Is there any legal issues with a sweepstakes basically where a user signs up with their email address and is entered to win a cash prize and for each referral they gain the also get an entry.
In the U.S. sweepstakes and other games are regulated at the state level. The laws you operate under are determined both by your location and your participants' locations. That's why you often see sweepstakes and other games that say something along the lines of "anyone can enter except residents of Arizona and Maryland", or similar (I just made that up, but you know what I mean). This article might help: http://www.sweepstakes.bz/issues/May2003/sweepstakes_article.asp