Pyramid Schemes vs. Multi-Level-Marketing: How Can I Tell the Difference?

 Posted on August 29, 2022 in Federal Crimes

New multi-level marketing (MLM) companies pop up all the time. Nearly everyone has a friend who is always trying to get them involved in the latest supplement, candle, or makeup line, with promises that if your interest goes beyond merely purchasing and you begin distributing, too, potential riches await. Cars, bonuses, and free products are just a few common rewards the MLM companies promise to their expanding network of employees.

Those who invest their time and money in MLM companies often feel as though they got swindled or duped. Perhaps the product is not as good as they had hoped, or it is much harder to get friends and family interested in another miracle protein shake. Yet, unlike pyramid schemes, which bear many similarities to MLM schemes, MLM is legal. Why? And, if you are being charged with federal financial fraud for being involved in a pyramid scheme, is believing it to be an MLM campaign a defense?

What is a Pyramid Scheme?

A pyramid scheme begins when one person or a group of people begins to recruit others into an exclusive business, which the new members join by paying a fee. The new recruits continue inviting other people, and as they do so, they receive a portion of their recruits’ fee. The new recruits go on to recruit others, and so on and so forth. Pyramid schemes may have real products or a true business at their base; however, if most of the people involved in the scheme make money by recruiting new people rather than by selling products or services, the “business” is a pyramid scheme.

Pyramid Schemes Are a Federal Crime

Pyramid schemes, and similarly-structured Ponzi schemes, are illegal at the state and federal level. Illinois considers it a Class A misdemeanor for someone to knowingly sell or even try to sell pyramid scheme recruitment. At the federal level, criminal charges for pyramid and Ponzi schemes could be pursued as money laundering activity, tax fraud, securities fraud, or wire and bank fraud, allowing for harsh penalties of decades in prison as well as enormous fines.

Pyramid and Ponzi schemes are aggressively investigated and prosecuted by the federal government. Successful prosecution is typically dependent on the perpetrator knowing they were involved in a corrupt business practice. Generally, this means the people who started the pyramid scheme are the ones held responsible. However, even if you were not involved in starting the pyramid scheme, if you are part of a federal money fraud investigation, you should have a criminal defense attorney. 

Contact a Chicago Pyramid and Ponzi Scheme Defense Attorney

If you are being charged with setting up a pyramid scheme or with any other crime of defrauding people out of money, you need hard-hitting criminal defense from an experienced Illinois federal investment fraud attorney. At Law Offices of Hal M. Garfinkel LLC, Chicago Criminal Defense Attorney, we are committed to providing aggressive defense throughout every step of the criminal process, from the initial investigation to trying to get charges reduced or dropped completely. Call us now at 312-629-0669 to schedule a free consultation. If your spouse has been arrested for charges of investment fraud, you can contact us to schedule a visit for them in jail or prison.

Sources:

https://www.ojp.gov/ncjrs/virtual-library/abstracts/ponzi-schemes-and-laundering-how-illicit-funds-are-acquired-and

https://illinoisattorneygeneral.gov/consumers/pyramid.html