Connecticut does not have a statute expressly concerning multilevel marketing or pyramid schemes. However, in an early case, Connecticut’s Contingent Transactions statute, Conn.Gen.Stat. Title 42, Chapter 741, was construed to apply to an MLM program. See State v. Bull Inv. Group, Inc., 351 A.2d 879 (Ct. Sup. 1974). This type of statute, set forth in full below, was designed for a different sort of scam, in which a product was sold with the understanding that the purchaser could obtain a rebate if they solicited a certain number of other purchasers. A more recent federal district court case, while not expressly contradicting State v. Bull Inv. Group, casts doubt on the utility of this statute in prosecuting MLM-type pyramid schemes, holding that it did not apply to Amway. See Hayden v. Yager, 2000 U.S. Dist. LEXIS 23060 (D.Conn. 2000).
Another statute, the Home Solicitation Sales Act, Conn.Gen.Stat. Title 42, Chapter 740, has some applicability to MLM in that it creates a right of rescission for sales not made at a retail establishment. It includes a provision prohibiting the seller from offering a commission, rebate or discount if the purchaser assists the seller to find other purchasers. This could certainly be applied to many MLM schemes.
Connecticut’s Unfair Trade Practices Act, Conn.Gen.Stat. Title 42, Chapter 735a, a “Little FTC” statute, has been construed to apply to claims by franchisees against franchisors. See Bailey Employment System, Inc. v. Hahn, 545 F.Supp. 62 (D.Conn. 1982). As the relationship between MLM companies and distributors is analogous to the franchise relationship, it would not be a stretch to apply CUTPA to MLM. At least two Connecticut courts have assumed with expressly deciding that CUTPA applies to MLM-type pyramid schemes. See D’Arinzo v. N. Am. Power & Gas, LLC, 2016 Conn. Super. LEXIS 2280 (Ct.Sup. 2016); Walsh v. National Safety Assocs., 44 Conn. Supp. 569; 695 A.2d 1095 (Ct.Sup. 1996). However, CUTPA does not apply to securities transactions, so to the extent that a pyramid scheme could be considered to be a security, CUTPA would not apply. See Slainte Invs. L.P. v. Jeffrey, 142 F. Supp. 3d 239 (D.Conn. 2015). There do not appear to have been any cases construing the Connecticut Uniform Securities Act (CUSA) to apply to MLM-type pyramid schemes.
Connecticut Unfair Trade Practices Act (excerpts)
Sec. 42-110a. Definitions.
As used in this chapter:
(1) “Commissioner” means the Commissioner of Consumer Protection;
(2) “Documentary material” means the original or a copy of a book, record, report, memorandum, paper, communication, tabulation, map, chart, photograph, mechanical transcription, or other tangible document or recording, wherever situate;
(3) “Person” means a natural person, corporation, limited liability company, trust, partnership, incorporated or unincorporated association, and any other legal entity;
(4) “Trade” and “commerce” means the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state.
Sec. 42-110b. Unfair trade practices prohibited. Legislative intent.
(a) No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.
(b) It is the intent of the legislature that in construing subsection (a) of this section, the commissioner and the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act (15 USC 45(a)(1)), as from time to time amended.
(c) The commissioner may, in accordance with chapter 54, establish by regulation acts, practices or methods which shall be deemed to be unfair or deceptive in violation of subsection (a) of this section. Such regulations shall not be inconsistent with the rules, regulations and decisions of the federal trade commission and the federal courts in interpreting the provisions of the Federal Trade Commission Act.
(d) It is the intention of the legislature that this chapter be remedial and be so construed.
Connecticut Home Solicitation Sales Act (excerpt)
Sec. 42-140. Offer of commission or rebate where buyer provides prospective purchasers’ names illegal, when.
No seller in a home solicitation sale shall offer to pay a commission or give a rebate or discount to the buyer in consideration of the buyer’s giving to the seller the names of prospective purchasers or otherwise aiding the seller in making a sale to another person, if the earning of the commission, rebate or discount is contingent upon an event subsequent to the time the buyer agrees to buy.
Connecticut Contingent Transactions Act
Sec. 42-144. Definitions.
As used in this chapter:
(a) “Advertisement” includes the attempt by publication, dissemination, solicitation or circulation, written or oral, to induce directly or indirectly, any person to enter into any obligation or acquire any title or interest in any merchandise;
(b) “Merchandise” includes any objects, wares, goods, commodities, intangibles, securities, bonds, debentures, stocks, real estate or services;
(c) “Services” includes any supply of accommodations, work, repair or other needs, instruction or education, including any type of training course in any field such as personality improvement, self motivation, salesmanship and similar fields;
(d) “Rights or privileges” includes the right or privilege to market, distribute, wholesale or retail, merchandise or services or to procure others to do so;
(e) “Procure” includes obtaining, providing, inducing, suggesting, soliciting, recruiting, training, supervising, advancing in position, or aiding or abetting any of the activities specified in this subsection;
(f) “Person” includes any natural person, or his legal representative, partnership, limited liability company, corporation, whether domestic or foreign, company, trust, business entity or association, and any agent, employee, salesman, partner, officer, director, member, stockholder, associate, trustee or cestui que trust thereof;
(g) “Sale” includes any sale, offer of sale or attempt to sell any merchandise, services, or rights or privileges for any consideration, or aiding or abetting any of the activities specified in this section;
(h) “Trade and commerce” means the advertising, offering for sale, sale or distribution of services and property, tangible or intangible, and any other article, commodity or thing of value wherever situate, and shall include any trade or commerce directly or indirectly affecting the people of this state;
(i) “Commissioner” means the Commissioner of Consumer Protection.
Sec. 42-145. Contingent consideration void.
The advertisement for sale, lease or rent, or the actual sale, lease or rental of any merchandise, service or rights or privileges at a price or with a rebate or payment or other consideration to the purchaser which is contingent upon the procurement of prospective customers procured by the purchaser, or the procurement of sales, leases or rentals of merchandise, services, rights or privileges, to other persons procured by the purchaser, is declared to be an unlawful practice rendering any obligation incurred by the buyer in connection therewith, completely void and a nullity. The rights and obligations of any contract relating to such contingent price, rebate or payment shall be interdependent and inseverable from the rights and obligations relating to the sale, lease or rental.
Sec. 42-146. Commissioner’s powers to enforce.
(a) In the discharge of the duties imposed by this chapter: (1) The commissioner or his duly authorized agent or agents shall at all reasonable times have access to records and documentary evidence of any person being investigated for the purposes of examining such records and documentary evidence and making copies thereof; and (2) the commissioner shall have the power to administer oaths and affirmations and to issue subpoenas requiring the attendance of witnesses and the production of records, correspondence, documents or other evidence in connection therewith.
(b) In case of contumacy or refusal to obey a subpoena issued to any person, the Superior Court, upon application by the commissioner, shall have jurisdiction to order such person to appear and produce evidence or to give testimony touching the matter under investigation or in question, and any failure to obey such order may be punished by said court as a contempt thereof. No person shall be excused from attending and testifying or from producing books, records, correspondence, documents or other evidence in obedience to the subpoena of the commissioner, on the ground that the testimony or evidence required of him may tend to incriminate him or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which he is compelled, after having claimed his privilege against self-incrimination, to testify or produce evidence, except that such individual so testifying shall not be exempt from prosecution and punishment for perjury committed in so testifying. Complaints, orders and other processes and papers of the commissioner may be served personally, by registered or certified mail, by telegraph or by leaving a copy thereof at the principal office or place of business of the person required to be served. The verified return of service shall be proof of such service. Witnesses summoned by the commissioner shall be paid the same fees and mileage allowances that are paid witnesses in the courts of this state, and witnesses whose depositions are taken and the person taking the same shall severally be entitled to the same fees as are paid for like services in the courts of this state. All processes of any court to which an application or petition may be made under this chapter may be served in the judicial district wherein the person or persons required to be served reside or may be found.
(c) Any person who, without just cause, fails to attend and testify or to answer any lawful inquiry or to produce records, correspondence, documents or other evidence, if it is within his power to do so, in obedience to a subpoena issued to him under this section, shall be fined not more than two hundred dollars and imprisoned not more than six months or both.
Sec. 42-147. Conciliation and voluntary compliance.
In the administration of this chapter, the commissioner shall set up prehearing conciliation procedures and may accept an assurance of voluntary compliance with respect to any method, act or practice deemed in violation of this chapter from any person alleged to be engaged or to have been engaged in such method, act or practice. Such assurance may provide for restitution to aggrieved persons. Any such assurance of voluntary compliance shall not be considered an admission of violation for any purpose. Matters thus closed may at any time be reopened by the Attorney General or commissioner for further proceedings in the public interest.
Sec. 42-148. Judicial enforcement.
Whenever the commissioner has reason to believe that any person has been engaged or is engaged in any act or acts prohibited by this chapter, said commissioner may proceed as provided in section 42-147 or 42-150 or may request the Attorney General to apply in the name of the state of Connecticut to the Superior Court for any order enjoining the continuance of such act or acts, on a temporary or permanent basis, or of any fraudulent or illegal acts, or for an order directing restitution in appropriate instances, or both. The court may award the relief applied for or so much as it may deem proper including accounting and such other relief as may be granted in equity. In such action the commissioner shall be responsible for all necessary investigative support.
Sec. 42-149. Injunctive relief, costs, other remedies.
(a) A person likely to be damaged by any practice of another prohibited by this chapter may be granted an injunction enjoining such practice under the principles of equity and on terms that the court considers reasonable. Proof of monetary damage, loss of profits, competition, actual confusion or misunderstanding or intent to deceive is not required. Relief granted for the copying of an article shall be limited to the prevention of confusion or misunderstanding as to source.
(b) Costs or attorneys’ fees may be assessed against a defendant if the court finds that he was wilfully engaged in a deceptive trade practice.
(c) The relief provided in this section is in addition to remedies otherwise available against the same conduct under the common law or other statutes of this state.
Sec. 42-150. Powers granted under chapter not exclusive.
Nothing contained in this chapter shall be construed as a limitation upon the power or authority of the state, the Attorney General or the commissioner to seek administrative, legal or equitable relief as provided by other statutes or at common law.