Every MLM distributor joins a multi-level marketing (MLM) company with the good faith belief that their ongoing efforts will eventually be rewarded. This belief is supported by the well-known stories of the “gold mine” story shared by MLM legends like Jim Fobair and Larry Thompson. The training encourages distributors to continue working hard for as long as it takes, as many give up on their dreams just short of reaching the gold mine. If someone did not have faith in the MLM company, they would likely never choose to join. This belief is the essence of MLM.
The I2G Court acknowledged that a good faith defense serves as a “complete defense” because it directly opposes fraud. However, the Court retracted its acceptance of the good faith defense by imposing conditions that contradict the fundamental beliefs of every MLM distributor.
The Court’s initial good faith instructions were appropriate, serving as a complete defense against allegations of fraud (R.554:#5271). These instructions acknowledge that mistakes in judgment can be excused. However, the Court’s later instruction effectively weakened this “complete” good faith defense by stating that “good faith does not include the defendant’s belief or faith that the venture will eventually meet their expectations” (R.554:#5271). This contrasts with a foundational principle inherent in every multi-level marketing (MLM) framework.
The commentary in question was not based on the 6th Circuit pattern instructions, but rather on an exception mentioned in the “Stull” commentary, which could be included if deemed relevant (Doc 692 #10025). The government argues that the defendants did not object to the relevance of the commentary, but rather to the use of the term “venture.” This claim is false. Maike clarified to the Court that the entire business model was founded on a “belief in the venture,” and that is precisely “what they did” (Doc 692 #10029).
The entirety of the I2G jury instructions highlights the Court’s mistake. By automatically labeling a pyramid scheme as a “scheme to defraud,” the Court dismissed Hosseinipour’s state of mind, or mens rea. It is impossible to have “good faith” that a pyramid scheme will succeed, as such a scheme is inherently destined to fail.
The Court first recognized that the additional instruction might be too broad or inappropriate (Doc 69210025). It then acknowledged that the defendants had a strong “good faith argument” and a genuine belief in the venture (Doc 692 10026, 27). “He believed that Songstergram was going to make everyone a substantial amount of money. He also thought that the casino royalties were going to flourish” (Doc 692 10026, 27).
The Court recognized that the multi-level marketing (MLM) business model relied on good faith and saw that it could have been successful. (doc 692 #10026, 27) The Court also understood that the “good faith defense” was a “big part of the defendant’s defense” and “the jury might get that too” (doc 692 #10026, 27). However, it interjected its subjective opinion that despite “good faith,” it didn’t see any proof that Maike’s plan was “realistic.” (doc 692 #10027, 10028) Finally, despite its disagreement with the “conditional” good faith instruction, the Court felt bound to follow it. (R.702, #11078-79). The Court was not bound and should not have followed it.
The Court made a significant error by restricting the “good faith” defense based on its belief that the plan was unrealistic. This was particularly problematic given its understanding of the MLM business model and its importance to Hosseinipour’s defense (Doc 692 #10027). This mistake was further exacerbated by defining the “pyramid scheme” as a “scheme to defraud,” which effectively undermined Hosseinipour’s good faith defense.
Hosseinipour’s appeal was represented by attorney Kenyon Meyer from the law firm Dinsmore & Shohl LLP, who presented the argument in a slightly different light.
His brief argued:
The good faith defense instruction incorrectly deprived Hosseinipour of a defense.
The court modified Sixth Circuit Pattern Instruction 10.04 by adding the following sentence: “Good Faith does not include the defendant’s belief or faith that the venture will eventually meet his or her expectations.” (R.554, #5271). Defendants objected. (R.702, #11178; R.692, #10024). Because the alleged scheme was a pyramid scheme (i.e. a scheme doomed to fail), belief that the venture would succeed contradicted the scienter element. The inclusion of this instruction was devastating in light of the instruction that a pyramid scheme automatically constituted a scheme to defraud.
The court did not want to include this sentence but felt that the commentary required it: “I looked at that very, very carefully, and I don’t like that instruction. I do not…. I’m going to leave it in….I don’t get to make the law….I disagree with it, but I am bound to follow that.” (R.702, #11078-79). The court was wrong: the commentary says, “[t]his provision can be added to the instruction if relevant in the case.” This addition was not relevant in a pyramid scheme case; rather, it contradicted the requirement that the Government prove an intent to defraud.
Including this language incorrectly suggested that subjective good faith was not a defense to the specific intent crime. See Ruan, 142 S. Ct. at 2381. Other courts have recognized that the subjective belief that a venture will be successful is an absolute defense of good faith. U.S. v. Roylance, 690 F.2d 164, 168 (10th Cir. 1982); U.S. v. Smith, 13 F.3d 1421, 1426 (10th Cir. 1994); U.S. v. Hopkins, 744 F.2d 716, 718 (10th Cir. 1984).
Here, the proof established that the defendants believed that I2G would be successful because of its products. The court summarized this evidence as follows:
My impression is that the defendants have a pretty good argument — let me rephrase that. That there will be an argument that — Mr. Maike in particular — that he believed that eventually — well, he believed [Songstagram] was going to make everybody a ton of money. He believed that these other things that he – this casino, that he — the casino was — even, frankly, he thought that the casino royalties were going to blossom. I mean, I guess my impression that as initially intended that I2G was going to be marketed more in Asia where the people in Asia…were going to be driving people to the casino because everybody in Asia could — you know, could engage in that, so you could encourage your neighbors, your downlines, everybody would be willing to use it…
(R.692, #10026-27). Proof supporting the defendants’ belief that the venture would succeed due to I2G’s products contradicted the allegation of an intent to deceive because I2G was a pyramid scheme.
The court deprived Hosseinipour of a critical defense despite the fact that the evidence supported it.