Skip to Content
Serving Los Angeles County and the Greater Southern California Area
Se Habla Español
(310) 361-3068

Is a tricky business model putting you at risk of fraud charges?


Building a traditional business from the top down can require a lot of patience and expense. Sometimes, a little bit of creativity can go a long way toward helping your business stand out and turn a profit.

In recent years, several businesses have reported massive income and growth by working with networks of dedicated salespeople who purchase their own merchandising and market on behalf of the parent company. These companies expect those who sell their products to purchase and stock their own merchandise. They also expect these independent workers to recruit others for similar work.

While this system could be a way to speed up company growth, it could also put you at risk of federal fraud charges.

Is your company technically a pyramid scheme?

Requiring that employees/salespeople invest in the company and giving people who refer new workers to your company a cut of each recruit’s income can incentivize aggressive sales and recruiting tactics. In the near future, that could benefit your company.

However, it may not benefit the individual workers, as they are the ones who have to assume a lot of the risk and do most of the work. If the government determines that your business model is actually a pyramid scheme when former or current salespeople begin to complain about the investments they have made in the business, the government might charge you with fraud.

Pyramid schemes violate federal business laws and often result in fraud charges for owners and managers, even if they didn’t intentionally set out to create that kind of company. Paying close attention to the real-world implications of your theoretical business decisions can help you avoid white-collar criminal charges or defend against them.

Share To: