Q: What *exactly* is illegal about "Make Money Fast"?
A: From Karl Kleinpaste (Karl_Kleinpaste@cs.cmu.edu)
They are what's known as a pyramid scheme, or a Ponzi scheme.
When conducted through the US Mail as a chain letter, the Postal Service
claims jurisdiction, as a use of the mail to perpetrate fraud.
It's always fraud -- any Ponzi scheme necessarily must be, with the
losers at the bottom of the pyramid. The question is whether there's
any enforcement agency with an interest in pursuing one perpetrated
over email or Usenet.
A: From the misc.legal FAQ:
Q. Is the "Dave Rhodes" chain letter legal?
A. No. Posting it violates the federal wire fraud statute, and
undoubtedly various state anti-fraud laws as well.
The relevant federal statute, 18 U.S.C. sec. 1343, reads as follows:
WHOEVER, HAVING DEVISED OR INTENDING TO DEVISE ANY SCHEME OR ARTIFICE TO
DEFRAUD, OR FOR OBTAINING MONEY OR PROPERTY BY MEANS OF FALSE OR
FRAUDULENT PRETENSES, REPRESENTATIONS, OR PROMISES, TRANSMITS OR CAUSES
TO BE TRANSMITTED BY MEANS OF WIRE, radio, or television COMMUNICATION IN
INTERSTATE OR FOREIGN COMMERCE, ANY WRITINGS, signs, signals, pictures,
or sounds FOR THE PURPOSE OF EXECUTING SUCH SCHEME OR ARTIFICE, SHALL BE
FINED not more than $1,000 OR IMPRISONED not more than five years, or
both. If the violation affects a financial institution, such person
shall be fined not more than $1,000,000 or imprisoned not more than 30
years, or both. [Emphasis added]
While there are no reported cases involving the "Dave Rhodes"
letter itself, such letters clearly fall within the scope of section
1343. To begin with, "[i]t is well settled that such a 'pyramid' or
'chain-letter' scheme constitutes mail fraud" under section 1341 when
distributed through the U.S. Postal Service. _United States v.
William Savran & Assocs., Inc._, 755 F. Supp. 1165, 1181 (E.D.N.Y.
1991) (citing _United States v. Armantrout_, 411 F.2d 60, 61-62 (2d
Cir. 1969)).
Moreover, "scheme to defraud" means the same thing in section 1343
as it does in section 1341. _United States v. Doherty_, 969 F.2d 425,
429 (7th Cir. 1992). Thus, since the "Dave Rhodes" letter would
violate the federal mail fraud statute if mailed, it necessarily
violates the federal wire fraud statute when transmitted over the wires
that propagate Usenet.
Finally, it is worth noting that the "Dave Rhodes" letter also
violates many state fraud laws. For example, a substantially similar
scheme known as the "airplane game" -- in which each participant pays to
join, and in turn receives payment from those he recruits -- violates
New York's fraud laws, NY Penal Law secs. 190.60 & 190.65. _People v.
Riccelli_, 149 A.D.2d 941, 941-42, 540 N.Y.S.2d 74, 74-75 (4th Dep't
1989).
Q: *WHY* is it illegal?
A: Do the math:
From: edw@sequent.com (Ed Wright (0x0E2 UNIX The saga Never Ends))
Subject: Make money slowly
Date: Thu, 27 Jul 95 00:01:57 GMT
Lines: 37
So you want to play with a chain letter, and you think the math works.
Think again.
Put ten names on a list with yours being at the bottom.
Send it to 10 people. You know the drill.
Level 1 You are #10 on the list people involved 1
Level 2 You are #9 on the list people involved 10
Level 3 You are #8 on the list people involved 100
Level 4 You are #7 on the list people involved 1,000
Level 5 You are #6 on the list people involved 10,000
Level 6 You are #5 on the list people involved 100,000
Level 7 You are #4 on the list people involved 1,000,000
Level 8 You are #3 on the list people involved 10,000,000
Level 9 You are #2 on the list people involved 100,000,000
Level 10 You are #1 on the list people involved 1,000,000,000
You can figure out how many years it will take for the population to
expand enough for there to be enough people to support the payout just to
you.
Clearly folks at the other tiers will be success challanged.
That fact that someone must suffer in a deal like this is why the postal
service declares chains and pyramids illegal. It doesn't matter if you
sell or pretend to sell goods and/or services. If the scheme is a
pyramid, it is illegal. It doesn't work.
Cheers
Ed
