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Torres v. SGE Management, AARP Everywhere Supports Challenge to Allege... Skip to content

AARP Supports Challenge to Alleged Pyramid Scheme

AARP’s brief supports an investors’ class action lawsuit against an alleged pyramid scheme. Older people are among the millions targeted by schemes that jeopardize their financial security.


The term “pyramid scheme” refers to business enterprises that promise high returns and low risks but are predicated on a fundamentally unsustainable premise: investors earn money when they convince other people to pay into the scheme, and those people will earn money when they also convince more people to pay into the scheme. Only the early investors — typically those involved in setting up the illegal scheme — are able to recover their initial investment. Mathematically, greater than 90 percent of later investors are guaranteed to lose money because there are not enough new people buying in to support the previous investors.

Older people seeking to supplement their retirement income are particularly vulnerable to pyramid schemes because scam artists have devised increasingly sophisticated ways to make pyramid schemes appear to be legitimate business or franchise opportunities. In Torres v. SGE Management, the alleged pyramid scheme appeared to be an internet business opportunity to resell electricity. In reality, the only way to recover an investment was to convince numerous additional people to buy into the scheme.

The question in Torres v. SGE Management is whether investors can challenge an alleged pyramid scheme in a class action. Challenges to illegal business practices are complex and time consuming, making it extremely expensive — or even impossible — for individuals with relatively small claims to obtain relief. Class actions aggregate the claims of all the people harmed by a particular practice into a single challenge to resolve facts and legal questions that are common to everyone harmed by those practices. Unlike individual challenges, class actions are also effective at stopping an illegal practice from continuing to harm others.

The defendant in this case claims that individual investors cannot challenge the alleged pyramid scheme as a class action, arguing that each individual must prove individual reliance on misleading information. The district court agreed with plaintiffs and certified the class. The defendants appealed to the Fifth Circuit.
AARP’s friend-of-the-court brief, filed by attorneys with AARP Foundation Litigation, cites numerous studies (including government reports, academic studies, and AARP research) that document the increasing sophistication of pyramid schemes and tremendous vulnerability of people 50 and older who are aggressively targeted by and thereafter lose billions of dollars to such scams – with few or no income-generating years to make up these lost funds. The brief points out that federal oversight is inadequate to protect against these rapidly evolving schemes and that private class action lawsuits are essential to protect investors.

What’s at Stake

Deceptive marketing practices mask the true nature of pyramid schemes so they appear to be legitimate low-risk business opportunities. If class action lawsuits are unavailable to challenge illegal practices that impact millions of people, older investors will be left without recourse to recover their losses. Illegal schemes will continue unchecked and unchallenged, jeopardizing the financial security of millions of older people each year.

Case Status

Torres v. SGE Management is before the U.S. Court of Appeals for the Fifth Circuit.