Money-chain letters are illegal, but why?

Wiklipedia has a couple of great articles about http://en.wikipedia.org/wiki/Ponzi_scheme and http://en.wikipedia.org/wiki/Pyramid_scheme, as someone above mentioned (but didn't link).

Vanoakenfeld: Don't listen to the worrywarts. I have a foolproof method of making money that only requires an outlay of $10, which you can send to me (email for contact info), which is much less than the outlay for 200 envelopes and postage. (Prepares instructions for Vanoakenfeld for asking strangers for money on the internet). PROVEN RESULTS. (Or, in other words, perhaps those who disagree with laws to protect them from their own stupidity are proving the utility of said laws).

I guess it comes under something like "obtaining money on false pretences"? But there's no actual crime, except misleading the restaurant guy, who has himself intended to obtain money on false pretences. It's the fact that A + B are working in collusion to deceive C that makes the transaction fraudulent. And, while it may seem that C is intending to behave fraudulently against A as well, there is no legal obligation to inform a seller of the true worth of a thing being sold when making a purchase. Having said which, if C's attempt to purchase the item from A also involved active deception (no, that's not a real stradivarius, you can tell by the way it doesn't have his initials written in magic marker pen on the back), then possibly fraud would have been committed as well. It's worth remembering, though, that the act of one crime doesn't negate the prosecutability of another. So, even if C had been attempting to purchase A's violin using fraudulent means, that doesn't mean A + B haven't committed fraud in deceiving C as to the true worth of the violin.

(BTW, I love hearing about clever scams, loved American Gods because of all the scams contained therein.)

Ambrose, I don't think the restuarant guy is intending to obtain money on false pretences. He's merely made an investment which he believes to be profitable. It's not illegal to buy something off of someone who doesn't know its true worth. Also, intending to obtain money on false pretences isn't the same as actually obtaining money on false pretences, so the restaurant guy in the clear in that regard as well. I'm not sure of the specific reason why it's illegal, but imagine if it wasn't: it would be impossible to obtain good advice on spending your money, because everyone could conceivably be in league with a seller. Truth in advertising is regulated for the same reason, and disclosure laws also cover the same ground. Imagine how the scam would be if Guy B disclosed that he stood to benefit if the restaurant guy bought the violin.

Pyramid scams, by the way, can be devastating to small communities Or even http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm.

Can I tack on a question I was seriously considering asking? Why are some con tricks illegal? I just read an example of a con in American Gods.Guy A goes into a restaurant, says he unfortunately can't pay, and leaves his violin as security.Guy B examines violin and declares it to be worth fifty grand, leaves his business card.Guy A comes back to pay and restaurant guy, rather than giving him the other guy's card, buys worthless violin off him for five grand.I guess it comes under something like "obtaining money on false pretences"? But there's no actual crime, except misleading the restaurant guy, who has himself intended to obtain money on false pretences.

Interesting comments here. I always assumed that pyramid schemes were illegal not to protect the stupid, but because there was no simple way to tax the income that the few successful people receive from it.

Right, it is just like buying a lottery ticket. And just like running your own lottery, sending chain mails is illegal. Actually, that's not really the case. It's unlikely that the overwhelming majority of people who buy lottery tickets are being led to expect a profitable return each time they buy a ticket. Lottery results are published, and anyone interested can inform themselves of the reality that only a lucky few win anything substantial from them. Pyramid schemes work on a different dynamic: the promise that everyone who participates can / will profit. They don't explain that the only way to profit from even a very popular pyramid scheme is to be in one of the very top echelons of the distribution chain (ie in one of the first few levels beneath the con artist who initiated the scam); everyone else will either receive only a part of what they invested, with the overwhelming number receiving nothing at all. It's the predictability of this outcome, along with no attempt to disclose that predictability, that makes it fraudulent. And, let's face it, how much serious thought would you give it if the email / letter contained the clause: "Disclaimer: 70% of the participants in this scheme, which probably includes you, are going to get absolutely nothing. Join now!" Pyramid scams, by the way, can be devastating to small communities when they take hold. We had an example not too many years ago in a small town to the north of where I live where people were being threatened and assaulted by friends, family members, neighbors, coworkers etc for refusing to participate in that particular scheme, as people who had 'invested' became more and more desperate to see any return at all on their money. The reason why they're particularly cruel for small communities is that most people know most other people in the community, so it becomes common knowledge who has had the common sense to stay out of the scheme, and they often get blamed for why the pyramid is collapsing. So, illegal, and very much should be.