Not only is a pyramid scheme something to be aware of in a rough economic environment, it is also a crime punishable by up to 3 years in jail.
California Penal Code Section 327 prohibits participation in a business which works as an "endless chain." In these chains, persons pay to join and are offered compensation for introducing more persons and collecting their membership fees. These operations, known as pyramid schemes, often focus on selling products, but require the purchase of stock in large quantities in order to maintain membership. Members are promised "commissions" for introducing new members, but those who start these schemes are the only ones to see any monetary gain. Anyone who sets up, proposes or otherwise runs a pyramid is guilty of a "public offense" and can face a jail term of 1-3 years.
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