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Texas Pyramid Scheme Laws

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.

Texas Pyramid Scheme Laws at a Glance

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.

  • Consideration means the payment of cash or the purchase of a product.
  • Participate means to contribute money into a pyramid promotional scheme without promoting, organizing, or operating the scheme.
  • Promoting a pyramid promotional scheme means (a) inducing or attempting to induce one or more other persons to participate in a pyramid promotional scheme; or (b) assisting another person in inducing or attempting to induce one or more other persons to participate in a pyramid promotional scheme, including by providing references.

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
  • The business venture is not set up as a pyramid promotion scheme
  • The defendant did not promote the pyramid scheme
  • The selling point was an actual product and not just the sale of the plan or operation itself

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.

Related Resources

Get a Free Legal Review of Your Pyramid Scheme Case

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. Your best defense is the counsel of a skilled Texas criminal defense lawyer. Get a handle on your case today with a free legal evaluation of your case.

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