United States v. Faraday Hosseinipour – The Sixth Circuit Clarifies that “Pyramid Schemes” Are Not a Separate Federal Crime but Simply One Variety of Mail- or Securities-Fraud Conspiracy

Introduction

United States v. Maike, Barnes & Hosseinipour (United States v. Faraday Hosseinipour, Nos. 22-6114 et al., 6th Cir. 2025) arose from “Infinity 2 Global” (I2G), a multilevel-marketing venture that the FBI concluded was a $34-million pyramid scheme. After a 25-day trial the three principals 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).

On appeal the defendants advanced “three-dozen” arguments. The panel (Judge Kethledge, joined by Judges McKeague and Nalbandian) rejected them all and affirmed every conviction, save for a limited remand on one defendant’s Rule 33 motion. In doing so the court produced two opinions:

A per curiam opinion by Judge Kethledge (majority); and
A separate concurrence by Judge Nalbandian, emphasizing instructional-error issues.

The decision is precedential and recommended for publication, signalling new guidance on how federal prosecutors, district courts, and defence counsel should treat “pyramid scheme” evidence and jury instructions in criminal cases.

Summary of the Judgment

The Sixth Circuit held:

The government adduced overwhelming evidence that I2G was a fraudulent venture; thus a rational jury could find each defendant guilty beyond a reasonable doubt of both conspiracies. (Jackson v. Virginia standard)
The district court’s jury instructions—although perhaps “unwise” in describing “pyramid schemes” separately—were legally adequate; the defendants therefore were not entitled to reversal on instructional grounds.
The $5,000 “Emperor packages” sold by I2G qualified as investment contracts and therefore as “securities” under the Securities Exchange Act, satisfying the Howey test.
An asserted “anti-saturation” affirmative defence (that the number of Emperors was capped at 5,000) was unsupported in law or fact, so the district court properly refused to instruct on it.
For Hosseinipour only, the denial of her post-trial Rule 33 motion required a limited remand (detailed in an unpublished portion).

Crucially, the court cautioned district courts that federal fraud statutes do not create a freestanding offence of “operating a pyramid scheme.” Rather, pyramid schemes are simply one species of a “scheme to defraud.” District courts therefore may dispense with separate “pyramid” definitions in future cases.

Analysis

1. Precedents Cited and Their Influence

Jackson v. Virginia, 443 U.S. 307 (1979) – sets the sufficiency-of-evidence benchmark (“any rational trier of fact”).
United States v. Gold Unlimited, 177 F.3d 472 (6th Cir. 1999) – first Sixth Circuit case approving an instruction that “a pyramid scheme constitutes a scheme to defraud.” The panel reaffirmed but refined its utility.
In re Koscot Interplanetary, 86 F.T.C. 1106 (1975) & In re Amway, 93 F.T.C. 618 (1979) – administrative blueprints distinguishing legitimate MLMs from illegal pyramid schemes.
FTC v. BurnLounge, 753 F.3d 878 (9th Cir. 2014) – modern civil pyramid case; district court borrowed language from here, prompting the Sixth Circuit’s remark that the definition was “abstruse.”
SEC v. W.J. Howey, 328 U.S. 293 (1946); SEC v. Edwards, 540 U.S. 389 (2004); SEC v. Joiner Leasing, 320 U.S. 344 (1943) – cornerstone investment-contract cases that framed why Emperor packages were securities.
Griffin v. United States, 502 U.S. 46 (1991) – relevant to Judge Nalbandian’s concurrence on alternative-theory instructions.

2. Court’s Legal Reasoning

a. Mail-Fraud Conspiracy

The panel dissected the elements as follows:

Agreement – proven largely by parallel conduct and common financial goals.
Scheme to defraud – abundant misrepresentations about (i) casino profitability, (ii) product quality, (iii) celebrity endorsements, and (iv) six-figure “checks” sufficed.
Use of the mail – uncontested.

Although the district court gave the Koscot/Gold Unlimited pyramid instruction, the Sixth Circuit stressed that the same evidence would have proven a generic fraud. Thus, even if the pyramid language was imperfect, any error was harmless.

b. Refusal of “Anti-Saturation” Defence

Under United States v. Johnson, 416 F.3d 464 (6th Cir. 2005), a defendant is entitled to an affirmative-defence instruction only if supported in law and fact. The “5,000 Emperor cap” did not genuinely mitigate endless-recruitment incentives and, even factually, was never reached. Hence no instruction was warranted.

c. Securities-Fraud Conspiracy

The panel applied Howey step by step:

Investment of money – the $5,000 buy-in (plus renewals).
Common enterprise – Emperor funds pooled; all shared pro-rata in casino proceeds.
Expectation of profits – marketing promised “passive income” untied to personal effort.
Efforts of others – casino operations managed by third parties/I2G, not individual investors.

Even though Emperor status also raised recruitment bonuses (a non-security feature), the court relied on Teamsters v. Daniel, 439 U.S. 551 (1979), to hold that “intermingling” does not defeat security status where investment-contract elements are “very substantial.”

d. Clarification on Jury Instructions

Judge Kethledge criticised, but ultimately accepted, the elaborate pyramid-scheme definition. His two key observations now set practical precedent:

Federal mail-fraud statutes criminalise schemes to defraud; a pyramid is simply one flavour. No separate definition is required.
Overly technical pyramid instructions risk confusing jurors and creating unnecessary appellate issues.

Judge Nalbandian’s concurrence echoes the point, stressing that any reference limited to “Emperors” was harmless because overwhelming evidence proved an I2G-wide fraud.

3. Impact of the Judgment

For prosecutors – the opinion endorses charging pyramid operators under existing fraud and securities statutes without carving out a unique “pyramid” count. It also confirms that investment-contract theory remains a potent tool where the promise of “passive income” is central.

For district courts – the court signals that pattern instructions on mail fraud are adequate; adding bespoke “pyramid” language is optional and should be done cautiously.

For MLM industry compliance – the decision reiterates that compensation plans primarily tied to recruiting, even if a product exists, may trigger criminal exposure, not merely FTC civil enforcement.

For defence counsel – attempted “anti-saturation” arguments must show genuine linkage between commissions and retail sales, not cosmetic caps, to warrant jury instructions.

Complex Concepts Simplified

Pyramid Scheme
A business where participants’ main way to earn money is by recruiting new participants rather than selling an actual product to outside customers. Because recruitment must keep expanding, most people inevitably lose money.
Scheme to Defraud
Any intentional plan to use lies or half-truths to take someone else’s money or property.
Conspiracy
An agreement between two or more people to commit a crime. The crime doesn’t have to succeed; agreement plus some overt act is enough.
Mail Fraud Statute (18 U.S.C. § 1341)
Makes it a federal crime to use the postal service (or, by § 1343, wires) to carry out a scheme to defraud.
Investment Contract (the Howey Test)
A kind of “security.” Exists when people (1) invest money, (2) in a common enterprise, (3) expecting profits, (4) largely from others’ efforts.
Anti-Saturation Defence
An argument that an MLM’s rules (e.g., retail-sale requirements) genuinely prevent the unlimited-growth problem of a pyramid. Rarely successful in criminal cases.

Conclusion

United States v. Faraday Hosseinipour does more than affirm three convictions; it streamlines federal pyramid-scheme prosecutions. The Sixth Circuit made clear that:

“Federal law does not proscribe pyramid schemes specifically. Instead it proscribes schemes to defraud, of which pyramid schemes are a subset.”

Future prosecutors therefore can rely on traditional mail- and securities-fraud charges without the distraction of defining “pyramid scheme” for jurors, and defendants cannot escape liability by reframing the case as a battle over MLM semantics. Finally, by holding that a multilevel-marketing “premium tier” can be an investment contract even when bundled with recruiting bonuses, the court reaffirmed the breadth of federal securities law in the digital-marketing era.

Key Takeaway: In the Sixth Circuit, a pyramid’s illegality lies not in its label but in its fraudulent financial reality—and ordinary fraud statutes are fully up to the task of policing it.