The Colorado Consumer Protection Act prohibits contriving, preparing, setting up, operating, publicizing by advertisement, or promoting a pyramid promotional scheme. The Act defines “pyramid promotional scheme” in C.R.S. §6-1-102(9) as:
any program utilizing a pyramid or chain process by which a participant in the program gives a valuable consideration in excess of fifty dollars for the opportunity or right to receive compensation or other things of value in return for inducing other persons to become participants for the purpose of gaining new participants in the program.
Notably, the definition goes on to exclude
“[o]rdinary sales of goods or services to persons who are not purchasing in order to participate in such a scheme.”
This phrase is ambiguous. The MLM industry argues that many participants are not really interested in the business opportunity; they simply join up in order to obtain a wholesale discount on their purchases. In addition, the MLM industry argues that many participants who are pursuing the business opportunity purchase products. Would sales be considered “ordinary sales” even though they are to participants? There is no case law construing this provision.
Colorado Consumer Protection Act [excerpts]
6-1-102. Definitions. [excerpts]
As used in this article 1, unless the context otherwise requires:
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(7) “Promoting a pyramid promotional scheme” means inducing one or more other persons to become participants, or attempting to so induce, or assisting another in promoting a pyramid promotional scheme by means of references or otherwise.
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(9) “Pyramid promotional scheme” means any program utilizing a pyramid or chain process by which a participant in the program gives a valuable consideration in excess of fifty dollars for the opportunity or right to receive compensation or other things of value in return for inducing other persons to become participants for the purpose of gaining new participants in the program. Ordinary sales of goods or services to persons who are not purchasing in order to participate in such a scheme are not within this definition.
6-1-105. Unfair or deceptive trade practices – definitions. [excerpts]
(1) A person engages in a deceptive trade practice when, in the course of the person’s business, vocation, or occupation, the person:
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(k) Advertises under the guise of obtaining sales personnel when in fact the purpose is to first sell a product or service to the sales personnel applicant;
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(p) Solicits door-to-door as a seller, unless the seller, within thirty seconds after beginning the conversation, identifies himself or herself, whom he or she represents, and the purpose of the call;
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(q) Contrives, prepares, sets up, operates, publicizes by means of advertisements, or promotes any pyramid promotional scheme;
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(rrr) Either knowingly or recklessly engages in any unfair, unconscionable, deceptive, deliberately misleading, false, or fraudulent act or practice;
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(2) Evidence that a person has engaged in a deceptive trade practice shall be prima facie evidence of intent to injure competitors and to destroy or substantially lessen competition.
(3) The deceptive trade practices listed in this section are in addition to and do not limit the types of unfair trade practices actionable at common law or under other statutes of this state.
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