A Pyramid scheme is a fraudulent and illegal systematic plan in which an
individual is offered an investment opportunity usually in the form of
a network marketing plan to sell or promote a product, but which is in
fact a scam to recruit new investors whose investment provide the revenues
for the organizers and promoters. The revenues for the participant in
the pyramid scheme are generated from new recruits rather than from retail
sales. The pyramid scheme attracts new investors by offering extraordinarily
high financial returns on their investment. The scheme continues to operate
as long as there is a supply of new investors. The scheme eventually collapses
when the existing investors decide to cash out or when there are no investments
and no earnings, making it difficult to recruit new investors.
Pyramid schemes come in all shapes and sizes. However, there are two major
distinguishing characteristics in pyramid schemes: the promoters of the
pyramid scheme promise new investors a high rate of return on their investment;
and there is never an actual product connected to the investment.
Pyramid schemes are illegal in the United States. They are prosecuted under
federal and state
white collar crimes law: pyramid statutes, securities laws, wire and mail fraud statutes,
and RICO laws. Pyramid schemes prosecutions are charged as felonies in
federal court and can be charged as both a misdemeanor or a felony in
California. California pyramid schemes are prosecuted under Penal Code
section 327. This law makes it a crime for any person to contrive, prepare,
participate or operate any endless chain. An endless chain in the law
is defined as any scheme for the disposal of property whereby a participant
pays money for the chance to receive compensation for introducing or inviting
other persons into participating in the scheme. A California pyramid scheme
conviction under Penal Code section 327 is punishable by one year or up
to three years in jail.
If you are being investigated or charged with securities or investment
fraud, including Pyramid or Ponzi schemes, immediately consult with a
Los Angeles criminal lawyer to determine what legal steps you should take
to protect yourself and what legal options are available to you.