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Pyramid Schemes And Ponzi Schemes In Florida, A Primer

White collar crime comes in many different forms in Florida. Among the more complicated varieties are pyramid schemes and Ponzi schemes. In this article we hope to give you everything you need to know if you are charged with running a pyramid scheme or a Ponzi scheme in Florida.

Basics

A pyramid scheme is an arrangement where investors are promised payment or services if they enroll someone else into the scheme, with the majority of the money going to the people at the top of the pyramid. This type of fraud has been around for at least a century, and many people consider many multi-level marketing (MLM) businesses to simply be sophisticated pyramid schemes. Due to the exponential nature of these schemes, it soon becomes difficult to recruit more new investors, leading to the collapse of the entire scheme.

The term “Ponzi scheme” is named after Boston businessman Charles Ponzi, who operated a fraudulent business arrangement where he asked investors to pay him a certain amount of cash in exchange for a guaranteed higher return. However, Ponzi did not invest the money in anything at all, as he simply paid previous investors with funds obtained by later investors. His arrangement, called the Securities Exchange Company, ran from 1919 to 1920 before it collapsed. Ponzi was later convicted in Florida of securities violations in February 1926.

Definition

Florida considers a pyramid scheme a

  • sales, marketing plan, or operation
  • that requires payment of an investment of at least $100 and
  • promises payment unrelated to the amount of goods or services sold and
  • recruitment of additional investors into the plan is rewarded with payment.

Such plans, or “lotteries” are misdemeanors of the first degree, punishable by a jail sentence of up to a year and a fine of up to $1,000.

Other Fraud Statutes

Despite itself being a misdemeanor, Florida’s laws regarding fraud typically cover activities considered to be pyramid schemes and Ponzi schemes. Among the related crimes that often accompany pyramid scheme or Ponzi scheme prosecutions are

  • bank fraud,
  • conspiracy,
  • investment fraud,
  • mail fraud,
  • money laundering,
  • stockbroker fraud,
  • securities fraud,
  • wire fraud.

The penalties for convictions of these crimes are usually harsher than those for pyramid schemes or Ponzi schemes and could result in sentences of several decades in prison and hundreds of thousands of dollars in fines.

Other Jurisdictions

Due to the nature of pyramid schemes and Ponzi schemes, several different jurisdictions and enforcement bodies are frequently involved in such prosecutions. Some of the more common ones include

  • Federal Trade Commission,
  • Securities and Exchange Commission,
  • US Postal Service,
  • Florida Attorney General,
  • US Attorney.

It’s important to consult with and retain an attorney who is well versed in Florida’s pyramid scheme and Ponzi scheme law. The laws surrounding pyramid and Ponzi schemes are complex, making navigating the legal landscape and the charges involved in Florida quite difficult for a layperson. In addition, an attorney experienced in pyramid and Ponzi scheme laws may be able to negotiate a lesser sentence and lower fines with prosecutors in many cases.

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