is designed to compensate only those participants who initially join the pyramid, while later participants lose money.

“Pyramid schemes make victims out of vulnerable people who often are just looking for a way to make ends meet,” said Green (D-Middlesex/Somerset/Union). “Individuals who understand that an enterprise is a pyramid scheme and still choose to participate ought to face serious consequences.”

The bill makes it a crime of the third degree to knowingly promote or sell a pyramid promotional scheme. Under the bill, a “pyramid promotional scheme” is defined as any plan or operation in which a participant gives consideration for the right to receive compensation that is derived primarily from the recruitment of other persons as participants in the plan or operation, rather than from the sales of goods, services, or intangible property by the participant or by participants to others.

“Consideration” is defined as the payment of cash or the purchase of goods, services, and intangible property, and does not include the purchase of goods or services furnished at cost to be used in making sales and not for resale.

“New Jersey is the only state in the country without a statute that specifically outlaws pyramid schemes,” Green added. “Knowingly deceiving people and convincing them to recruit others to sell a nonexistent product isn’t a business model – it’s fraud. By specifically prohibiting pyramid schemes, this bill will make the severity of this matter clear in New Jersey.”

The bill also provides that knowing participation in a pyramid promotional scheme is a crime of the fourth degree, unless the amount the person contributed to the scheme was $100 or less, in which case it is a disorderly persons offense. A disorderly persons offense carries a sentence of up to 6 months in a county jail.

The bill specifically exempts plans or operations in which consideration is given by participants in return for the right to receive compensation based on their sales or personal use of goods, services, or intangible property. The bill also exempts plans and operations that implement an appropriate inventory repurchase program and that do not promote inventory loading.

The measure was approved 64-0 on Monday, December 3 by the full Assembly. The Assembly Consumer Affairs Committee released the bill on November.


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