Created by FindLaw's team of legal writers and editors | Last reviewed March 28, 2018
This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw’s team of legal writers and attorneys and in accordance with our editorial standards.
The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area.
In Texas, pyramid schemes are against the law. They are considered a type of investment fraud. Many of these schemes are carried out over the internet and e-mail as scams. Texas law makes it a crime to create, prepare, advertise, sell, operate or promote a pyramid promotional scheme. A pyramid promotional scheme is a plan under which an initial investor is promised a large return on a small amount of money. He invests the money and tries to recruit others to join the venture. If he does recruit others, their money will be added into the venture. The plan is that additional people will continually be recruited, adding more and more money into the pyramid scheme. However, at some point, investors grow scarce and the whole scheme collapses upon itself causing many people to lose large amounts of money.
Example: Bob convinces Joe to join his new business venture. In order to join this venture, Joe paid Bob $500 and in exchange, he now gets the opportunity to ask other people to join this venture also. If Joe gets Sally to join and she pays the $500, Joe will get a percentage of her fee. The rest of Sally's fee will be split up the chain. So Bob may get a percentage since he introduced Joe to the venture, and so on. In this example, both Bob and Joe are guilty of promoting a pyramid scheme.
| Statute | Texas Business and Commerce Code § 17.461 |
| Statutory Definition of a Pyramid Promotional Scheme | Pyramid promotional scheme means a plan or operation by which a person gives consideration for the opportunity to receive compensation that is derived primarily from a person's introduction of other persons to participate in the plan or operation rather than from the sale of a product by a person introduced into the plan or operation.
A person commits an offense if the person contrives, prepares, establishes, operates, advertises, sells, or promotes a pyramid promotional scheme. |
| Crime Classification, Penalties, and Sentences | State Jail Felony: 6 months to 2 years in a state jail facility, fine of up to $10,000. |
| Defenses to Pyramid Scheme Charges |
Note: It is not a defense that the pyramid promotional scheme involved both a franchise to sell a product and the authority to sell additional franchises if the emphasis of the scheme is on the sale of additional franchises. |
Note: State laws are constantly changing -- please contact a Texas criminal defense attorney or conduct your own legal research to verify the state law(s) you are researching.
If you are convicted of participating in a pyramid scheme, you may face up to two years in a state jail facility, in addition to fines. In addition, a conviction could ruin your reputation and career. Your best defense is the counsel of a skilled legal professional, who will understand the system and can lay out a strong defense. Find a Texas criminal defense lawyer near you today.
Contact a qualified attorney.
Get tailored advice and ask your legal questions. Many Texas attorneys offer free consultations.