Legal Memorandum: Pyramid Scheme Laws in CT

Issue: In Connecticut, are pyramid schemes allowed, and if so, are front-end loads and product repurchase or return allowed or required?

Area of Law: Antitrust & Trade Regulation, Litigation & Procedure
Keywords: Pyramid schemes; 'Horizontal' and 'vertical' pyramiding; Front-end loads
Jurisdiction: Connecticut
Cited Cases: None
Cited Statutes: Conn. Gen. Stat. § 42-145 (1999), § 42‑149
Date: 08/01/2000

Connecticut legislation contains a provision unlike no other in the United States which specifically voids “contingent consideration”:

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.

Conn. Gen. Stat. § 42-145 (1999).  A sidenote to this section on the official state Internet version of the statute notes that it “prohibits both ‘horizontal’ and ‘vertical’ pyramiding.”  A separate statutory provision provides that any violation of the chapter exposes the wrongdoer to injunctive relief, costs and “other remedies” Id. § 42‑149.  The statutes do not contain any other sections which discuss multi-level marketing or pyramid schemes.  No case precedent exists in Connecticut which discusses the issues of return/repurchase of product or the appropriateness of “front-end loads.”


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