## Facts

- Plaintiffs promoted and participated in “Northwest Family Reunion” (NWFR), a “gifting club” using a multi-level “board” structure.
- Participants paid $2,000 (and in some instances $6,000) to join a board and advance by recruiting new paying participants.
- Members who reached the top position could receive more than $13,000 in payments funded by new recruits.
- The Oregon Attorney General investigated NWFR and publicly stated it was an illegal pyramid scheme under the Oregon Unlawful Trade Practices Act (UTPA), warning that recruiting could result in fines.
- Plaintiffs filed a declaratory-judgment action seeking a declaration that NWFR was lawful and an injunction against enforcement interference.
- Plaintiffs asserted the arrangement was not a statutory pyramid club because participants understood the mechanics and risks and recruitment did not require deception or concealment.
- The trial court granted the Attorney General summary judgment and, after a further evidentiary proceeding, imposed a $25,000 civil penalty against plaintiff Ray Sweat under ORS 646.642(1).

## Issues

1. Whether NWFR qualified as a prohibited “pyramid club” under the Oregon UTPA.
2. Whether participant awareness of the scheme’s mechanics and the absence of affirmative misrepresentations removed NWFR from the UTPA’s pyramid-club prohibition.
3. Whether summary judgment for the Attorney General and the $25,000 civil penalty under ORS 646.642(1) were proper.

## Decision

- The Oregon Court of Appeals affirmed the judgment for the Attorney General.
- The court held NWFR was an unlawful pyramid club because participants paid money to obtain the right to recruit others for economic gain.
- The court rejected arguments that participant awareness or the “gifting” label prevented UTPA liability.
- The court upheld summary judgment because the material facts about NWFR’s structure and payment-for-recruitment model were undisputed.
- The court affirmed the $25,000 civil penalty imposed against Ray Sweat.

## Legal Principles

- A scheme constitutes a UTPA “pyramid club” when participants pay consideration to obtain the right to recruit others for economic gain, regardless of who ultimately receives the payments.
- Pyramid schemes may violate the UTPA even without proof of individualized misrepresentations because the model’s reliance on unlimited recruitment makes it structurally unsustainable and guarantees losses for many participants.
- Characterizing payments as “gifts” does not alter the legal analysis when participants pay to obtain a chance at receiving substantially greater payments conditioned on recruitment.
- Summary judgment is appropriate where the scheme’s operative structure and payment terms are undisputed and the remaining question is statutory application; civil penalties may be imposed under ORS 646.642(1) following a liability determination.

## Conclusion

The court held that NWFR’s pay-to-participate, recruitment-driven “gifting club” was a prohibited pyramid club under the Oregon UTPA, and it affirmed summary judgment for the Attorney General and the statutory civil penalty imposed on a principal participant.


Nielsen v. Myers, 193 Or. App. 388, 90 P.3d 628 (Or. Ct. App. 2004)