Class Action Claim Against A Defendant For Running A Pyramid Scheme*

This is a review of a class action claim in which thirty plaintiffs contended the defendant criminally defrauded them out of substantial sums of money. The plaintiffs’ lawsuit claimed the defendant misrepresented the amount of income they would be able to generate after purchasing a product from the defendant.

At the time of the suit, the defendant had been arrested by federal authorities and charged with multiple counts of mail fraud and theft. The plaintiffs' suit sought to recover some of the money the plaintiffs had invested in the defendant's product along with substantial punitive damages.

Statement of Facts...

On May 1st of 2010, Allie Almore responded to an advertisement in a local newspaper that read “Make $3,000 a Month Working From the Comfort of Your Home." The ad had been placed by Anthony Cole who arranged to meet Almore at her home. Once there Cole brought out pamphlets and written materials which purported to illustrate the process in which the plaintiff could generate monthly income of at least $3,000.

Cole went on to explain the process of generating income depended on Almore’s ability to sell Home Based Personal Products to her friends, family and other interested individuals. 

The products included ceramic figurines, pen sets, cleaning materials, and other home personal products. Cole presented Almore with a catalogue. The catalogue contained photographs of the personal products available for sale. 

Cole explained the process of compensation included Cole’s paying Almore a fee of 25% of the value of each product she sold.

Cole went on to explain to Almore there was a way for her to generate substantially more income by selling the Home Based Personal Product Distribution Packages to other individuals. Cole explained Almore would purchase the Home Based Personal Product Distribution Packages from him for $300 per unit. She would then turn around and sell those Packages to individuals for $500.

Cole went on to explain the individuals to whom Almore sold the Packages could either purchase the personal products in bulk for resale to others at a 25% markup, or they could purchase from Cole additional Packages which they could also buy for $300 and resell to others for $500.

Almore entered into an agreement with Cole to purchase the first Home Based Personal Product Distribution Package. Over the next 18 months, Almore purchased 30 Home Based Personal Product Distribution Packages from Cole at $300 each. She then sold the Packages to family, friends, and others for $500 each.

Slowly at first, Almore began to receive complaints from people who purchased the Packages. Those people were upset with their inability to resell additional Packages to others, and were also angered at the number of complaints they received from individuals to whom they sold the personal products. They said their customers complained about the poor quality of the products and many wanted their money refunded. 

They continued to say they were unable to contact customer service to arrange refunds. Each time they called the number Cole provided in the materials, they were directed to Cole’s voice mail.

Almore herself was having an increasingly hard time getting in touch with Cole. As complaints to her mounted, Almore's calls to Cole stopped being returned. On her final attempt to contact Cole by phone, she discovered his line had been disconnected.

Soon thereafter, several individuals to whom Almore sold the Packages contacted the United States Attorney’s Office, and an investigation was initiated. The investigation concluded Cole had perpetrated federal crimes against at least 30 individuals. A warrant was issued for Anthony Cole, and he was soon thereafter arrested.

The plaintiffs retained a law firm whose specialty was class action claims. The attorneys used the first of the thirty plaintiffs as the named plaintiff representing all of the remaining plaintiffs’ interests. The lawsuit was filed and the defendant was served while incarcerated in a local federal facility.

The Lawsuit...

In their class action claim, the plaintiffs contended Cole had induced them to purchase Home Personal Product Distribution Packages through fraud and deceit. 

They contended Cole:

• misrepresented the amount of income which could be generated by selling the “Packages”;


• misrepresented the quality of the products to be sold through the catalogue; and


• fraudulently, knowingly, and purposely induced them to enter into illegal contracts.

The plaintiffs' petition asked for full reimbursement in the amount of $220,000 for all monies paid to Cole. The plaintiff’s petition further asked the Court to assess punitive damages against Cole in the amount of $10 million.

During the trial, the plaintiffs' attorneys called Cole to the stand to testify. For each question asked, Cole’s attorney advised Cole to invoke his Fifth Amendment privilege against self-incrimination. The plaintiffs’ argued Cole should be ordered to testify because this was a civil, and not a criminal proceeding.

In support of the contention their client Cole should not be ordered to testify, Cole’s attorneys cited the language in a United States Supreme Court ruling. That ruling stated:

The Privilege (of invoking the United States Constitutional Fifth Amendment against self incrimination) is not ordinarily dependent upon the nature of the proceeding in which the testimony is sought or is to be used. It applies alike to civil and criminal proceedings. Wherever the answer might tend to subject to criminal responsibility him who gives it.

McCarthy v. Arndstein 266 U.S. 34, 40, 45, Sup Ct. 16, 17 (U.S. 1924)

Next the Plaintiffs’ attorneys called Almore to the stand. Almore previously entered into an agreement with the United States Attorney’s Office for full immunity from arrest and incarceration if she testified against Cole.

Over numerous hearsay objections, Almore explained the entire process from the day she first responded to Cole’s advertisement through the date of the trial. Her testimony was instrumental in helping the Plaintiffs’ attorneys unravel Cole’s entire “scheme."

The Plaintiffs’ attorneys continued to refer to the process by which Almore began to sell the Home Distribution Personal Product Distributorships as a “Pyramid Scheme." 

The attorneys called one witness after another who testified about how they were told the Package was a “viable business platform” upon which they would be able to build successful home businesses.

They explained about the inferior quality of the products, the inability to satisfy customer requests for refunds, and the amounts of money each spent to acquire the Packages. They testified the information Cole and Almore provided to them made it clear each person who purchased the Package would make at least $3,000 each month.

The Plaintiffs’ attorneys called 12 of the plaintiffs to the stand. Each was asked if at any time they made $3,000 in any one month. All twelve testified, although they followed all of the instructions set out in the written materials provided to them by Almore and Cole, none ever made $3,000 in any one month. Many testified they made nothing.

When the plaintiffs rested their case the defendant rested as well. The defendant stood mute and called no witnesses. Both sides rested and closed.

Outcome...

After hearing all of the admitted evidence and the arguments of counsel for both sides in the class action claim, the Court ruled as follows:

"We find the Defendant Cole acted in a selfish and reckless manner. His actions were meant to deceive the Plaintiffs by inducing them to purchase a product which was essentially worthless.

The Plaintiffs wholly relied upon the Defendant’s written materials and promises of self-enrichment. This case exemplifies the process commonly referred to as a Pyramid Scheme

We therefore find for the Plaintiffs in the amount of $220,000 in actual damages and Three Million ($3,000,000) dollars in punitive damages."