The government’s deception may ultimately backfire, particularly with their questionable argument that, for the first time in history, a pyramid scheme does not involve a risk of saturation. This was the key question raised by 6th Circuit Judge Nalbandian during the appeal’s oral argument when he asked whether they were asking the court to rule that a pyramid scheme could exist without any risk of saturation for the first time ever.
How could the government make such an outrageous argument that I2G was a pyramid scheme despite its lack of risk of saturation?
The answer lies in the defense’s attempt to present evidence from their pyramid scheme expert, the well-regarded Manning Warren, regarding “anti-saturation measures” that i2G implemented, which would disprove Dr. Keep’s claims of it being a pyramid scheme. The government sought to prevent the defendants from presenting any anti-saturation defense, effectively blocking Warren from providing credible arguments that could undermine the government’s case. They conceded that the i2G emperor plan had no risk of saturation and indicated they would not pursue that argument or present a witness who would argue the risks of saturation. (R381 #2922) Consequently, the court deemed the anti-saturation arguments irrelevant, excluding Manning Warren’s testimony based on that pre-trial filing. (attached below)
However, the government’s argument was disingenuous, as it vigorously argued at trial that i2G would indeed saturate, resulting in losses for distributors at the bottom of the pyramid as it inevitably collapsed. This notion was emphasized through their expert, Dr. Keep, who presented outlandish examples that depicted i2G distributors arranged in a pyramid structure, suggesting that trillions of individuals, far exceeding the global population, would be positioned above them in the pyramid. The defendants were denied a complete defense since Warren was excluded from rebutting Keep’s biased and unfounded theories.
The defendants were denied the opportunity to present their pyramid scheme expert despite a prior ruling by Judge McKinley to admit Keep’s testimony based on the defendant’s ability to challenge his testimony with their own pyramid scheme expert.
From McKinley order:
Furthermore, any issue Barnes has with Dr. Keep’s background can be effectively flushed out through cross-examination.
Daubert, 509 U.S. at 596. To be sure, Barnes is free to address whether I2G’s products are merely
incidental to the MLM through the use of its own expert testimony, as well as through vigorous
cross-examination of Dr. Keep. See Salmon v. Old Nat. Bank, 2012 WL 4213643, at *3 (W.D.
Ky. Sept. 19, 2012). (R168)
168238The contradictory ruling allowed theoretical ponderings of Dr Keep’s testimony but disallowed Warren’s testimony, which served as a total defense.
You can view what must be viewed as more of the government’s direct lies to the Court, which is that they had no plans to introduce a witness to discuss the dangers of market saturation (R381 #2922)
See below from the government’s filing to exclude Professor Warren:
For I2G, however, saturation is not the problem. Unlike in Gold Unlimited, the United States
has no plans to present a witness to testify on the dangers of market saturation. See Gold Unlimited,
Inc., 177 F.3d at 481. Unlike in Ger-Ro-Mar, the United States has no plans to argue that “the laws
of geometrical progression would make it impossible to recruit continually since inevitably a point of
saturation would be reached.” Ger–Ro–Mar, Inc. v. FTC, 518 F.2d at 36. Instead, the United States
plans to show that I2G is a pyramid scheme—not because of any saturation problem, but rather
because I2G’s scheme meets the definition approved in BurnLounge: “[A] pyramid scheme is an
organization in which the participants obtain their money rewards primarily through enrolling new
people into the program rather than selling goods and services to the public.” BurnLounge, 753 F.3d
at 889.
Finally, even if the Court finds that saturation is at issue, Professor Warren’s analysis is
insufficient to support a jury instruction for the affirmative defense of anti-saturation. As the Sixth
Circuit said in Gold Unlimited, “[T]he actual effect of the plan[] deserves far more weight than . . .
the existence of alleged anti-saturation policies shown by the government already to have failed.”
Gold Unlimited, Inc., 177 F.3d at 481-82. Rather than focusing on the actual effect of the plan,
Professor Warren’s analysis appears to be limited to I2G’s business model. Professor Warren
provides no discussion (and may be unaware) that approximately 97% of investors who purchased
Emperor positions lost money, and that 90% of I2G’s revenue came from the buy-in fees for
Emperor memberships, not product sales. To the extent I2G had an anti-saturation policy, it failed
miserably. And Gold Unlimited only allows an affirmative defense for an effective anti-saturation
program. Gold Unlimited, Inc., 177 F.3d at 482 (emphasis added).
The government’s argument was entirely deceptive, as it continuously cited the risks of market saturation. Keep’s testimony was filled with outrageous hypothetical scenarios involving geometric progression. He portrayed I2G distributors as being part of a “binary pyramid scheme structure” with trillions of people above them.
Warren planned to discuss precisely “the effects of the I2G plan” with the anti-saturation methods counteracting the risk of saturation. Not only did the defendants have a numerical cap in place to prevent saturation, but the “effects of the plan” included tracking customer acquisition directly and compensating it through the I2G commission structure. I2G distributors earned “rewards” linked directly to customer transactions monitored through the casino and fantasy sports API feed—commissions from these transactions funded distributor rewards through the binary, fast start, and leadership bonuses.
Warren may have addressed the false claim that I2G operated with a 97% loss rate. This narrative was created by the government’s deliberate exclusion of $28 million in commission gains, which were used as the basis for product purchases. The omission of this commission data was confirmed by their own witness, Reynolds, in a post-trial affidavit and through new All Commission records from his system.
Furthermore, Warren could have countered Keep’s subjective assertion that 90% of purchases were for recruitment rewards. This claim was directly contradicted by the testimony of their witness, Reynolds, who had experience with over 1,000 MLM companies. He stated that 90% of purchases were “product-related” and that he would not have worked with I2G if it had been a pyramid scheme. Notably, a similar argument made by the FTC expert in the Neora case was dismissed as “subjective opinion with no basis in reality.”
Customer transactions were directly connected to rewards. The government’s evidence and witness testimony confirmed over $1.5 million in retail customer transactions contributed to the compensation plan through binary, matching, and leadership bonuses. These were crucial points that the defendants were denied the opportunity to present due to a polar opposite ruling that allowed Keep’s testimony based on the defendants’ ability to counter it with Warren’s testimony.
Ultimately, there was a clear link between customer transactions and recruitment rewards that met the Koskot standard, and this was a direct defense the defendants were unjustly denied.
Based on Judge Nalbandian’s comments during the oral arguments, we are optimistic that the appellate court will acknowledge that a pyramid scheme is not legally valid without the risk of market saturation, which was impossible with a cap of 5,000 participants and customer transaction built directly into the compensation rewards through binary, matching and leadership bonuses. We hope the appellate court will recognize that the defendants were denied a complete defense, as guaranteed by the Sixth Amendment of the United States Constitution, and that their “anti-saturation” arguments were a legally valid defense that they were unjustly denied.