South Carolina’s Pyramid Promotional Scheme Act prohibits “a plan or operation in which an individual pays consideration for the right to receive compensation based primarily upon recruiting other individuals into the plan or operation instead of selling products or services to ultimate users for their use or consumption.” The phrase “ultimate users” is defined as “individuals who consume or use the products or services, whether or not they are participants in the plan or operation.” Accordingly, the statute would permit schemes where all of the “retail customers” are participants – which is the essence of a pyramid scheme. This statute reverses the holding in In re Koscot Interplanetary, 86 F.T.C. 1106 (1975), which held that “compensation” could only be paid based on actual retail sales to non-participants.
§ 39-5-710. Short title.
This article must be known and may be cited as the “Pyramid Promotional Scheme Prohibition Act”.
§ 39-5-720. Definitions.
As used in this article:
(1) “Compensation” means the payment of money, a thing of value, or a benefit.
(2) “Consideration” means either the payment of money or the provision of a thing of value for the purchase of a product, good, service, or intangible property. Consideration does not include:
(a) the purchase of a product, furnished at cost, for use in making a sale, but not for resale, of the purchased product itself; or
(b) time and effort spent to pursue a sale or recruiting activity.
(3) “Pyramid promotional scheme” means a plan or operation in which an individual pays consideration for the right to receive compensation based primarily upon recruiting other individuals into the plan or operation instead of selling products or services to ultimate users for their use or consumption.
(4) “Ultimate users” are individuals who consume or use the products or services, whether or not they are participants in the plan or operation.
§ 39-5-730. Pyramid promotional schemes prohibited.
A pyramid promotional scheme is an unfair trade practice pursuant to Section 39-5-20(a), and accordingly, is prohibited in this State.