What is a Pyramid Claim & What to do if You're Part of a Pyramid Scam

Kevin Thompson, a founding partner at the nationally acclaimed Nashville law firm of Thompson Burton, along with his associate Clay Brewer and Troy Dooly, the Beachside CEO, discuss in detail pyramid schemes and how regulators, like the Federal Trade Commission (FTC) and the Securities & Exchange Commission (SEC) go about determining which companies to charge as potential pyramid schemes.

There are three precise tests used to determine Ponzi or Pyramid schemes.

The Howey Test:
The opinion of the Supreme Court stated that "...an investment contract, for the purposes of the Securities Act, means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third part..."

This statement created the four criteria now used as the Howey Test:
1. An investment of money
2. In a typical enterprise
3. With the expectation of profit
4. To be derived from the efforts of others

Ponzi Scheme Test:

1. Does it promise high returns with minimal risk?
2. Does it produce overly consistent returns?
3. Does it consist of potential Unregistered investments?
4. Is it marketed by unlicensed sellers?
5. Does it have secretive, sophisticated strategies?

The scheme got its name from Charles Ponzi, a fraudster who duped thousands of investors in 1919. Ponzi promised a 50% return within three months on profits earned from international reply coupons.

Koscot Test:
(1) Payment of money to the company;
(2) The participant receives the right to sell a product (or service);
(3) The participant receives compensation for recruiting others into the program;
(4) The compensation is unrelated to the sale of products (or services) to the ultimate user.

In this video, Thompson & Brewer refer to James Noland and his company Success to Heath, which was found to be a pyramid scheme in 2023.

https://thompsonburton.com/mlmattorney/2023/06/02/an-economists-assessment-of-noland-and-the-criteria-used-to-assess-a-pyramid-scheme/

Troy Dooly is an inspirational visionary! He is an Ambassador of Wisdom Journalism.

Troy Dooly specializes in Trust-Inspired, Purpose-Driven Communication, ensuring the consumer journey is authentic and will lead to answering all their questions.

Dooly's articles, videos, and radio shows are some of the most quoted, viewed, downloaded, and back-linked online. Dooly is recognized internationally as a thought leader in the areas of communications, leadership values, marketing strategies and culture development, regulatory affairs inside and surrounding the gig economy, direct sales, main street business, network marketing, MLM, and small to mid-size public companies serving clients across the globe.

Dooly understands we live in a PTE (Post-Trust Era), and consumers don't want SPIN from the individuals and organizations they do business with; they want the cold, hard facts.

http://troydooly.com/disclosures/