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  1. #1
    Senior Member CBayWolf's Avatar
    Join Date
    Sep 2004
    Ellicott City, MD
    Sand Dollars

    All Pyramid Schemes Are Illegal

    (One more reason we need mods on this site who actually read it daily)

    Despite what some stupid A$$holes would tell you:

    Chain Letters Are Illegal

    We have all received chain letters in the mail. They are all about the same. They usually contain a list of five or six names and addresses. The instructions say you should send money to the person at the top, remove that name from the list, and then reprint the letter with your name added to the bottom. Then you should send the letter to all the people you know, or even to a mailing list.

    The freedom of the press is one of the great bulwarks of liberty, and can never be restrained but by despotic governments.
    -- Virginia Bill of Rights

    The letter will go on to state that if just a few of the people to whom you send the list will do as you did, and just a few of their recipients will do the same, your name will eventually work its way to the top. By that time the base of the pyramid will be so broad that you will receive tens, and maybe even hundreds, of thousands of dollars.

    There is another common theme to such letters. In one form or another the original author of the letter never fails to point out that it is not an illegal chain letter. This message is conveyed in a variety of convincing ways. Sometimes the writer says the program has been approved by postal authorities.

    In one that went around recently, the author says she was a lawyer and was asked her opinion about its legality. She decided it was illegal, but found a way to rewrite it and make it legal, and then she sent it out and received over $800,000 back. Now she is so rich that she doesn't have to practice law any more.

    In most of the letters it is claimed that they are not illegal because you don't pay something for nothing. In return for the money you send you will either receive a product from the person to whom you send your money, usually a one*page report on some money*making program. The fact that the money is connected with a product or service is supposed to make it all legal.

    Scarcely a week goes by that we are not asked about the legality of one of these programs. This year we defended a client who was falsely charged with promoting an illegal pyramid. In the process of handling that case we spent more than 200 hours producing a 75 page brief on the subject. I mention that only so that you will know that on this particular subject we are truly experts.


    Regardless of what the author of the letter says, it violates Title 18, section 1302 of the United States Code, which makes it illegal to knowingly deposit in the mail any letter, package, postal card, or circular concerning any lottery, gift enterprise or similar scheme, offering prizes dependent in whole or in part upon lot or chance. It also violates Section 5 of the Federal Trade Commission Act, prohibiting misrepresentations in advertising even if the mails are not employed in operating the program.

    The three elements of an illegal lottery are: (1) consideration; (2) a prize, and (3) remuneration based in whole or in part upon lot or chance.

    When you send your dollar to the person at the top of the list you have paid consideration, thus satisfying the first element. When the letter offers you a return in the form of cash from others when you reach the top of the list, that is a prize, thus satisfying the second element. When you are promised remuneration based upon the efforts of others in your "downline," the third element of an illegal lottery has been met.

    In a sense every network or multilevel marketing program contains some of the same elements. For example, one can make money from the efforts of a downline. So, why aren't these programs illegal? It's simple. Every legitimate network marketing program ties its profits only to the sale of products, and I'm talking about real, legitimate, products that people buy and consume for their own value and not just because they are part of a chain program.

    In the case of legitimate network marketing companies like Amway and Nuskin, there are warehouses involved, sending out hundreds of millions of dollars of products that people want, use and consume, and all commission are paid upon the sale of products ** not upon the signing up of people. The typical chain letter, by contrast, barely mentions product. It does not describe product or try to convince anyone to participate because of the value of the product. It ties product to the program only to make it "legitimate, which it does not do.

    In addition, every legitimate network marketing program provides support, encouragement and training to its participants so that they can develop a close working relationship with people in their downline and work with them to sell legitimate products. The success of the program is not primarily dependent upon chance, but upon the efforts of the participants.

    There is another difference between chain letters and legitimate network marketing programs. The chain letters fraudulently promise a level of remuneration which is unrealistic. It is a simple matter of mathematics. If one person could really send out letters, and get two people, each of whom would get two people, and it went down the line, in very short order the numbers of people involved would exceed the population of the United States. It is what is known as an "endless chain."

    There are also some state laws that come into play in this area. Most states have laws that parallel the federal lottery laws. In addition, many of the states have laws defining "pyramid schemes" even more broadly than the federal statutes. For example, Utah defines an illegal pyramid scheme as a sales device or plan where the compensation is derived primarily from the introduction of other persons into the sales device or plan rather than from the sale of goods, services, or other property. Criminal penalties are imposed for violating the section.

    South Dakota has a statute outlawing chain referral programs where a product is sold to someone with the hope that they can pay for it or earn money by referring others, and also has a statute similar to that in Utah.

    The authorities can be rough on programs they perceive to by pyramid schemes. While mere misrepresentations in mail pieces are often the subject of civil proceedings with the goal of obtaining a consent order, lotteries are more often prosecuted criminally. If your mail piece is even close to being a pyramid or lottery type program, it ought to be checked by counsel before you mail it.

    Law Offices Of Abbott & Walker
    3651 North 100 East, Suite 300
    Provo, UT 84604 (USA)

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