Prohibiting pyramid promotional schemes and making penalties applicable

This bill prohibits a person from establishing, promoting, or operating a pyramid promotional scheme. The bill defines a “pyramid promotional scheme” as a plan or operation by which a person provides consideration for the opportunity to receive compensation primarily derived from introducing other persons into the plan or operation and not from the sale or consumption of goods, services, or property. The bill provides that a “pyramid promotional scheme” includes a plan or operation by which the number of participants is limited either expressly or by the application of conditions affecting eligibility, or a plan or operation by which a person, upon providing consideration, obtains goods, services, or property in addition to the right to receive compensation. The bill provides that it shall not be construed to prohibit a plan or operation, or define a plan or operation as a pyramid promotional scheme, based on the fact that participants give consideration in return for the right to receive compensation based upon purchases by participants for personal use, consumption, or resale, if the plan or operation does not result in inventory loading and implements a bona fide inventory repurchase program as defined in the bill.16) and the “Private Right of Action For the Iowa Consumer Frauds Act” (Code chapter 714H). Under the “Iowa Consumer Frauds Act”, the attorney general may investigate, issue subpoenas, and commence civil proceedings seeking restraining orders or injunctions prohibiting persons from engaging in unlawful practices or seeking termination of the business affairs of a person engaging in unlawful practices. In addition, a civil penalty of up to $40,000 per violation may be imposed by a court against a person found to have committed an unlawful practice. Under the “Private Right of Action For the Iowa Consumer Frauds Act”, a consumer may sue to recover actual damages and may seek punitive damages up to three times the actual damages in cases of willful and wanton conduct by a defendant. In addition, if the consumer prevails in a private right of action lawsuit, the court must award reasonable attorney fees.