White Collar Crimes: Texas Pyramid Scheme Laws

Business chart on a laptopThere’s no way around it; pyramid schemes are illegal anywhere in the U.S. Pyramid schemes are categorized under-investment fraud that is typically carried out over email and the Internet. In Texas specifically, it’s illegal to prepare, build, advertise, promote, operate, or sell a promotional pyramid scheme.

What Exactly is a Pyramid Scheme?

A pyramid scheme is basically a plan that involves an initial investor promising a huge return in exchange for a small sum. This investor “invests” some money and then attempts to recruit other people to join the scheme. If the investor succeeds in recruiting other people, their money would also be added to the initial investment made by the investor. The plan is to get more and more people to invest in the venture, which in turn adds more and more funds into the scheme. At some point, however, investors suddenly grow scarce, which will make the pyramid scheme collapse, in turn causing most of the investors to lose a significant amount of money. A similar setup is the Ponzi scheme, which basically operates on the same tenets as pyramiding, but the participants believe that they are earning returns on their “investment.”

For a clearer understanding of the entire process, here’s an example from an experienced white-collar crime attorney in Houston. Let’s say that Edward manages to convince Andie to invest in a new venture but for Andie to join, she must pay $1,000 as an initial investment so that she could ask other individuals to invest as well. In the event that Andie gets another person, Dio, to join, Andie will get a portion of Dio’s investment fee, while the remainder of Dio’s fee would be divided up the investment chain. This also means that Edward would get a portion since he’s the one who introduced Andie to the scheme, and so on and so forth. In this case, both Edward and Andie would be deemed guilty of pyramiding.

Other Crucial Factors to Consider

Know that the consequences of participating in a pyramid promotional scheme carry severe consequences. You could face up to two years in prison and a fine of as much as $10,000. In addition, you might be charged under many different federal and state laws. On the other hand, note that you might have many crucial constitutional protections and rights that if violated could result in an acquittal or dismissal of the charges against you. That said, consult with an experienced defense attorney to help you out.