Internet Fraud

Ponzi Schemes - Mail and Wire Fraud - Chain Letter Scams


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:


        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.

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