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Pyramid Schemes

A pyramid scheme is a fraudulent system of making money which involves an endless stream of recruiting new people to invest money into the scheme. Recruits give money to the company and enlist new recruits to give them more money. These schemes are characterized by the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

 

The Federal Trade Commission has established the elements for determining a pyramid scheme.  Pyramid schemes are characterized under the law as involving monetary payment by participants to a company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users. 

 

Past cases involving the question of pyramid schemes have distinguished a pyramid scheme from a marketing schemes by stating that the ‘focus’ in pyramid schemes is to recruit people rather than to sell a product. 

 

The penalties for recruiting people in a pyramid scheme are severe and vary from state to state.  For example, in Missouri, recruiting people to participate in a pyramid scheme is a felony and punishable by four years in prison, and a fine of $5000.  Other penalties in different states include reimbursement of money and civil penalties such as substantial fines.  To find an attorney who is experienced in defending against a charge of recruiting in a pyramid scheme, please visit www.crimelawyers.org.


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