A pyramid scheme is a common scam where a person pays a fee to enter a sales scheme, and is required to secure additional participants who also pay an entrance fee. In the typical set-up, all participants are required to make an initial investment in a dubious product. The “investor” then recoups his or her initial investment by charging others to enter the scheme. Each person in the chain of investors usually receives a cut of a new participant’s initial investment. Thus, Ponzi scheme, or pyramid companies don’t really sell a real product. Rather, they make money off tricking others to invest in the program. Due to this, most states ban the practice. The state of Utah prohibits them under the Consumer Sales Practices Act.
Utah Annotated Code Sec. 76-6a-4
Section 76-6a-4 of the Utah Code prohibits creating or participating in a pyramid scheme. An act that violates this section is considered a deceptive business practice. Any time a person is convicted under this section, it will be considered prima facie evidence of a violation of Section 13-11-4 of the state’s Consumer Sales Practices Act.
Deceptive Acts Under Section 13-11-4
The civil law regarding deceptive acts is found in Section 13-11-4, known as the Utah Consumer Sales Practices Act. There are a few elements that must be shown in order to sue someone for engaging in a deceptive act. First, the person must act with knowledge or intention to deceive. Then, they must perform an act to carry out the deceit.
This may occur under several different scenarios. First, it is illegal to suggest that a product has certain approval or sponsorship when it really does not. Second, it is prohibited to falsify the quality or style of a product. Third, it is illegal to misrepresent that an item is new if its current condition suggests otherwise. Finally, it is unlawful to suggest that there is an urgency to the transaction, i.e. a going out of business sale, if the facts are not really true.
There are several other scenarios that fall under the umbrella of Section 13-11-4. As described above, a conviction under Section 76-6a-4 of the Code provides proof that Section 13-11-4 has been violated. Therefore, although there isn’t a specific entry for Ponzi schemes in the text of Section 13-11-4, mere participation in one is enough to constitute a violation.
Punishments for Pyramid Scheme Violations
There are very serious punishments for those who delve into the world of pyramid schemes. Those at the head of these scams face up to five years in prison if convicted of a felony level offense. Participants in these schemes can be found guilty of misdemeanors. In Utah, a misdemeanor conviction can lead to a six month prison term and fines.
Dealing With Pyramid Scheme Allegations
If you have been accused of running or participating in a pyramid scheme, it is important to get help immediately. Regardless of your role in a consumer law matter, it is important to seek help from a business law attorney. Contact TR Spencer or Gavin Collier at Spencer and Collier, PLLC.