In Michigan, "Pyramid" and "Ponzi" schemes are words used to describe certain types of investment fraud. Some people confuse pyramid and Ponzi schemes with legitimate multilevel marketing businesses (MLMs). MLMs have a real product to sell and don't require consumers to pay anything extra or to join the MLM system.
Michigan prohibits these types of activities under the following laws:
A Key Difference Between Pyramid and Ponzi Schemes
Although pyramid and Ponzi schemes are similar, a big difference between the two is how long it takes for each illegal venture to fail. Ponzi schemes can often take many years to collapse, provided there are sufficient numbers of investors. A good example of this is the Ponzi scheme operated by Bernie Madoff for over 30 years. Pyramid schemes typically collapse quickly, due to the rapid growth required to sustain them.
Here is a brief overview of how the state of Michigan combats pyramid and Ponzi schemes to protect consumers.
See White Collar Crimes, Financial Crimes, Securities Fraud, Wire Fraud, and Property Crimes for more information.
| Code Section | Michigan's Pyramid Promotion Act MCL 445.1528, Michigan Consumer Protection Act, Michigan Franchise Investment Law |
| Nicknames | Pyramid Nicknames: "chain letters," "cash gifting schemes," "cash leveraging." |
| What is Prohibited | Pyramid Scheme: A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered. Ponzi Scheme: A swindle in which a quick return, made up of money from new investors, on an initial investment lures the victim into much bigger risks.Generally prosecuted as a federal crime, but can be prosecuted as state-crime under fraud and other state statutes. |
| Type of Crime | Felony or misdemeanor - varies on nature of the crime. |
| Who Enforces the Law? | Michigan State Attorney General, Consumer Protection Division |
| Punishment | State Prison or county jail, probation, fines, restitution, community service, injunction, revocation of business license, freezing business assets. |
There are several federal protections that may be available to you. To learn more about federal consumer protection laws, contact the following agencies:
State laws are constantly changing -- you may wish to contact a local consumer attorney or a criminal defense attorney to learn about current Michigan laws or find out about your particular circumstances.
