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.
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