Pyramid Schemes as Per-Se Mail Fraud & “Passive-Income” Packages as Securities:
Commentary on United States v. Faraday Hosseinipour, 82 F.4th 921 (6th Cir. 2025)

1. Introduction

United States v. Faraday Hosseinipour is the Sixth Circuit’s most extensive engagement with criminal liability arising from modern multi-level marketing (MLM) programmes since United States v. Gold Unlimited (1999). Three senior distributors of “Infinity 2 Global” (I2G)—Richard Maike, Doyce Barnes and Faraday Hosseinipour—appealed mail-fraud and securities-fraud convictions following a 25-day jury trial. The panel (Kethledge, J.) rejected all challenges and affirmed, while Judge Nalbandian concurred to clarify pyramid-scheme doctrine.

The decision achieves two doctrinal milestones:

1. It expressly holds that, for federal mail-fraud prosecutions, a pyramid scheme is simply a subset of schemes to defraud. A separate or specialised “pyramid” instruction is unnecessary and, if given, must not dilute the traditional elements of fraud.
2. It confirms that an MLM “package” marketed chiefly on promises of passive casino revenue—the I2G “Emperor” level—is an investment contract, hence a “security,” even where the same package carries non-security features such as recruitment bonuses.

2. Summary of the Judgment

• The jury convicted defendants of conspiracy to commit mail fraud (18 U.S.C. §§ 1341, 1349) and to commit securities fraud (15 U.S.C. § 78j(b); 18 U.S.C. § 371).
• On appeal the defendants raised roughly 36 issues; the Sixth Circuit addressed three clusters that might have carried reversible weight: (i) sufficiency of the evidence; (ii) propriety of jury instructions (including an “anti-saturation” defence); and (iii) whether the I2G Emperor package was a “security.”
• The court held that abundant proof—misrepresentations about software, casino returns, celebrity endorsements, oversized cheques, etc.—allowed a rational jury to find an agreement to commit mail fraud.
• The pyramid-scheme definition given to the jury did not relieve the government of proving fraudulent intent once the charge was read as a whole.
• The requested “anti-saturation” instruction was properly refused because a 5 000-member cap on Emperor positions neither prevented inevitable collapse nor cured the defendants’ lies.
• Applying Howey, the Emperor package met all elements of an investment contract: monetary investment, pooling of funds, pro-rata casino sharing, and profits expected solely from others’ efforts.
• Accordingly, the panel affirmed all three convictions; Hosseinipour alone received a limited remand on an unrelated Rule 33 motion.

3. Detailed Analysis

3.1 Precedents Cited & Their Influence

• Jackson v. Virginia, 443 U.S. 307 (1979) – Baseline for sufficiency review (any rational trier of fact).
• In re Koscot Interplanetary, 86 F.T.C. 1106 (1975) & In re Amway, 93 F.T.C. 618 (1979) – Classic administrative templates distinguishing legitimate MLMs from pyramids.
• United States v. Gold Unlimited, 177 F.3d 472 (6th Cir. 1999) – First Sixth-Circuit criminal case recognising that a pyramid is per se fraudulent; its jury instruction is largely replicated here.
• FTC v. BurnLounge, 753 F.3d 878 (9th Cir. 2014) – Described MLM complexity as a labyrinth of obfuscation; Judge Kethledge borrowed its language to illustrate I2G’s opacity.
• S.E.C. v. Edwards, 540 U.S. 389 (2004) & S.E.C. v. Joiner Leasing, 320 U.S. 344 (1943) – Framed the investment-contract analysis that the panel applies to Emperor packages.

3.2 The Court’s Legal Reasoning

1. Sufficiency on Mail-Fraud Conspiracy
   • I2G’s revenue spreadsheet (100 % internal payments) and myriad lies evidenced a deliberate scheme to defraud.
   • Because conspiracy—not substantive mail fraud—was charged, proof of agreement plus any act in furtherance sufficed.
   • The overwhelming 96 % loss rate among distributors fortified the inference of fraud.
2. Jury-Instruction Architecture
   • Instruction 8 defined both a generic scheme-to-defraud and a pyramid scheme; but required separate findings of materiality and intent.
   • Thus, even if jurors latched on to the pyramid label, they still had to find intent and misrepresentation—avoiding a Griffin-style fatal variance.
   • The panel admonished that future courts “need not” give any pyramid-scheme definition; ordinary fraud instructions suffice.
3. “Anti-Saturation” Defence Rebuffed
   • Gold Unlimited allowed, in theory, an affirmative defence that effective anti-saturation policies may negate pyramid status.
   • A 5 000-Emperor cap merely sets an artificial point of saturation; it neither ties commissions to retail sales nor prevents inevitable loss for late entrants.
4. Securities-Fraud Conspiracy
   • The Emperor package required a $5 000 buy-in for passive casino revenue—independent of recruiting activity.
   • Many investors purchased multiple packages solely for casino shares, illustrating reliance on “efforts of others.”
   • Intermingling of recruitment bonuses did not disqualify security status because the security component was “very substantial.”

3.3 Likely Impact of the Decision

• Criminal prosecutions – U.S. Attorneys in the Sixth Circuit now have appellate clarity that ordinary mail-fraud instructions cover pyramid cases; no battle over “proper” pyramid definition is necessary.
• MLM compliance counselling – Compliance lawyers must assume that any package marketed as passive income will invite securities scrutiny, even if bundled with bona-fide products or recruitment commissions.
• Affirmative-defence strategy – The opinion sets a high bar for an “anti-saturation” instruction; defendants must show concrete policies linking distributor earnings to retail sales.
• Circuit alignment – Moves the Sixth Circuit closer to BurnLounge (9th Cir.) and distancing from any suggestion that possible product sales can sanitise recruitment-heavy plans.

4. Complex Concepts Simplified

4.1 Pyramid Scheme vs. Legitimate MLM

A lawful MLM rewards distributors mainly for selling products to the public. A pyramid scheme rewards them mainly for recruiting new pay-to-play participants. Endless recruitment guarantees that later entrants cannot earn back their stake once the market saturates. The Sixth Circuit reiterates that such structures are fraudulent per se.

4.2 Conspiracy vs. Substantive Offence

In conspiracy charges (§ 1349 or § 371) the prosecution must prove (i) an agreement to commit the underlying crime and (ii) knowledge/intent. It need not prove that each conspirator personally performed all elements of the substantive offence—only that someone did so as part of the plan.

4.3 Investment Contract (“Security”)

Under the Howey test a product is an investment contract if:

1. Money is invested.
2. Funds are pooled in a common enterprise.
3. Investors expect profits.
4. The profits depend substantially on the efforts of others (not the investor’s own managerial skill).

The “Emperor” satisfied all four: $5 000 cash; pooled casino revenue; hope of passive income; casino managed by I2G/its vendor.

4.4 Anti-Saturation Defence

Some courts allow MLM defendants to argue that effective policies (e.g., mandatory retail-sale quotas) prevent the pyramid from collapsing. Merely capping the number of top-tier slots without linking income to outside sales fails this test.

5. Conclusion

United States v. Faraday Hosseinipour firmly positions pyramid schemes within mainstream mail-fraud doctrine and expands securities law to cover MLM “passive-income” products. The Sixth Circuit’s message is two-fold:

1. Prosecutors may dispense with specialised pyramid instructions; the ordinary fraud framework is adequate.
2. MLM promoters cannot escape securities regulation by tacking recruitment bonuses onto what is fundamentally a pooled-income investment.

In practical terms, compliance advisers should revisit compensation plans that prioritise enrolment fees or “profit-share” perks; litigators should note the court’s skepticism towards cosmetic anti-saturation rules. Future defendants will find it difficult to carve out an affirmative defence unless they can prove genuine consumer-product demand and remuneration tied to retail activity. The decision therefore marks a critical tightening of the net around hybrid MLM–investment schemes in the Sixth Circuit and, likely, beyond.