Pyramid Schemes Are, by Definition, Federal Schemes to Defraud & Hybrid MLM Investments Can Be “Securities” — Detailed Commentary on United States v. Doyce Barnes, 84 F.4th ___ (6th Cir. 2025)

1 · Introduction

The Sixth Circuit’s opinion in United States v. Doyce Barnes (consolidated with appeals of Richard Maike and Faraday Hosseinipour) arose from the failure of “Infinity 2 Global” (I2G)—a multilevel-marketing venture centred on an online casino and purported digital products. After a 25-day jury trial the defendants were convicted of conspiracy to commit mail fraud (18 U.S.C. §§ 1341, 1349) and conspiracy to commit securities fraud (15 U.S.C. § 78j(b) & 18 U.S.C. § 371). They advanced roughly three-dozen arguments on appeal. Judge Kethledge, writing for a unanimous panel, rejected each contention, affirmed the convictions, and supplied two doctrinal clarifications that will echo throughout pyramid-scheme and securities-fraud litigation:

1. In a federal prosecution, a “pyramid scheme” adds nothing doctrinally—it is simply a subset of the broader statutory phrase “scheme or artifice to defraud.” A jury therefore need not be (and perhaps should not be) given a freestanding “pyramid” instruction.
2. A multilevel-marketing “package” that intermarries recruitment bonuses with a pro-rata share of passive profits (here, casino revenue) can qualify as an investment contract and therefore a “security” under the Howey test, even when purchasers also receive non-security rights such as enhanced recruiting commissions.

2 · Summary of the Judgment

• Mail-fraud conspiracy upheld. The panel found overwhelming evidence that defendants knowingly agreed to participate in a deceptive pyramid that siphoned $34 million from 7,000 participants, 96 % of whom lost money.
• Securities-fraud conspiracy upheld. Emperor-level “packages” were securities because (i) they required a monetary investment, (ii) funds were pooled, (iii) passive casino profit was promised, and (iv) returns depended on managerial efforts beyond the investors’ control.
• Jury instructions. • “Pyramid scheme = scheme to defraud” shortcut was permissible, but the court questioned its utility; • no “anti-saturation” affirmative-defence instruction was required; • substantive-offence instruction errors, if any, were harmless given the evidence.
• Sentences (Maike 120 m, Barnes 48 m, Hosseinipour 30 m) affirmed, with a limited remand for Hosseinipour’s Rule 33 motion.

3 · Analysis

3.1 Precedents Cited & Their Influence

• In re Koscot Interplanetary, 86 F.T.C. 1106 (1975) & In re Amway, 93 F.T.C. 618 (1979) — foundational FTC decisions defining pyramid merchandising; supplied the key two-part test (payment + rewards unrelated to retail sales) later absorbed into criminal cases.
• United States v. Gold Unlimited, 177 F.3d 472 (6th Cir. 1999) — first Sixth Circuit case deeming pyramid schemes per se mail-fraud; the present panel reaffirmed Gold but cautioned that “pyramid” instructions may be superfluous.
• FTC v. BurnLounge, 753 F.3d 878 (9th Cir. 2014) — offered detail on practical “labyrinth of obfuscation” in modern MLMs; court imported its language into the jury charge.
• SEC v. Edwards, 540 U.S. 389 (2004) & SEC v. W.J. Howey Co., 328 U.S. 293 (1946) — controlling “investment-contract” precedents; utilised to classify Emperor packages.
• Evidentiary standards: Jackson v. Virginia (sufficiency), Griffin v. United States (alternative theories), Neder v. United States (harmless-error), and others guided the appellate disposition of instructional challenges.

3.2 Legal Reasoning

1. Pyramid scheme ≙ scheme to defraud. The panel reasoned that federal statutes require only the generic “scheme to defraud.” Because a classic pyramid necessarily fulfils that definition, a standalone pyramid instruction is redundant and risks juror confusion.
2. Sufficiency Standard. Employing Jackson, the court catalogued lies (casino profits, celebrity endorsements, six-figure cheques, “Bob Johnson” alias, $100 million offer) and financial reality (96 % losses) to show any rational juror could find agreement and intent.
3. Rejection of Anti-saturation Defence. A 5,000-Emperor cap merely fixes when saturation occurs; it does not cure misrepresentations that induced participation. Hence no jury instruction was warranted.
4. Emperor Packages as Securities. • Investment of money: $5,000 upfront + $2,400 yearly. • Common enterprise: pooled casino revenue; fortunes intertwined. • Profits from efforts of others: promise of “passive income,” purchasers could “sit on the couch.” • Substantial security aspect: buying additional packages made sense solely to multiply passive-profit shares. The court adopted a qualitative “substantial degree” test from Teamsters v. Daniel when security and non-security features are intermingled.
5. Harmless-error Analysis. Even if the mail-fraud instruction seemed Emperor-centric, overwhelming evidence of general fraud rendered any error harmless under Neder and Hedgpeth.

3.3 Potential Impact

• Criminal Practice. Prosecutors may bypass intricate “pyramid” explanations; charging a generic scheme-to-defraud suffices so long as the record shows deception and intent.
• Jury-Instruction Drafting. District judges in the Sixth Circuit are tacitly advised to consider omitting complex pyramid definitions that could “lead the jury astray.”
• Multilevel-Marketing Compliance. The opinion underscores that mere cosmetic “caps” or product veneers will not immunise an MLM from criminal or securities scrutiny. Passive-income pitches convert hybrid “packages” into regulated securities.
• Anti-saturation Arguments Weakened. Defendants now face a higher bar to demand jury instructions on anti-pyramiding measures; they must show truly effective safeguards that tie income to genuine retail sales.
• Securities Enforcement. The flexible “very substantial degree” approach empowers regulators to target hybrid instruments that mingle sales perks with passive revenue streams.

4 · Complex Concepts Simplified

• Pyramid Scheme: a recruiting-driven money flow where returns for existing members rely predominantly on fees from new joiners, not on external product sales.
• Scheme to Defraud: any plan to obtain money/property through material lies or omissions, executed with intent.
• Conspiracy: an agreement between two or more persons to commit a crime plus knowledge/intent to achieve that crime; completion of the crime itself is unnecessary for conviction.
• Investment Contract (Howey Test): (1) investment of money, (2) in a common enterprise, (3) with expectation of profit, (4) to come primarily from others’ efforts.
• Anti-saturation Policy: internal MLM rules designed to tether commissions to retail sales and prevent unlimited downstream recruiting. Ineffective or illusory measures confer no defence.
• Harmless-Error Doctrine: appellate courts affirm when trial errors “did not influence the jury, or had but very slight effect.”

5 · Conclusion

United States v. Doyce Barnes fortifies federal antifraud jurisprudence on two fronts. First, it clarifies that labelling a plan a “pyramid scheme” adds no extra element to federal mail-fraud prosecutions; deceptive pyramids are schemes to defraud, nothing more, nothing less. Second, the decision illustrates how courts will treat hybrid MLM “packages” as securities whenever passive profit-sharing looms large, notwithstanding parallel recruitment incentives. Together, these holdings streamline future prosecutions, foreclose superficial “anti-pyramiding” defences, and extend securities regulation to the modern permutations of multilevel marketing. Legitimate MLM firms now have a clear roadmap: demonstrable retail demand, genuine product value, and compensation structures that reward sales, not endless recruiting. Anything less risks both criminal fraud charges and securities-law exposure.