Pyramid schemes are illegal business plans involving compensating people for enrolling new members into the scheme, rather than for selling a product or service to the public. Ponzi schemes are similar in that they're an investment pyramid scheme with early investors being paid by money obtained from later ones. However, in the end, most investors lose their money. Both Pyramid and Ponzi schemes are well-known white collar crimes, mostly due to famous criminals like Bernie Madoff.
Minnesota isn’t immune to this type of crime. In 2014, a Minneapolis area financial planner, Sean Meadows, was charged in federal court for a more than $10 million dollar Ponzi scheme. Also, in 2013, the Minnesota Department of Commerce ordered an international pyramid scheme company, Profitable Sunrise, to stop selling investments in the state. The company was selling investments without a securities license. While Ponzi and pyramid schemes often cross state lines, and are therefore typically federal crimes, Minnesota also has laws prohibiting these types of crimes.
Minnesota Pyramid and Ponzi Schemes: Statute
The following table details Minnesota’s main pyramid and Ponzi scheme law.
||Minnesota Statutes Section 325F.69(2) – Unlawful Practices: Referral and Chain Referral Selling Prohibited
|What is Prohibited?
||Pyramid schemes are illegal in Minnesota under the consumer protection laws. Specifically it’s prohibited to:
- In selling or leasing anything, the seller can’t offer the buyer a discount to get the buyer to give the seller names of prospective purchasers, if the earning of the discount or other value is contingent on a later event (typically related to the new prospects).
- Sellers can’t operate a property distribution or franchise where a participant gives anything of value for the chance to receive something of value by getting one or more people to participate in the plan, known as chain referrals, pyramid sales, or multilevel sales distributorships.
- If a buyer is induced into a pyramid scheme, than the agreement is unenforceable and the buyer can rescind and obtain full (or partial if anything received was partially used) restitution for the purchase price. The buyer could also retain the goods or services without any further payment obligations.
- The seller can’t take a negotiable instrument like a sales contract, besides a check, as evidence of an obligation from the buyer, because the seller isn’t acting in good faith when the seller knows that he or she is violating this law.
||Chain referral or pyramid schemes violations are gross misdemeanors. Gross misdemeanors can be punished by up to one year imprisonment and up to a $3,000 fine.
|Where Can Victims Get Help?
||Minnesota residents can file complaints about chain referral, pyramid, or Ponzi schemes or securities frauds with the Minnesota Attorney General’s Office and the Minnesota Department of Commerce. The exact forms to complete or agency to call may vary based on the specifics of your situation. Please call 1-800-657-3787 for the Attorney General’s Office or 1-800-657-3602 for the Department of Commerce with any questions.
If you’ve lost money to a pyramid or Ponzi scheme, you could consider seeking compensation in civil court, in a bankruptcy case of the scammer, or by claiming the loss on your taxes. For help with this, consult with an experienced local civil litigation attorney or tax attorney.
|Where Can Accused Perpetrators Get Help?
||If you or a loved one is charged with a pyramid scheme or securities fraud related crime, you should consult with an experienced Minnesota criminal defense attorney or your appointed public defender as soon as possible.
Note: State laws change frequently, it’s important to verify the accuracy of the laws you are researching.
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