tery, so-called gift concert, or similar enterprise offering prizes, dependent upon lot or chance, or concerning schemes devised for the purpose of obtaining money or property under false pretenses," or "any lottery, gift enterprise, or scheme for the distribution of money or of any real or personal property by lot, chance, or drawing of any kind," or concerning "any other scheme or device for obtaining money or property of any kind through the mails by means of false or fraudulent pretenses, representations or promises;" and the question is, whether the concerns to which your note refers, or either of them, are of the character thus described.

Your note refers to three companies, which will be considered here. The Industrial Mutual Deposit Company of Lexington, Ky.; The Insurance Security Company of Louisville, Ky.; and the United States Mutual Investment Company of Lexington, Ky.

While these companies differ somewhat from each other, in the details of conducting their business, yet the same general rules are common to all of them, as is also that which determines their character as to legality under these statutes.

The question of what is meant as the element of chance which will bring any business dependent upon it within the ban of these statutes, and also what is meant by those provisions relating to obtaining money or property by false pretenses, or false or fraudulent pretenses, representations, or promises, have been so often discussed in Opinions of this Department, the decisions of courts, and the rulings and Opinions in your Department that it is not necessary to review the matter here.

Without attempting any comprehensive or exhaustive definitions of these matters, it is sufficient for the purposes of this opinion to say, upon principle and authority, that, where a scheme proposes, on account of certain investments by many persons, to return to each something which, as to its certainty, amount, or value is dependent, not upon the earning or producing power of the investment, nor upon business probabilities or expectations, but upon contingencies, over which the parties to the transaction have no con

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trol, and which they can not forecast, such a scheme has in it and is dependent upon the elements of chance within these statutes.

And where the operators of a scheme or plan induce others to invest therein upon the promise that upon their doing so and making certain stipulated payments they shall receive a specified return, and it is known by such promisors. or it is so apparent that it ought to be known by them, that if such investors comply on their part and continue to make the stipulated payments all can not receive the promised return; or, where such promise of return is absolute, but its performance and the ability of the company to perform is known by it to depend upon a continually increasing accession of new investors, or upon the lapses and consequent forfeitures of former ones, or both; or, where payments to previous investors are promised at a profit far beyond what their investments can or are expected to earn, and are made mainly from moneys paid in by later investors upon the same terms, with no other provision for the ultimate payment of subsequent investors; or, where such promise is absolute, but its performance and the ability of the company to perform are known to depend to a considerable extent upon the broken promise and consequent forfeitures of other investors; such a scheme is fraudulent within the meaning of these statutes.

Nor is it material in this respect that in either of said supposed schemes, or similar ones, the business is so successful that for a considerable time new investors continue to come in, so that from their moneys all earlier ones receive the promised return; so that the time when the fraud in the scheme will find its victims is delayed indefinitely, so long as it is certain, as it is in all such cases, that such time will come, and may come sooner or later, dependent upon contingencies which neither the promisors nor investors can either control or forecast.

I am not an actuary and shall not attempt any detailed analysis of the workings of either of these plans, but will take these mainly as they are stated in your letter and the memoranda to which it refers.

The company first mentioned, the Industrial Mutual De

posit Company, issues certificates of membership with several coupons attached, for which the purchaser pays 5 cents for each coupon and agrees to pay 5 cents weekly for each unredeemed coupon for one hundred and four consecutive weeks. In return the company promises to pay each purchaser, upon the redemption of the coupons, $1.60 for every $1 paid by him to keep the coupons in force less 10 cents for each coupon, and to redeem the whole within or at the end of one hundred and four weeks. No coupon is eligible for redemption until eight weekly payments have been made on it.

The company redeems coupons weekly after the eighth week at an arbitrary value fixed by the schedule indorsed on the certificate, which value is at a profit many times greater than the money invested can, or is expected to earn, which value varies each week and the profit constantly decreases with the time the coupon has run, so that a coupon redeemed at the end of the eighth week will have a profit of about 200 per cent per annum; while at the end of the one hundred and fourth week the redemption will be at the rate of about 60 per cent per annum.

Coupons are selected each week for redemption by three different methods, but, by none of which is it at all possible for anyone, when he purchases his certificate and coupons, to tell, even by a broad approximation, when his coupons will be redeemed, or therefore their value when redeemed.

These three weekly redemptions are each made from its own approximate fund; the first of which consists of 20 per cent of the weekly payments on coupons; the second, of 10 per cent of such weekly payments; and the third of which consists of 15 per cent of such weekly payments. Each of these funds is exhausted each week by such redemptions of coupons.

The reserve fund of 20 per cent of such weekly payments is the only fund which has any earning power or can be invested; and this, with its earnings, is the only fund that can be relied upon for the payment of such coupons as are not thus redeemed by these weekly redemptions at the end of one hundred and four weeks.

Each of the other two companies issues certificates with

coupons attached, for each of which coupons, the purchaser pays 25 cents per month-in one company, for one hundred and twenty months, and in the other, for one hundred and twenty-nine months; and, in each, monthly redemptions of coupons are made at a value arbitrarily fixed by a schedule. indorsed on the contract; and which has no reference to earnings, but the profit is several times as much as the investment can, or is expected to earn. In one of these companies, this value is fixed upon the basis of 14 per cent per month compounded monthly. These monthly redemptions are made from a fund for that purpose, consisting of a certain percentage of the monthly payments on coupons, and is exhausted at each redemption, and in each, there is a small reserve fund which, with its income, is used to pay coupons which remain unpaid after the one hundred and twentieth or one hundred and twenty-ninth monthly redemptions, and in each of the three cases, default in weekly or monthly payments, forfeits the contract and all money paid on it.

While in each of these companies the mode of selecting coupons for redemption differs from those in the case first mentioned, and somewhat from each other, yet in each the same uncertainty and impossibility of determining when a coupon will be paid, and, therefore, its then value or profit, exists as in the first case, and there are certain fundamental features that are common to all.

In each case the periodical redemptions are made, not from the money invested or its earnings, but from moneys paid in each week or month by later investors upon the same terms, and who in turn take their chance of being paid from moneys of still later investors.

In each case each investor is promised a return vastly greater than his investment can or is expected to earn. Indeed, in the periodical redemptions earnings cut no figure and are not used at all.

The amount of value of each return depends upon the time when it is made, the largest profits going with the earliest payments, and this time can not be determined, even approximately, when the contract is made.

As it will require at each weekly or monthly redemption

much more than the money of one investor appropriated to that purpose to pay each previous one, it follows that the number of newcomers must constantly increase at a high ratio (approximately doubling) in order to keep up the fund for such redemptions. This would be the case were it not for lapses; and it can hardly be expected that in a business paying, while it lasts, such enormous profits, there should be so many voluntary forfeitures of money already paid in as to prevent the necessity for a constant increase at a high ratio of new investors; and sooner or later such progressive increase must necessarily cease, and then the end comes, with nothing with which to pay the thousands who are dependent solely upon the money of newcomers.

Under each of these plans persons similarly situated-that is, have paid their money upon the same terms-will receive different and unequal returns; and this dependent upon contingencies which neither party can either control or foretell.

If all the investors comply with the contract on their part-stay in and make the stipulated payments-it is im possible that the company can perform what it has promised, which is that, if each investor will continue to make the stated payments, each shall receive the promised return. Indeed, it is understood that much reliance is had upon broken promises for the means of the company to perform its own. It is not understood that either of these companies has any considerable capital stock, property, or means from which payment of its obligations could be enforced, but that its sole dependence for the means to make periodical redemptions is the money paid in by newcomers during each weekly or monthly period, and the lapses of that period; and for ultimate redemption at maturity, this reliance is solely or mainly upon the "reserve" and its income. This consists, in the different companies, of 20 per cent, 25 per cent, and 25 per cent of the sums periodically paid in on coupons. There is one feature of these cases which curiously illustrates the uncertainty of, and the impossibility of determining when a coupon will be paid, and, therefore, the value of the prize. While the periods of redemption run through one hundred and four weeks, one hundred and twenty months, and one hundred and twenty-nine months, respec