Pyramid Scam? How to Avoid Being a Victim of a PFA Lawsuit

A few years back, I read an article about the PFA lawsuit. This was a suit brought against Trump University and it revolves around whether or not the institution of learning that the plaintiffs are parties to be a pyramid scheme.

The gist of the argument is that if you enroll people in a business like this, which is designed to get people into multiple, highly profit-intensive business ventures, you’re violating the statute that makes it illegal. Specifically, the statute deals with educational institutions and requires that any such institution must either: pre-discover an opportunity for a participant to participate in a regular training program or must provide an adequate education that would prepare a participant for the program or opportunity.

PFA Lawsuit

The plaintiffs in the PFA lawsuit have alleged that this is a blatant pyramid scheme, stating that the only reason why anyone should sign up for the program in the first place is to make money. The fact is that the plaintiffs do not offer any compensation to their attendees and that there is no formal system for their progression through the business opportunity.

In my opinion, this lawsuit could have great success if the attorneys filing it understood the dynamics of the complaint. However, they apparently don’t, which is why I think the federal trade commission (FTC) got it right when they fined Trump University $75 million because the school’s marketing plan promoted an opportunity to earn large sums of money by signing up its distributors. The lesson here?

If the complaint can be proven that a PFA is a pyramid scheme, then the defendant – Trump – will have to pay the plaintiff’s attorney fees on top of the proceeds that he receives from the retail sales of the PFA products.

So, how do you perform proper due diligence when it comes to determining whether or not a PFA is a pyramid scheme? The first step is to perform due diligence, which means investigating all of the details of the business, rather than relying upon the word of one lawyer who may not fully understand the case.

In my experience, if a PFA lawsuit is filed in the federal court in the state of New York, the defendant cannot avoid the responsibility of performing due diligence because the state and the federal government has sued these specific businesses hundreds of times.

Therefore, it is in the best interest for a defendant to verify that the complaint is true and that they are being deceived. This can be accomplished by having a third party perform the due diligence necessary to determine if the complaint is valid. Typically, the third party will charge a fee based upon the extent of the information that is requested. However, most attorneys find that the actual costs are minimal compared to the potential profits at stake if the case does not resolve favorably.

Another way to determine if the complaint is a pyramid scheme is to ask the attorney filing the complaint to provide evidence that the retail sales have been personally commissioning sales from distributors.

Typically, the attorney will not request this evidence unless the complaint contains enough merit to move forward with the complaint. However, it is often used as a reason for not moving forward on the complaint based upon the fact that it could be evidence of a PFA lawsuit in the state of California.

Additionally, the complaint in the state of California requires the attorney to show evidence of life insurance sales commissions from the plaintiffs in the PFA lawsuit. If the complaint lacks sufficient supporting documents, the plaintiff is not likely to receive any damages on the basis that he or she committed a PFA violation.

The bottom line is that if you believe that you are being recruited into a PFA lawsuit, you should contact an experienced attorney immediately.

If you are the victim in this type of case, your best interest is best served by working with an experienced life insurance attorney who will be able to give you the best advice on how to proceed with the case. The PFA lawsuit model was designed to make it easy for the person on the receiving end to recruit members for their own pyramid scheme. An experienced attorney will be able to help you protect your interests and fight back. It is important that you do not become another victim.

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