How Pyramid Schemes and Ponzi Schemes are Prosecuted in the US: The Koscot Test and the Howey Test
As an outsider to the network marketing industry, I have observed it for a number of years, and it has been my experience that MOST people in the industry (except MLM lawyers, and a few critics and proponents) have NO IDEA what constitutes a pseudo-MLM scam and how closely it can resemble an MLM, and thus, have no idea how to tell they have hit a scam instead of a legitimate business.
This article will attempt to trace a short history of pyramid schemes, Ponzi schemes, and network marketing, as well as a few significant cases in the history of network marketing, to illustrate the actual case laws involved and the jurisdiction.
Ponzi Schemes, Pyramid Schemes, and Hybrids
Ponzi schemes and Pyramid schemes have many variations, and it will take many books to explain all the variations. They can even be combined into hybrid (chimera?) versions.
Thus, instead of explaining both in detail, I'll just explain to you who primarily prosecutes Ponzi schemes and pyramid schemes, and what sort of test would they use based on legal cases.
A Ponzi or pyramid scheme can be busted several ways:
- Action by Federal Trade Commission (FTC) for consumer fraud
- Action by Security Exchange Commission (SEC) for securities fraud
- Action by State Attorney General for fraud
- Action by US Attorney for fraud
- Action by local prosecutors for fraud
Action could be as simple as a "cease and desist order," "consent order", settlement, or fine, ranging up to full-scale asset freeze, raid of offices, arrest and prosecution of top executives, involving wide variety of Federal and State legislation.
Keep in mind most pyramid schemes and Ponzi schemes simply collapse and/or disappear before the perp can be sued and prosecuted. They rarely get big enough to be noticed by law enforcement.
Charles Ponzi and the "Ponzi Scheme"
You can read more about Charles Ponzi on Wikipedia, but here's a quick summary.
In 1918, Charles Ponzi had an idea about exploiting International Reply Coupons, which are supposed to be equivalent across the world as postage, yet cost different amounts in different countries. He believed that by using them as an a currency of sorts, he could buy some in one place (where it was cheaper), sell them in another (where it cost more), and pocket the difference. In the modern world this is known as "arbitrage", and is the foundation of modern "foreign exchange" or "forex" trading.
In reality, he just took in the money, and lived off of it, and paid off a few early investors with the money from the latecomers. They in turn told everybody else, who basically flooded him with money. He bought out a small bank, and as he got bigger and bigger, he attracted the attention of the various people in the city, including US Attorney, the local Newspaper, and Bank officials. The US Attorney forced an audit of his account, the local newspaper posed serious questions on the impossibility of the scheme (there's not enough international reply coupons in circulation to account for the money Ponzi now holds), and even the state bank commissioner starting watching him.
Several times investors demanded their money back, starting a "run," and Ponzi each time managed to hold back the tide by paying out the loudest individuals while serving coffee and donuts and such to the mass of people waiting outside, eventually convincing them to leave their money with him.
Ponzi's scheme eventually crashed when the Massachusetts bank commissioner froze the bank assets when the auditors estimated that the bank itself is overdrawn (Ponzi had controlling interest in the bank and was lending money to himself). Audit shows Ponzi is 7 million dollars in debt, and his PR agent found documents that Ponzi was "robbing Peter to pay Paul". The local newspaper also found Ponzi's prior "check forging" prison stint in Montreal over a decade ago, and the US Attorney ordered his arrest.
Total loss was estimated at 20 million dollars (about 225 million in 2011 dollars). Several smaller banks were wiped out.
A couple points to take away:
- There was no Federal or local agency specifically tackling financial fraud
- The scheme was broken by a newspaper,"The Post," with some help from the banks
- The authorities (Attorney General, US Attorney) had little to go on and were only FORCED to move by the newspaper's coverage and investigations.
- The critics were not believed until the story appeared in newspapers
- Ponzi wass a very smooth talker and looked very good and polished.
As a result of this fraud, a Federal level agency to deal with fraudulent financial activities was eventually created.
FTC vs. Pyramid Schemes
In the US, pyramid schemes, at least large scale ones that cross multiple state borders, are usually handled by the "Federal Trade Commission", whose mission is to protect all US consumers against unfair and fraudulent trade practices. And pyramid schemes are certainly one of them.
The FTC was created in 1914 under the FTC Act, and signed into law by President Woodrow Wilson, though it previously existed as "Bureau of Corporations" created by President Theodore Roosevelt in 1903. The BoC was partly created to break up the huge "Trusts" that were essentially cartels of manufacturers who colluded to fix prices and destroy competition. The campaign was known as "trust-busting."
The FTC also handled securities and investments until Security Exchange Commission was created in 1933 under the Securities Act and responsibilities were handed over.
The FTC in the 1940s sued garment and textile makers for anti-competitiveness when they formed a cartel to discourage competition among members by "fining" members for "copying" designs from each other. The relatively low-key activities continued into the 1960's, when the FTC issued the Cigarette report detailing the harmful effects of smoking. It was pretty lame and lambasted by its critics, including Ralph Nader, and President Nixon ordered the FTC to be reorganized.
FTC is most famously known for going after a variety of pyramid schemes which proliferated in the 1970s. Most people in Network Marketing are aware of "FTC vs. Amway" (1979), but few people remember the really landmark case: "FTC vs. Koscot Interplanetary" (1975).
FTC vs. Koscot Interplanetary (1975) and the "Koscot Test"
FTC sued "Koscot Interplanetary", one of Glenn W. Turner's companies. Mr. Turner, who called himself "Mr. Enthusiasm", started Koscot Interplanetary to sell cosmetics just like Avon. The problem with Koscot was that it didn't encourage sales of cosmetics, but rather, simply generated more positions in the company.
Koscot worked as follows: To join Koscot, you paid $2000 to become a supervisor (or higher levels), and you bought $5400 worth of cosmetics. And you made money ($700) by encouraging others to buy in (at Supervisor, for $2000) just like they did. Essentially, Koscot "supervisors" bought two things: 1) "the right to sell a product", 2) "the right to receive, in return for recruiting other participants into the program, rewards which are unrelated to sale of the product to ultimate users." (emphasis added)
Koscot lost the lawsuit, and the definition FTC created for a pyramid scheme became known as the "Koscot Test" (for pyramid schemes). It can be roughly summarized as follows:
- The participant makes a payment of money to the company;
- In exchange, the participant receives the right to sell a product (or service);
- In exchange, the participant receives compensation for recruiting others into the program;
- The compensation is unrelated to the sale of products (or services) to the ultimate user.
To be judged a pyramid scheme, the scheme must have all four elements.
Koscot lost because the Koscot paid participants simply for recruiting more participants, thus fitting all four parts of the definition of pyramid scheme.
SEC vs. Unregistered Securities
The Securities Exchange Commission, i.e. the SEC, was established in 1933/1934 through the Securities Act and Securities Exchange Act, and took over supervision of investments from the FTC, leaving FTC to do trade and commerce. The law generally requires a uniform set of disclosure about the investments, so people can make informed choices.
The SEC mainly deals with stocks, bonds, and commodities, the typical investments. However, its role expanded in 1946, when it sued W.J. Howey company when it held that a "land sales and service contract" can also be considered an "investment contract", i.e. "securities". This became known as the "Howey Test", where it expanded on what could be considered an "investment contract."
SEC vs. W.J. Howey Company (1946) and the "Howey Test"
W.J. Howey owned large tracts of orange groves in Florida. To obtain money for further development, Howey sold "land and service contracts", where the buyer could buy lots, but had virtually no rights (not even right of entry or right to place stuff on the land), They buyer then leased it back to Howey, and was paid an annual profit from the farming activities being done on it. It wass marketed to business people and regular city folks who had no experience nor desire to farm, essentially as an investment.
SEC sued Howey and Company and filed for an injunction barring Howey from advertising as Howey had not registered with SEC as an investment. The motion was denied by district court, affirmed by Federal court of Appeals, and reached all the way to Supreme Court, where justice Frank Murphy created the four point test, later known as the "Howey Test".
An investment contract has four elements:
- investment of money due to
- an expectation of profits arising from
- a common enterprise
- which depends solely on the efforts of a promoter or third party
This basically confirmed SEC's role to sue investments that are deceptively presented as non-investments. Though few would expect the SEC to sue a MLM in 1973...
SEC vs. Glenn W. Turner (1973)
SEC sued Glen W. Turner in 1973, two years BEFORE FTC sued Koscot (one of Glen W. Turner's companies) for selling an unregistered investment contract.
Turner had a program called "Dare to be Great", where you bought "adventures" (actually sales courses) at $100, $300, $700, $1000, $2000, or $5000. You received a cassette player and a dozen different cassette tapes that taught you how to sell, some group session tickets, and in some packages, a workbook and instructions book. You then recruited people to attend "adventure meetings", where you tried to get them to buy the adventures as well. The more and higher level adventures you convinced people to buy, the more pay you got.
SEC convinced the court that the $1000, $2000, and $5000 adventures were indeed "investment contracts" (as per the Howey test above) not registered with the SEC, indeed, disguised as being NOT investment, thus engaged in deliberate securities fraud.
Turner's main defense was key (4): "solely from the efforts of others". He claimed that because his participants were required to recruit people to attend adventure meetings, they needed to exert effort, and thus, it does NOT fit (4). His explanation was rejected, as the Ninth Court of Appeals ruled that they consider only managerial level efforts to be a real counter to part (4). In other words, "recruiting" is not considered to be a "significant" managerial level activity when it comes to the Howey test part 4 to warrant an exception.
This case is significant because Dare to be Great was marketed as an income opportunity, not "investment".
The points to take away:
- Any significant amount of money put into the company, other than for some at-cost materials with a refund policy, may be considered an "investment". Clearly, $1000 + for a tape player and a couple tapes is excessive. The modern equivalent would be a MP3 player with preloaded audio tracks (worth about $10?) for $500.
- The Court interprets "solely" rather loosely. Only managerial efforts, not "busy work", are considered as exceptions to the Howey Test Part 4.
This gave the authorities a new tool to fight pyramid schemes and Ponzi schemes.
"The Amway Safeguard Rules" (1979)
FTC sued Amway in 1979 for making fraudulent claims of income possibilities, as well as being a pyramid scheme similar to the Koscot Interplanetary case.
At the time, Amway worked as follows: each distributor (who bought a small at-cost sales kit) purchased household products at wholesale from the person who recruited or "sponsored" her. The top distributors purchased from Amway itself. A distributor earned money from retail sales by pocketing the difference between the wholesale price at which she purchased the product and the retail price at which she sold it. She also received a monthly bonus based on the total amount of Amway products that she purchased for resale to both consumers and to her sponsored distributors.
FTC and Amway eventually reached a compromise that defined a clear difference between a pyramid scheme and multi-level marketing. Specifically, Amway did NOT pay on recruiting people, but rather, only paid on sales of goods (in this case, sold indirectly, by "sponsored distributors"). Furthermore, Amway had several "safeguard rules" in place to prevent the "sponsor" from "inventory loading", i.e. encouraging the "sponsored distributors" (downlines) to buy up so much inventory that they could not hope to sell in reasonable amount of time, just to drive up the sponsor's own compensation. These three rules became the "Amway Safeguard Rules", or just "Amway rules". They are:
- Buyback rule -- sponsors are required to buy back the inventory that their distributors cannot sell (within reasonable amount of time, of course).
- 70% rule -- distributors (either sponsor or sponsee) are required to sell at least 70% of their inventory every month before they can order more.
- 10 customer rule -- each distributor is required to make one retail sale (or more) to 10 different retail customers every month.
With these safeguards in place, inventory loading was discouraged, and thus, FTC conceded that Amway does NOT fit part 4 of the Koscot Test, and thus was NOT a pyramid scheme.
Webster vs. Omnitrition (1996) aka the "Omnitrition Case"
In 1996, Webster, a former Omnitrition rep, sued Ominitrition for being a fraudulent business / pyramid scheme. The Ninth Circuit Court of Appeals ruled that even if a business followed the Amway rules, it can STILL BE ILLEGAL, especially if the rules are not enforced.
According to the ruling, Ominitrition reps were paid for the amount of products they themselves had purchased, not for the amount of retail sales made. For example, if you bought $1000 worth of products that month, you were paid a bonus based on $1000 purchase of that month, no matter how much of that $1000 worth of products you had sold. This, according to the court does NOT satisfy part 4 of the Koscot Test (see above). Their reasoning is that Amway rules, specifically the 70% rule and 10 customer rule, are meaningless unless the sales are actually retail. And paying participants on non-retail activity is NOT satisfying Koscot Test part 4. Omnitrition produced signed agreements from all the reps saying they would follow the Amway rules, but audit shows that the rules were almost NEVER followed, and the company had never checked up on whether the rules were enforced. The court also found that Omnitrition had a buyback policy (90% of inventory within 3 months), but few if any sponsors seem to have ever bought back inventory.
Note that this is a CLARIFICATION of Koscot Test, not a modification. Selling to a participant is NOT considered "retail sales".
Some have interpreted this decision in different ways. One interpretation says "ultimate consumer" means someone who is NOT in the company and not participating in the compensation plan. This is not a popular interpretation among network marketers as this seems to ban "self-consumption", where the individual participants order some products for personal use, not for resale. Nonetheless, MLM attorneys such as Grimes and Reese LLP warn all MLMs to take this very seriously lest they want to be challenged in court by the FTC.
Points to take away:
- Company must compensate participants on RETAIL SALES, not on "sold to participant."
- The Amway safeguard rules must be enforced, otherwise they cannot protect the company.
SEC vs. Bernard Madoff
Bernard Madoff was a legend in Wall Street. Started with $5000 he had saved, in 1960, using his father's influence to gain some clients, Madoff pioneered the use of computers to facilitate trading, which later lead to creation of the NASDAQ stock exchange. He later served as head of board of NASDAQ for several years. By 1980s and early 1990s their computer system was so efficient they were PAYING other firms to execute their trade orders (and pocketing the difference, if any, as profit). Madoff Securities was trading up to 15% of New York Stock Exchange (NYSE) daily volume by year 2000, and had assets totalling about 300 million.
Madoff later, in his confession, said he actually stopped trading in mid 1990s, though some suspected he actually stopped trading much much earlier, perhaps in the 1970s. At least one book claimed Madoff, very early on, made a horrible trade, lost a TON of client money, then instead of coming clean, he borrowed money and covered it up.
Madoff marketed to an exclusive clientele, mostly Jewish upper-class people, and the very rich, including many charitable organizations. Several newspapers, when the Ponzi scheme was publicized, called it an affinity Ponzi, in reference to the affinity scam where race and/or religion is used to get closer to the victims.
Madoff's investment methods were closely guarded and reportedly "too complicated for normal people to understand." Even when suspicions arose, people were reluctant to take their money because they were afraid they wouldn't be able to get back in later if it proved to be a false alarm. Madoff kept the returns very modest, 10% or so, but extremely consistent year after year, even on horrible economic times.
SEC and other regulatory agencies had investigated Madoff Securities at least 8 times over 16 years prior to the Ponzi's formal discovery in 2008, but each time, either found no wrongdoing or had no conclusions.
Outside critics had repeatedly raised questions about Madoff Securities since 2000, but were repeatedly ignored, even by Wall Street Journal, who decided NOT to publish a piece questioning Madoff's operation in 2005. However, other critics tried to replicate his methods, and could not, and other irregularities, such as having close relatives in the SEC as well as on various governing boards and regulatory agencies, having a two-person accounting firm as his auditor (for billions of dollars?) and so on and so forth lead others to cast further suspicions on his company.
Madoff's end came in December 2008. In the previous months, the economic downturn forced many clients to withdrawn their funds from Madoff, to the tune of BILLIONS of dollars. In the final weeks, Madoff was busy searching for more funds, including funds from his "international branch," and close family friends. He also pitched his fund to other financiers, but was rejected. On December 10th, Madoff suggested to his sons that they should pay out the bonus 2 months early to the tune of 170 million dollars. The two sons, Mark and Andrew, knew the firm had some problems, and asked Bernard why. Bernard Madoff reportedly admitted to them that the asset management arm of Madoff Securities was actually a Ponzi scheme all along. The brothers, realizing the enormity of the crime, called their lawyer, who then informed the SEC, and the SEC notified the FBI.
FBI agent visited the Madoff residence on December 11, 2008, where Bernard Madoff confessed to running a Ponzi scheme. He was taken into custody, then posted a 10 million dollar bond and was released to be confined to his home with electronic monitoring.
In March 2009, Bernard Madoff was brought to court and calmly admitted to running the largest Ponzi scheme in US history, to the tune of 50 billion dollars. The figure was later revised to 70 billion, and eventually Madoff was given the maximum sentence, 150 years.
SEC spent months going through its own actions and in 2009 produced a 477 page report detailing its own failures on why they did not spot any of the red flags that should have shown Madoff Securities as a Ponzi scheme. Eight employees were disciplined, though none were fired.
Points to take away:
- Just because the head honcho is famous does NOT mean he's legitimate.
- Just because the head honcho has been around for long time does NOT mean he's legitimate.
- Just because the government has investigated doesn't mean it's legitimate.
SEC and More vs. Ad Surf Daily (2008)
On August 5th, 2008, Business Week published a headline: Scams have gone Web 2.0. The Secret Service, SEC, IRS, and local authorities raided a business in Quincy, Florida called "Ad Surf Daily", and froze all its assets to the tune of 55 million dollars. The reason: it was a Ponzi scheme.
Ad Surf Daily operated as follows: they advertised (as early as 2006) via Youtube videos and websites claiming that you could buy advertisements on their "network", and earn a lot of money watching and clicking ads. Participants were known as advertisers, and purchased "ad units". "Advertisers" could "earn income" by watching and clicking on the ads, and refer other "advertisers". The income was totaled daily as "rebates" up to 8% (according to the indictment). The more ad units you had, the more rebates you got. You could repurchase ad units with your rebates, which means you got more rebates in the future. You didn't even need a business to participate. Just buy ad units any way and Andy has two businesses he'll let you promote!
SEC charged the owner "Andy" Bowdoin of running Ad Surf Daily as a Ponzi scheme. SEC had previously shut down the "12dailyPro" Ponzi scheme, of which Bowdoin was a member. One month later Bowdoin started Ad Surf Daily. Bowdoin structured Ad Surf Daily to avoid many of the triggers that caused SEC to shut down 12dailyPro, including avoiding the words 'investment' and 'return', as well as never promisiing a fixed rate of return. Nonetheless, when Bowdoin paid a member to review the business model, Bowdoin was told that he's operating a Ponzi scheme. Bowdoin reacted by giving a full refund to this member in return for him to NOT report to the authorities, and made a very minor revision... capping the return at 125%.
In 2007, Bowdoin hired an Internet Marketer who helped produce a video, starring Bowdoin, claiming that the business had multiple sources of income, and was not a Ponzi scheme, and even had an attorney appear in the video proclaiming the same. In 2008 Bowdoin appeared in various rallies (promotional seminar) around the country recruiting even more people, and had members making their own videos touting how much money they made and how easy it was.
As a result of the raid in August 2008, Federal prosecutors hit Andy Bowdoin with 7 counts of violating Federal laws, including wire fraud, securities fraud, and selling unregistered securities. Asset forfeiture unit was called in and froze all of ASD accounts, and in 2010 55 million (most of the remaining funds) were remitted to the participants through a court trustee.
Andy Bowdoin himself was arrested in 2010, bailed out, joined another alleged Ponzi scheme called OneX, claiming this would make him plenty of money to defend himself against the government's case, only to suddenly plead guilty in May 2012. He was processed into a Florida Federal detention facility in 2013.
A Federal spokesman said that most people were taken by the slick sales pitch and the "success stories", as most people's "due diligence" consist of studying the first page of Google results.
Points to note:
- Sales rallies are NOT to be relied upon.
- Google search is NOT due diligence.
- Don't believe a sales pitch 100%, even one "confirmed" by a "lawyer."
- When it doesn't make sense, it is probably a scam.
FTC vs. Burnlounge (2007)
The FTC filed a temporary restraining order against Burnlounge in June 2007, alleging that Burnlounge was in effect a pyramid scheme where participants were paid far more to recruit new participants than to sell music, which was its alleged business model. According to the FTC complaint, Burnlounge started in 2005. Burnlounge paid $50 if you recruited 2 participants, and 50 cents if you sold two songs. You can guess which one people will do more! (Actually Burnlounge had multiple packages, from $50 to 500 to join, and monthly fees).
Burnlounge actually won the first round when the TRO was denied, but quickly got rid of its MLM plan completely and went to a single-level commission plan. However, the FTC is not done yet. The FTC took the unusual step of suing both the top execs of Burnlounge as well as two of their top recruiters. The lawsuit dragged on as one person settled out of court, while others chose to fight on. However, the company itself is done, the 40 million invested has largely evaporated.
In March 2012, the top execs as well as the two top recruiters were ordered to pay back $17 million dollars.
What are you supposed to learn from this?
- Just because it sounds right doesn't mean it's right. (Online music sales sounds reasonable!)
- The compensation package demonstrates the emphasis of the business, not the slick sales pitch or the "alleged" business model.
- If the business rewards much more for introducing people into the scheme, it's a pyramid scheme (or will be regarded as one).
- The top recruiters can be sued in a pyramid scheme, not just company execs.
California vs. Your Travel Biz (YTB) (2008)
In August 2008, California Attorney General Jerry Brown sued Your Travel Biz, better known as YTB, as a pyramid scheme and illegal business opportunity.
YTB was supposed to be an online travel seller where individuals could buy a website for $500 that allowed one to sell travel by paying a monthly fee of about $50. The company paid commission for introducing more people to join YTB (i.e. buy websites). People found that typical travel sales made very little money: a few dollars per ticket, at best. Most resorted to recruiting to make back their "investment."
AG Brown alleged that YTB was a huge pyramid scheme that enriched those at the top, as less than a hundred people earned good income (well over 100000, some earned over a million), while the median income for participants in 2007 was $39, not even enough to pay for one month's website "maintenance." YTB settled out of court in 2009, agreeing to restructure, make some promotional changes, delete the referral commission business model, and pay 1 million in fines.
The investigation also triggered similar investigations in Illinois and Rhode Island.
YTB later renamed itself Zamzuu, but that didn't help its fortunes much. YTB formally filed chapter 11 bankruptcy in March 2013, ending this chapter.
Multiple States and FTC vs. FHTM (2010,2013)
Fortune Hi-tech Marketing, better known as FHTM, supposedly sikd everything, from appliances to phones and everything in between. However, a study of the compensation model shows that most of the income was from recruiting. According to the video below, recruiting paid hundreds, while "residuals" from things sold paid pennies. Thus it was mainly a pyramid scheme.
FHTM was sued by multiple states, including Montana, North Dakota, Texas, and more, and agreed to pay millions in fines and not to do business in those states. Furthermore, many companies whom FHTM claimed to represent (GE Authorized Dealer, DISH network partner, etc.) denied ANY involvement with FHTM except as "third-party affiliate."
FHTM made the news when Ken Lewis, ex-CEO of Bank of America, was named as a member! Turns out his wife was recruited by one of her friends into it as a favor.
The company blames a few rogue reps who "don't understand the model".
In January 2013, a surprise raid by the FTC and 3 different state attorneys general closed FHTM and put the entire company in receivership.
State of Georgia vs. TVI Express (2010)
TVI Express was launched in India in 2009, and was never clear on what it was supposed to be. On one page it said it sold travel, on another page it sold income opportunity. It claimed to be based in the UK, and reached China by March 2009, only to be banned a few months later as a pyramid scheme. Local bloggers documented how the company was just a relabeled Travelocity website and all the alleged backing was completely fake.
TVI Express claimed to sell travel, but its compensation package it only required you to recruit. You paid $250 USD (plus misc. fees) to join the "traveler board" which is a 2x3 matrix. When you filled the matrix, you got $500 USD and moved onto "express board", another 2x3 matrix. When you filled that matrix as well, you got $10000 USD. You didn't need to sell any travel at all. Indeed, for 2 years, its own FAQ stated that "You don't need to sell any products." It was a very obvious pyramid scheme.
The language barrier apparently prevented other countries from realizing that the scheme was already outlawed in China, as it then spread to various other continents, including the Americas, Africa, Europe, Australia, and more. The scheme reached US in early 2010, and many so-called MLM coaches and reviewers were touting it as the best thing since sliced bread.
It all came crashing down when the State of Georgia issued a "cease and desist" against the local reps, known as "TVI North America", in September 2010. The order gave 21 days to appeal. Apparently TVI North America notified TVI Express headquarters right away, but received no reply; thus the injunction became permanent. Thus ended the TVI Express scam in the US (though several reps continue to blame their downlines and "anti-MLM attitude" in the US).
Australia recently convicted the "leaders" of their TVI Express scam in late 2011 and fined them $200000 recently. The scam was also shut down in Indonesia, South Africa, and various other countries, though it simply moved on to some other countries. Some members continued to deny that TVI Express was a scam.
In April 2013, news came that the mastermind behind TVI Express, Tarun Trikha, had been taken into custody by the Indian CID while transiting through Delhi airport.
What to Do If You Have Been Scammed
First, get all the documentation. Print a copy of the website, and download a copy of the recruitment video. Note numbers, names, and more. If you have alleged income, or promise of income, print the screen and so on. You need to document EVERYTHING: sales brochures, filmed presentations, seminar slides, etc.
Second, write up a complaint that explains why you are complaining, and include all the evidence you think proves your point, and WHY it does.
Third, send your stuff to the relevant people: the local US attorney, state attorney general's office, SEC if it's more of a Ponzi and FTC if it's more of a pyramid (though as you saw above, they can mix).
Fourth, send a copy to a local TV station's consumer reporter or investigative reporter, especially if the suspect scam has held local meetings and/or has a lot of local members.
Pyramid schemes and Ponzi schemes are a target for law enforcement, and these are some of the more significant cases. However, keep in mind that in almost all cases, the hand of justice moves slowly. Often it will take the authorities several months to well over a year or two to shut down the alleged scheme.
Most schemes are too small to attract this sort of attention, but once they do, the various states join in, at least those with deeper pockets, like California, Texas, and so on.
The government only reacts to scams, and you may not get your money back, unless it was a huge scam that involved a lot of money. And even then it may take well over a year.
It is better to NOT fall victim to a scam in the first place.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.