Pyramid Scheme Laws
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What Is a Pyramid Scheme?
Pyramid schemes are fraudulent systems of making money. The distinguishing aspect of pyramid schemes from other forms of fraud is the importance of finding new recruits to participate in the scheme. For instance, a recruiter asks a recruit to give $200 for admission into some business. The new recruit then must enlist more individuals to pay $200 to become part of the business. The more individuals that are added onto the pyramid scheme, the more profit.
Are Pyramid Schemes Successful?
Pyramid schemes are successful, but only to the first few groups of consumers. Pyramid schemes only benefit those at the top of the pyramid, and as a result, tend to end quickly. At some point, too many people realize the extent of the scheme and opt not to participate. When individuals stop participating, the scheme starts to dwindle.
What Steps Can a Victim Take?
People should be aware that pyramid schemes are a type of fraud. Therefore, it's a criminal offense to knowingly participate in a pyramid scheme. There are steps victims can take, including:
- Contact the Police - Pyramid schemes constitute fraud, so local law enforcement officials may be able to track down the founders of the scheme and return money to the rightful owners.
- Contact the Federal Trade Commission (FTC) - The FTC regularly helps the Justice Department to prosecute pyramid schemes. If pyramid schemes have crossed state lines, the federal government has jurisdiction to investigate and prosecute these individuals.
What Should I Do If I Suspect a Proposed Business Is a Pyramid Scheme?
Individuals should remember that pyramid schemes can extend to all different types of areas, but all function in a similar way, with the individuals at the top of the pyramid reaping nearly all of the profits. Therefore, asking questions about how the business works can uncover whether or not a proposed business is a pyramid scheme. People should think about whether the promise of fast cash and a great return is feasible or possible.
Should I Consult an Attorney?
Pyramid schemes are a form of fraud and only an attorney can advise you on the right course of action. If a civil suit is necessary, an experienced business lawyer can help you through the litigation process. In addition, an attorney may be able to help you to recover money damages from pyramid scheme operators.
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Last Modified: 08-25-2015 12:47 PM PDT
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