Chain Distributor Schemes Law and Legal Definition

Chain distributor scheme is a sales device whereby a person, upon a condition makes an investment, and is granted a license or right to solicit for profit. Additional persons are also granted such licenses or right upon condition of making an investment and may further perpetuate the chain of persons who are granted such license upon such condition.

A limitation as to the number of persons who may participate, or the presence of additional conditions affecting eligibility for the licenses or right to recruit or solicit the profits does not change the identity of the scheme as a chain distributor scheme. Chain distributor scheme is also known as pyramid sales

According to the state statute (Washington), Rev. Code Wash. (ARCW) § 19.102.020 Chain distributor scheme is considered as an unfair business practice and it is prohibited.