Legal Question in Consumer Law in Pennsylvania

Re: pyramid schemes

Yep. I wrote an FAQ on this topic a while back and I'll plug it in here if I can find it. I think the FTC and USPS web sites have some good info as well:

Remember, as has often been said, if a "get rich quick" scheme

sounds too good to be true, it probably is. The only safe rule of

thumb is to ASSUME that any investment which gives you the promise of

collecting the same type of "investment" from future suckers is an

illegal pyramid scheme. ASSUME THAT IT'S AN ILLEGAL PYRAMID, and you

will probably lose money, until and unless proven otherwise. And

only accept proof from a neutral attorney or law enforcement

official. Don't take the promoter's word for it!

Where the plan's main activity is to collect entry fees from

new members, it is probably illegal, either under general principles

of fraud, or specific statutes. Many states have a Consumer

Protection Law which includes a definition of forbidden pyramid plans.

In Pennsylvania, the statute is section 2(4)(xiii) of the Unfair

Trade Practices and Consumer Protection Law, 73 P.S. Sec.

201-2(4)(xiii):

(4) "Unfair methods of competition" and "unfair or deceptive

acts or practices" mean any one or more of the following:

(xiii) Promoting or engaging in any plan by which goods or

services are sold to a person for a consideration and upon the

further consideration that the purchaser secure or attempt to secure

one or more persons likewise to join the said plan; each purchaser

to be given the right to secure money, goods or services depending

upon the number of persons joining the plan. In addition, promoting

or engaging in any plan, commonly known as or similar to the

so-called "Chain-Letter Plan" or "Pyramid Club."

Re: pyramid schemes

There were some "multi-level marketing" schemes back in the 1980s that have been resurfacing lately which are pretty close to pyramid schemes. The big difference is that in legitimate MLM schemes the sales people are paid primarily from sales to third parties and not primarily from recruiting salespeople.

When the internet was starting to develop there were a lot of pyramid schemes floating around but I haven't noticed that many in recent years. I don't know why that is, the internet has encouraged a lot of other scams.