Internet Fraud
Ponzi Schemes - Mail and Wire Fraud - Chain Letter Scams
by
John Osgood, Attorney at law
Mr. Osgood's practice includes federal criminal defense,
state criminal defense,
courts martial defense, and
selective federal administrative and civil litigation. He is a
former federal prosecutor
and retired Army Reserve JAG Officer. He is admitted to the
Missouri and
Oklahoma bars and has been in practice for 30 plus years. Mr. Osgood
is listed in the Kansas City,
Missouri business white pages and yellow pages. Visit his
personal home
page for a fuller biography and details of his practice and
experience.
He also has email
Because I have received and continue to receive a large number of
unsolicited messages at my email address offering to explain to
me for a few dollars how I can get rich, I have elected to
provide the following information for those who might have a
hankering to bite on such nonsense and venture into the chain
letter business and for those who worse yet might be tempted to
part with part of their hard earned money believing that they
will indeed reap untold wealth by simply sending $5 or $10 to
someone on the other end of the modem. These schemes have been
around for many years and are referred to as ponzi, pyramid, and
multi-level marketing scams. Many are simply the tired old chain
letter in dressed up electronic form. They are quite simply
fraudulent and illegal no matter how much you are told otherwise.
More importantly, you will surely lose your money in the vast
majority of instances and never see any return unless and until
you yourself embark on a "get even/get my money back" revenge
strategy and make a decision to defraud others in return.
The Missouri Revised Statutes prohibit such conduct in this state
and are a fairly concise statement of what is considered
fraudulent. These provisions of Missouri law appear in
substantially the same form in many state codes throughout the
United States. The Missouri statutes provide:
" PYRAMID SALES SCHEMES
407.400. Definitions. -
As used in sections 407.400 to 407.420:
* * *
(2) The term "goods" includes any personal property,
real
property, or any combination thereof;
(3) The term "other property" includes a franchise,
license
distributorship, or other similar right, privilege, or
interest;
(4) The term "person" includes an individual, corporation,
trust, estate, partnership, unincorporated association,
or
any other legal or commercial entity;
(5) The term "pyramid sales scheme" includes any plan or
operation for the sale or distribution of goods,
services
or other property wherein a person for a consideration
acquires
the opportunity to receive a pecuniary benefit, which is
not
primarily contingent on the volume or quantity of goods,
services,
or other property sold or distributed or to be sold or
distributed to persons for purposes of resale to
consumers,
and is based upon the inducement of additional persons,
by
himself or others, regardless of number, to participate
in
the same plan or operation; and
(6) The term "sale or distribution" includes the acts of
leasing, renting or consigning.
(L. 1974 H.B. 1132 Sec 1, A.L. 1975 H.B. 810 Sec 1)
407.405. Pyramid sales schemes prohibited - cancellation of
franchise without notice prohibited, exceptions. -
No person shall, directly or through the use of agents or
intermediaries, in connection with the sale or
distribution
of goods, service, or other property, sell, offer or
attempt to sell a participation or the right to
participate
in a pyramid sales scheme. No person who has granted a
franchise to another person shall cancel or otherwise
terminate any such franchise agreement without
notifying
such person of the cancellation, termination or failure
to
renew in writing at least ninety days in advance of the
cancellation, termination or failure to renew, except
that
when criminal misconduct, fraud, abandonment,
bankruptcy or
insolvency of the franchisee, or the giving of a no
account
or insufficient funds check is the basis or grounds for
cancellation or termination, the ninety days' notice
shall
not be required.
(L. 1974 H.B. 1132 Sec 2, A.L. 1975 H.B. 810 Sec 2)"
The courts in Missouri have made it clear that the statute means
what it says as illustrated in the excerpts from the leading
Missouri case:
"(1980) Solicitation of individuals to join pyramid structured
club, the purpose of which was to generate money payable to
members higher up on the pyramidal scale, violated statute
prohibiting pyramid sales schemes. State ex rel. Ashcroft
v.
Wahl (A.), 600 S.W.2d 175.
(1980) General intent of the legislature in the enactment of
statutes prohibiting pyramid sales schemes is to buttress a
strong public policy against pyramid sales schemes
involving
cover or disguise of some seemingly legitimate commercial
transaction. State ex rel. Ashcroft v. Wahl (A.), 600
S.W.2d 175.
(1980) Sale of club memberships not exempt from statute
prohibiting pyramid sales schemes on basis that operation
was
contingent on volume or quantity of goods, services, or
other
property sold or distributed or to be sold or distributed
to
persons for purpose of resale where what was sold was place
on
club chart, with opportunity to move to higher position.
State
ex rel. Ashcroft v. Wahl (A.), 600 S.W.2d 175.
In addition to state criminal provisions, many states have civil
provisions that can subject you to fines and other sanctions for
such schemes. Typically, such investments violate state
securities and investment provisions and if there are complaining
victims, you can expect a visit from the State Attorney's General
Office and the service of civil process on you ordering you to
cease and desist.
There are also substantial risks of federal prosecution
associated with these schemes. If the messages that I have
received are a representative sampling, which I believe they are,
then each such message could be charged as a count of wire fraud
in violation Title 18, United States Code, Section 1343.
Additionally, there
are a number of other federal statutes which can provide a basis
for charging fraud in connection with multi-level marketing/chain
letter scams. (See 18 U.S.C. Sections 1341, 1342, 1344,1346,
etc.) And the fact that you are only ripping off someone
for $5 or $10 is not going to ensure that you will not come under
federal scrutiny. If the number of victims is large enough or
the investigating agency determines that you have repeated the
scheme under different scenarios over a protracted period of
time, you run a substantial risk of federal indictment.
Also, at the federal level, such schemes clearly run afoul of the
federal "blue sky" laws. The Securities and Exchange Commission
takes the position that such schemes are indeed an attempt to get
investors to invest in what is plain and simply a fraudulent
investment. (See Title 42, U.S.C.) Thus, you run the risk of
having the SEC come after
you as well as other federal agencies such as the FBI and the
United States Postal Service.
There are a number of excellent articles on the internet
explaining in more detail how chain letter marketing works. Many
of these links expose in more detail the pitfalls of investing
in such deals and actually show you how the fraud works. I do
not intend to go into detail here -- I simply invite you to
search the web under "ponzi" and "chain letter." However, when
in doubt, remember that the single most direct red flag give away
is the scheme in which you add your name to the bottom of a list
and are told that if you do not break the chain that within days
or weeks you will begin to receive untold amounts of money. The
more sophisticated versions attempt to tell you that the scam is
legal and o.k. because you are selling a product (usually a
report or other junk information of some type) and that the
individuals below you are your marketers who will be working
faithfully for
you to earn you millions. No matter how you dress it up, its
fraud and its doomed to
failure based on the geometric progressions involved. More
importantly, the person who is sending you the chain letter is in
99.9% of the cases the originator of the letter -- not someone in
the chain. You on the other hand part with your money and end up
on the bottom of the list without any real chance of recouping.
This web site is intended to be advertisement
of services.
THE CHOICE OF A LAWYER IS AN IMPORTANT DECISION
AND
SHOULD NOT BE BASED SOLELY ON ADVERTISEMENTS.
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