Defendants’ online business was an “endless chain scheme” because it focused on the recruitment of more investors rather than product sales. Defendants Sweeney and Ryan were convicted of multiple white collar crimes, with great taking enhancements, for operating an online “endless chain” scheme. They each received lengthy prison terms and were ordered to pay more than $8,000,000 in victim restitution. They appealed. Held: Affirmed with remand for restitution hearing. Defendants’ two online businesses sold memberships to investors who were promised compensation for recruiting new members. Although members could shop online, the focus of the business was recruiting more members to invest. The evidence reflected the two businesses were classic “endless chain” schemes (Pen. Code, § 327), because the victims paid for the chance to receive compensation for recruiting others to invest. The fact the victims could have also sold products did not convert the scheme into a legitimate business.

The sale of memberships constituted sale of unregistered securities. Appellants were convicted of operating a fraudulent securities scheme (Corp. Code, §§ 25540, subd. (a) & 25541) and four counts involving an endless chain scheme (Pen. Code, § 327, Corp. Code, §§ 25110, 25401, 25540, subds. (a) & (b), 25441). They challenged the sufficiency of the evidence the schemes qualified as securities. Corporations Code section 25019 defines security broadly; it includes participation in a profit sharing agreement or investment contract, whether or not evidenced in writing. Under federal law, investments in a pyramid scheme are “investment contracts” and therefore, securities. Federal case law interpreting federal securities law is persuasive authority when interpreting California securities law. The evidence that reflected the business’ constituted an “endless chain” scheme was also substantial evidence that the memberships were securities.

The victim restitution award did not require jury findings. Citing Southern Union Co. v. U.S. (2012) 132 S.Ct. 2344, defendants claimed they were entitled to a jury determination of the amount of victim restitution. Agreeing with the Fourth District’s decision in People v. Pangan (2013) 214 Cal.App.4th 574, the Court here held that victim restitution is not a criminal fine and therefore not subject to the Apprendi rule. The Court did remand the case for a Penal Code section 1202.4 restitution hearing because at sentencing, the trial court ordered a $10,000 fine, but stayed it based on inability to pay, which was improper.