Vacco Warns: Beware Internet Pyramid Scheme 

Attorney General Dennis C. Vacco announced a legal action designed to raise consumer awareness of the law regarding illegal Internet pyramid schemes.

Attorney General Vacco’s Internet and Computer Unit, working with his Investor Protection and Securities Bureau, has arrived at  settlement agreements in 12 cases involving participants in illegal pyramid schemes circulated on the Internet, and has served notice of his intent to institute an action in one other case.

Internet pyramid schemes often present themselves as money-making opportunities. However, unlike legal, multi-level marketing, these schemes only survive through the recruitment of new members into the ever-growing chain.

“While these e-mail solicitations typically claim that the programs they promote are legal, the programs are pyramid schemes -- which are illegal and prohibited in New York and many other states,” Attorney General Vacco said.

Attorney General Vacco’s office has agreed to settle with 15 individuals for participating in these schemes, and has required the participants to forfeit their computers.

“These computers, that were once used for illegal purposes, will be given to organizations to help educate people on the positive, valuable services computers -- and the Internet -- can provide,” Attorney General Vacco said.

In one case, Attorney General Vacco’s office has served notice of his intent to commence civil legal proceedings against the participant, suing for substantial fines. In addition Attorney General Vacco’s office has already levied nearly $20,000 in fines.

“Participating in a pyramid scheme might cost you money -- in fines to my office,” Attorney General Vacco said.

“We have found that the people who participate in these kinds of schemes come from all walks of life,” Attorney General Vacco said.

“The fertile ground of the Internet has helped these scams to spread with just the click of a mouse,” Attorney General Vacco said. 

“Also, while most of the e-mail pyramid solicitations claim you will make tens, if not hundreds of thousands of dollars, most people will lose money because these schemes are destined to fail,” Attorney General Vacco said.

“To reach the 27th level of the pyramid a new member would need to recruit more people than there are on the planet just to make a profit. So even if you feel like risking legal action, the likelihood of making a profit is incredibly slender,” Attorney General Vacco said.

In an further effort to combat this ever-growing problem of Internet pyramids, Attorney General Vacco’s office has sent letters to over 200 people who have participated in these schemes, informing them that they are breaking the law, and that their names have been placed on file as pyramid violators.

“If these people fail to heed these warnings, they too will risk further action by my office,” Attorney General Vacco said.

Since pyramids schemes are illegal under both New York’s civil and criminal law, participants also risk being prosecuted for a misdemeanor or felony offense which could result in fines and possible imprisonment.

Some examples of pyramid schemes which were involved in Attorney General Vacco’s sweep of Internet-based pyramids include: 

1] programs where you are asked to buy four reports and then resell them to others;

2] programs where you are asked to purchase a disk and codes to unlock the disk, and then to resell the disk and codes to others;

3] programs where you forward people money under the guise of creating a mailing list; and

4] programs in which you send money to people on a list and place your name at the bottom of the list.

“E-mailing pyramid solicitations that contain false claims about the legality of the program and/or the amount of money one can make from the program, may also violate laws against false advertising, misrepresentation and deceptive trade practices,” Attorney General Vacco said.

Many Internet Service Providers have been very helpful to the Attorney General’s office and will be providing this information to their subscribers in an effort to help combat this ever-growing use of the Internet for illegal means.

Attorney General Vacco also thanks Maryland Attorney General J. Joseph Curran, Jr., who helped his office nab a Maryland resident who was promoting and selling his pyramid in many states, including New York.

Investigations of additional Internet-based pyramids are continuing.

This case was handled for Attorney General Vacco as a joint effort between Joel Michael Schwarz of the Internet and Computer Unit and Jean Cho of the Investor Protection and Securities Unit. The case was investigated by Investigators William Martinez and Christy Limauro.