United States v. Maike
Sixth Circuit Clarifies that Pyramid Schemes Are Per Se Mail-Fraud “Schemes to Defraud” and That High-Tier MLM Packages Qualify as Securities

1. Introduction

This consolidated appeal arises from the collapse of “Infinity 2 Global” (later re-branded “Global 1 Entertainment”), a multi-level marketing (MLM) venture centred on a promised share of online-casino profits. After a 25-day jury trial in the Western District of Kentucky, three principal promoters—Richard Maike (founder), Doyce Barnes (sales vice-president) and Faraday Hosseinipour (top recruiter)—were convicted of:

• Conspiracy to commit mail fraud (18 U.S.C. §§ 1341, 1349); and
• Conspiracy to commit securities fraud (18 U.S.C. § 371; 15 U.S.C. § 78j(b)).

On appeal the defendants launched more than thirty challenges, attacking the sufficiency of the evidence, jury instructions, and the characterisation of their “Emperor” packages as securities. The Sixth Circuit (Kethledge, J.) rejected every ground (while remanding a limited Rule 33 issue for Hosseinipour) and, in the process, issued two doctrinal clarifications that will reverberate well beyond the facts of this pyramid scheme:

1. In federal prosecutions, a pyramid scheme is simply one species of a “scheme to defraud” under the mail-fraud statute; therefore, a stand-alone pyramid-scheme instruction is largely superfluous.
2. When an MLM’s top-tier buy-in grants investors a pro-rata share of enterprise revenues (here, casino profits), those interests are investment contracts—and thus “securities” under the federal securities laws—even if the same buy-in also confers enhanced recruiting bonuses.

2. Summary of the Judgment

Applying the familiar Jackson v. Virginia standard, the panel held:

• Mail-fraud conspiracy: Overwhelming evidence showed that defendants knowingly ran a pyramid scheme—a fraudulent structure per se—and used the mails to effectuate it.
• Securities-fraud conspiracy: The “Emperor” package satisfied the Howey test for an investment contract: (i) $5,000 outlay; (ii) pooling of funds and sharing of casino revenue; (iii) profit represented as “passive income” from the efforts of others; and (iv) marketing that emphasised those passive returns.
• Jury instructions:
  • Calling a pyramid scheme a “scheme to defraud” did not omit any element; the instructions, viewed as a whole, still required findings on intent, material misrepresentation, and use of the mails.
  • The district court properly refused an “anti-saturation” affirmative-defence instruction; a 5,000-member cap on Emperor slots neither cured nor mitigated the fraudulent misrepresentations.

Judgments for Maike and Barnes were affirmed in full; Hosseinipour’s conviction was affirmed, but her motion for a new trial was remanded for further consideration (unpublished portion).

3. Analysis

3.1 Precedents Cited and Their Influence

• In re Koscot Interplanetary, 86 F.T.C. 1106 (1975) & Omnitrition, 79 F.3d 776 (9th Cir. 1996)
  Defined illegal pyramid schemes as compensation plans rewarding recruitment over retail sales—framework adopted in the mail-fraud instruction.
• United States v. Gold Unlimited, 177 F.3d 472 (6th Cir. 1999)
  Earlier Sixth Circuit case approving a jury instruction equating pyramid schemes with schemes to defraud; Maike re-affirms but cautions such instruction is often unnecessary because federal law already targets the broader fraud.
• SEC v. Howey, 328 U.S. 293 (1946) & progeny (Edwards, 540 U.S. 389 (2004))
  Four-part “investment contract” test applied to Emperor packages. Maike extends the test to hybrid MLM packages that bundle recruitment bonuses with revenue-sharing rights.
• Griffin v. United States, 502 U.S. 46 (1991)
  Reinforced that a general fraud theory supports conviction even if an alternative legal theory was erroneously submitted; cited to neutralise defendants’ “capped-pyramid” attack.

3.2 Legal Reasoning

(a) Mail-fraud Conspiracy

• The government need only show an agreement to commit mail fraud (18 U.S.C. § 1349); proof that at least one conspirator actually committed the substantive offense is strong circumstantial evidence of the agreement.
• By treating the entire MLM—as opposed to Emperor tiers alone—as a fraudulent enterprise that siphoned 96 % of participants’ funds, the court found abundant circumstantial evidence of agreement, intent, and execution.
• The court dissected a litany of misrepresentations: phantom software, doctored six-figure “bonus” cheques, fabricated celebrity endorsements, and misleading casino profitability claims.

(b) Securities-fraud Conspiracy

• The jury determines factually whether an instrument is a “security” (Joiner Leasing); appellate review therefore applies the deferential Jackson lens.
• Despite the Emperor package’s dual character (recruiting bonuses + casino share), its “economic reality” was an investment contract. Evidence showed many purchasers bought multiple Emperor positions solely to enlarge casino slices—classic horizontal commonality.
• The promotional emphasis on “passive income” satisfied the “efforts-of-others” prong even though in practice casino revenue was trivial.

3.3 Impact of the Decision

• Prosecutorial Charging Strategy: The court’s observation that special pyramid-scheme instructions are “of little purpose” may streamline future indictments; prosecutors can charge generic mail or wire fraud without crafting an extra “pyramid” overlay.
• MLM/Securities Interface: The ruling that a top-tier buy-in conferring revenue share is a security provides a clear blueprint for the SEC and DOJ when confronting hybrid MLM products.
• Affirmative-Defence Limits: “Anti-saturation” measures (caps, geographic limits, etc.) will not negate fraud where misrepresentations continue; defendants will shoulder a heavy burden to show such policies are effective and disclosed.
• Instructional Guidance: District courts in the Sixth Circuit now have explicit appellate blessing to:
  • Equate “pyramid scheme” with “scheme to defraud” when instructing on mail fraud; but
  • Exercise discretion to omit pyramid-scheme definitions altogether to avoid unnecessary complexity.

4. Complex Concepts Simplified

• Pyramid Scheme vs. MLM: A lawful MLM earns most revenue from genuine product sales to end-users; a pyramid earns most revenue from new participants’ buy-in fees. When recruitment incentives dominate, later entrants cannot recoup their investment—hence the fraud.
• Scheme to Defraud (Mail/Wire Fraud): Any plan intended to obtain money or property by lies or omissions, executed via mail or electronic communication. No need for victims actually to be defrauded—only intent and use of the mails.
• Conspiracy: An agreement (express or tacit) between two or more persons to commit an unlawful act. The crime is the agreement itself; completion of the underlying offense is unnecessary.
• Investment Contract (Howey Test):
  1. Investment of money;
  2. In a common enterprise (pooling and shared fortunes);
  3. With an expectation of profits;
  4. Predominantly from the efforts of others.
• Anti-Saturation Defence: A theory (recognized in Gold Unlimited) that a defendant may avoid pyramid liability by showing robust internal safeguards linking rewards to retail sales and preventing endless expansion. The Sixth Circuit again limits its availability.

5. Conclusion

United States v. Maike cements two practical doctrines in the Sixth Circuit:

1. Pyramid schemes are not a separate crime but a convenient label for a classic mail-fraud paradigm; courts may—but need not—give special pyramid instructions.
2. Hybrid MLM “packages” that bundle passive-income entitlements qualify as securities, notwithstanding simultaneous recruitment incentives.

For prosecutors, the opinion simplifies charging choices and bolsters securities-fraud theories against MLM promoters. For MLM operators, it sends an unequivocal warning: revenue-sharing enticements, exaggerated product claims, and cosmetic anti-saturation caps will invite both wire-fraud and securities-fraud exposure. And for trial courts, it offers fresh guidance on crafting clear, accurate jury instructions while avoiding unnecessary doctrinal detours.