PC 327: Operating an Chain Scheme, Law, Penalty, & Defense

PC 327 Law / PC 327 Penalty / PC 327 Defense


PC 327 Law


In California, it is illegal to operate an endless chain scheme. The law on operating a chain scheme is found at California penal code section 327, which reads: Every person who contrives, prepares, sets up, proposes, or operates any endless chain is guilty of a public offense…[PC 327 Abbrev.].


Endless Chain Scheme Defined: According to PC 327, an “endless chain scheme is any scheme for the disposal or distribution of property whereby a participant pays a valuable consideration for the chance to receive compensation for introducing one or more additional persons into participation in the scheme or for the chance to receive compensation when a person introduced by the participant introduces a new participant" [PC 327 Abbrev.].


Compensation Defined: Under PC 327, compensation “…does not mean or include payment based upon sales made to persons who are not participants in the scheme and who are not purchasing in order to participate in the scheme" [PC 327 Abbrev.].


For example: An endless chain scheme could be found where Paul pays cash to “invest” in a business and Paul makes a return on his investment only by his recruitment of new investors who make a similar investment in the same business. Under this example, if Paul knows that there is no return on investment unless he is able to obtain future investors who make a similar "investment" then he is guilty of PC 327 even if he did not set up the scheme in the scheme in the first place.


Guilty Party: Remember, every person who operates the endless chain scheme is liable under PC 327. This includes any person who knows that the scheme is operating as such and actively participate in the scheme. In other words, it is not a defense to a PC 327 criminal charge to claim that a person did not create the endless chain scheme; if the person who participates in the scheme knows that the scheme operates as an endless chain scheme then he or she is guilty of PC 327 (subject to possible defenses, see below).


Note: An endless chain scheme is similar to, but different than, other types of investment schemes whereby a return on investment is determined by future investments, either by the same investor (similar to an illegal Ponzi’ Scheme), or by new participants in the scheme (similar to an illegal Pyramid Scheme). Also, not all investment schemes that share similarities to endless chain schemes are necessarily illegal.


For example, participating in some types of multi-level marketing (MLM) schemes are not necessarily illegal, especially where an actual legitimate product is sold by the participants in the scheme and the purpose of the business is to sell goods or services (as opposed to focusing on making money). For more information on the differences between Ponzi’ schemes, pyramid schemes, MLM Investments, and endless chain schemes, contact an attorney.


PC 327 Penalty


Jail: PC 327 may be charged either as a misdemeanor, or as a felony. When PC 327 is charged as a felony, the defendant may face up to three (3) years in prison. When PC 327 is charged as a misdemeanor, the defendant may face up to one (1) in county jail. For more information on the differences between a misdemeanor and a felony see Infractions, Misdemeanors, & Felonies.


Note: When a defendant is convicted of felony PC 327 the judge has sentencing options, including: A probation sentence (with or without actual jail); sixteen months in prison (low term), two years in prison (middle term), or three years in prison (maximum term). The sentence that the judge imposes after a conviction of operating an endless chain scheme depends on many factors, including but not limited to, the following: the terms of any plea bargain between the defendant and the prosecutor, the criminal history of the defendant, the amount of loss to the victim(s), the sophistication of the offense, and more.


Prison Sentence: As, stated, any conviction for operating an endless chain scheme can result in actual incarceration for up to three years. According to penal code 1170, any incarceration for a violation of PC 327 will be served in a state prison, as opposed to a local county jail. This is true even if the defendant is sentenced to the minimum felony punishment under PC 327 (16 months). Prison sentencing does not apply to misdemeanor convictions of PC 327. For misdemeanor convictions of PC 327, the defendant may serve his or her incarceration, if any, in a local county jail.


Probation Sentence: A probation sentence is a period of supervision, as opposed to actual incarceration. A probation sentence is available after some felony and misdemeanor PC 327 convictions depending on the circumstances of the case and the defendant’s criminal history (along with other sentencing factors). Probation sentencing is more commonly associated with misdemeanor convictions in general, but a probation sentence in not barred in PC 327 cases.


Also, a probation sentence, if allowed, is condition upon the defendant fulfilling ‘terms of probation.’ The terms of probation, also known as ‘conditions of probation,’ vary from case to case, but in general, the terms of probation usually include, but are not limited to, the following: violate no law (no misdemeanor or felony crimes while on probation), pay restitution to victims, pay fines and fees to the court, stay-away orders (from victims or places), and more. Misdemeanor conditions of probation are usually much less stringent and are usually monitored by the court. Felony probation conditions are usually more numerous and are monitored by a felony probation officer (formal probation).


Finally, whether or not a probation sentence is available in any particular PC 327 case depends largely on the following: the circumstances of the case, whether or not the conviction is for a felony or for a misdemeanor, the defendant’s criminal history, the terms of any plea agreement between the defendant and the DA, and more.


Note: It is possible for the terms of probation to include a jail commitment. However, when a term of probation includes service of a jail commitment, the jail commitment is generally much shorter than the jail sentence that would have been ordered if the defendant was not granted a probation sentence. Also, the judge will usually, but not always, allow a jail sentence that is associated with a probation condition to be served alternatively on work release or house arrest. For more information, see Work Release and House Arrest.


Note: A “suspended sentence,” also known as a “split sentence” or a “joint suspended sentence,” is not available after a conviction for operating a chain scheme.


Three Strikes Law: The crime of operating a chain scheme is not considered a serious or violent offense as those terms are defined under California law at PC 1192.7 and PC 667.5, respectively. This means that PC 327 is not considered a “strike” offense under California Three Strikes Law.


CIMT: PC 327 is classified as a crime involving moral turpitude, or CIMT. A CIMT is any crime that involves deceit, fraud, dishonesty, or otherwise involves inherently bad behavior. A CIMT carries collateral consequences, such as professional licensing issues, immigration issues, and discrediting of one’s veracity for honesty. This does not mean that non-CIMT crimes don’t carry similar consequences; however, there are extra collateral penalties, punishments, and consequences that flow from convictions for any CIMT, including a conviction for operating an endless chain scheme. For more information, see CIMT.


Other Penalties: In addition to the penalties listed above, other penalties and punishments that flow from arrest or convictions of PC 327 include, but are not limited to, the following: Firearm restriction (for felony PC 327), military service consequences, civil penalties and lawsuits, restitution, restraining orders (criminal protective orders), probation or parole terms and possible violations, and more.


Note: The current bail schedule for PC 327 allegations is $25,000 for felonies and $5,000 for misdemeanor. This bail amount may be increased or decreased depending on the circumstances of the case and the amount of the alleged fraud. For more information on bail issues in general, see Bail & OR Information.


PC 327 Defenses


There is no single defense that applies to every PC 327 violation; however, some defenses lend themselves to certain crimes more than others. In criminal PC 327 cases, the most commonly used defenses tend to involve: insufficient evidence to prove beyond a reasonable doubt that the defendant knew he was involved in a chain scheme, violation of the defendant right against unreasonable search and seizure, entrapment, vagueness of the statute as applies to the defendant’s conduct, coerced confession, and more.


Wobbler Crime: The crime of operating a chain scheme is classified as a wobbler. This means that PC 327 may be charged either as a felony, or alternatively as a misdemeanor. In some cases, where the defendant is charged initially as with a felony crime, it could be a defense for defendant to argue that the circumstance justify only a misdemeanor violation of the statute (PC 7b). This reduction of the classification should only be argued by a criminal defense lawyer familiar with the circumstance that justify such a reduction as it applies to the defendant’s particular case. For more information on wobbler crimes and how a felony might be reduced to a misdemeanor in some cases, see Wobbler Crimes.


For more information on the crime of operating a chain scheme, or PC 327, contact our criminal defense lawyers today for a free consultation. Our lawyers offer free first-visit, in-office consultations for all felony and misdemeanor state violations. In some cases, our criminal defense lawyers might be able to visit local jails for a consultation (West Valley Detention Center, CDC, and Adelanto). Our attorneys are available to answer your questions seven days a week and all of our lawyers are familiar with all San Bernardino County criminal courts, including Rancho Cucamonga, San Bernardino, Joshua Tree, Fontana, and Victorville, Call today!


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Other Fraud Related Crimes


White Collar Crimes

Access Card Crimes

Check Fraud

Conspiracy to Commit Fraud

Embezzlement

False Financial Statement

Money Laundering

Forgery


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PC 327, Operating a Chain Scheme, Pyramid Scheme, & Ponzi Scheme
Penal Code 327 Operating a Chain Scheme