Steven Caver greeted James Ray Phipps as an old acquaintance in federal court this week, shaking his hand, smiling and inquiring about Mr. Phipps' well-being.

Mr. Caver, a retired U.S. Postal Service inspector, is well-acquainted with Mr. Phipps, having chased him across the country and battled in court for 20 years to shut down his mass mailings.

James Ray Phipp

Federal prosecutors allege that Mr. Phipps swindled millions of dollars from thousands of people over 20 years through a series of pyramid schemes, including a program called "Life Without Debt" that he ran out of his Colleyville home from 1996 to 2001, according to a 22-count indictment alleging mail fraud, money laundering and tax evasion.

Mr. Phipps' trial on the charges began Monday in federal court in Dallas.

"We're on a first-name basis," Mr. Caver testified, noting that he'd once attended a multilevel-marketing conference where Mr. Phipps had introduced him gleefully to others as "the son of a ... [gun] who put me out of business."

Mr. Caver testified that he helped the post office win a series of injunctions and cease-and-desist orders against Mr. Phipps, which the defendant flauted over two decades by reinventing his pyramid schemes under new names. Mr. Phipps even sued the Postal Service in 2006, alleging that Mr. Caver and other investigators violated his civil rights by trying to stop his use of the mails.

Officials say it's difficult to stop such pyramid schemes, which mask themselves as legitimate multilevel-marketing businesses. The schemes spread through friends and family, and victims often won't talk to investigators when the pyramid collapses.

"One of the problems with tracking them is that victims often refuse to acknowledge they've been had," said Susan Grant, director of the fraud center for the National Consumers League in Washington. "We hear of victims who turn on prosecutors because they think they're denying them their chance at more money."

The federal charges are the first Mr. Phipps has faced after plying his trade for two decades.

"Most of these schemes are not being prosecuted and are proliferating tremendously," said Robert FitzPatrick, a lawyer and pyramid scheme expert in Charlotte, N.C., who helps identify the scams at his Web site, www.pyramidscheme alert.org.

"Texas is a haven for them" because of laws favorable to multilevel-marketers, said Mr. FitzPatrick, who said he helped defend the Better Business Bureau against Mr. Phipps' legal threats after the organization passed on complaints about his businesses.

Many multilevel-marketing businesses walk a fine line of legality, Mr. FitzPatrick said. One of the fastest-growing such companies – Usana Health Sciences of Salt Lake City, which reported more than $374 million in sales of health products last year – faces a Securities and Exchange Commission inquiry into whether it is actually a pyramid scam.

The company vigorously denies it.

Pyramid schemes pushed on the Internet actually are declining in frequency, according to the National Consumers League. Multilevel-marketing scams ranked No. 24 out of 38 fraud types last year, having fallen out of the top 10 early this decade.

Today, investors can easily use the Internet to investigate potential scams, Mr. FitzPatrick said. "In some ways the Internet has enabled the victims, though there's still a ton of disinformation out there," he said.

Mr. Phipps faces federal charges "only because he's a rogue" who attracted too much attention to himself, Mr. FitzPatrick said.

A candidate for president in 2000 and governor of Alabama in 2006, Mr. Phipps gained notoriety through anti-government writings that argued "taxes are voluntary (unless you volunteer)." He said the Uniform Commercial Code let him avoid income taxes, and he declared himself a "sovereign citizen" unaffected by U.S. laws.

The IRS disagreed, saying Mr. Phipps earned hundreds of thousands of dollars in the late 1990s and $2 million in 2000 alone and had not filed a return since 1987. By not keeping bank accounts and dealing strictly in cash, he avoided creating records that would make his income obvious, the indictment alleges.

In the "Life Without Debt" program, mailings and members enticed people to send Mr. Phipps $2,000 in cash or money orders. They'd receive Mr. Phipps' books and tapes and be asked to recruit two more participants to send $2,000 each. The payments were redistributed "up" the pyramid, and members were told they'd receive up to $122,400 "with minimum effort and absolutely no risk."

Special Assistant U.S. Attorney Stephen Booker said the scam enticed 20,000 people to send Mr. Phipps $21 million from June 1996 to August 2001. Mr. Phipps took a 4 percent handling fee to redistribute cash along the pyramid and also falsified 15 identities within the pyramids to take large commissions from participants, 90 percent of whom lost money, prosecutors said.

Mr. Phipps, 59, declined to discuss the charges through his attorney, Carlton McLarty, who argued in his opening statement Monday that Mr. Phipps was simply "trying to live the American dream."

The network marketing businesses were legal because Mr. Phipps was selling a product – financial advice through tapes and reading materials – much like companies such as Amway and Mary Kay, Mr. McLarty said.

Mr. Phipps, who described himself in mailings as an "eccentric millionaire" and also "Mr. Integrity," previously ran programs called "Fast Cash" and "Paymaster" with a similar structure, prosecutors said in court.

He also faces racketeering charges in Florida over "Life Without Debt," along with numerous questions and consumer complaints from attorneys general around the country.

Weekly telephone conferences for interested investors helped federal officials build their case against Mr. Phipps.

"And if it's a pyramid, so what?" he told listeners on the calls, according to the indictment. "At least I have sense enough to turn that sucker upside down and use it as a funnel."

The trial is expected to conclude in early May.