Pyramid Schemes / Recruitment Scams
What is a Pyramid Scheme?
Pyramid schemes, also referred to as "chain
referral", "binary compensation" or "matrix
marketing" schemes, are marketing and investment frauds which
reward participants for inducing other people to join the program. Ponzi schemes, by contrast, operate strictly by paying earlier investors with money deposited by later investors without the emphasis on recruitment or awareness of participation structure.
Pyramid schemes focus on the exchange of money and recruitment. At
the heart of each pyramid scheme there is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment.
For each person you bring in you are promised future monetary
rewards or bonuses based on your advancement up the structure. Over
time, the hierarchy of participants resembles a pyramid as newer,
larger layers of participants join the established structure at
They say you will have to do "little or no work because
the people below you will". You should be aware
that the actual business of sales and supervision is hard work.
So if everyone is doing little or no work, how successful can
a venture be?
The marketing of a product or service, if done at all, is
only of secondary importance in an attempt to evade prosecution
or to provide a corporate substance. Often there is not even
an established market for the products so the "sale" of
such merchandise, newsletters or services is used as a front for
transactions which occur only among and between the operation's
Therefore, your earning potential depends primarily on how many
people you sign up, not how much merchandise is sold.
Pyramid schemes are not the same as Ponzi schemes which operate
under false pretences about how your money is being invested and
normally benefit only a central company or person along with possibly a few early participants who become unwitting shills. Pyramid schemes involve a hierarchy of investors who participate in the growth of the structure with profits distributed according to one's position within the promotional hierarchy based on active recruitment of additional participants.
How are Pyramid Schemes Disguised?
These illegal money-making ventures are modified and adapted to
suit the victims. They may be disguised as games, chain letters,
buying clubs, motivational companies, mail order operations, or
Because of the similarity in structure to legitimate multi-level
marketing plans, which survive by making money off product sales
to actual customers, not new recruits, pyramid schemes may occur
when you are offered a distributorship or franchise to market a
particular product. Your investment contract will also authorize
you to sell additional franchises.
For each person you bring into such a company, you receive, or
are promised, future monetary rewards or bonuses based on the number
of people below you (commonly referred to as a "downline")
which ( and this is the key factor in pyramid schemes ) are unrelated to the sale of the product to consumers. The real
profit is earned, not by the sale of the product, but by the sale
of new distributorships.
Promoters of pyramid schemes stress the selling of additional
franchises for a quicker return on your investment. Investors,
therefore, expend their energies selling franchises rather than
the product. At some point, the supply of potential investors is
exhausted, leading to the inevitable collapse of the pyramid. The
sale of the actual product often fails because it is overpriced
or no real market exists for it.
Once the number of actual product buyers diminishes new recruits
will focus primarily on recruiting others into the system without
any realistic expectation that they can profit from retailing alone.
This lack of actual retail sales may be hard to determine as many
pyramid schemes will claim that their product is selling like hot
cakes. However, on closer examination, the sales occur only between
people inside the pyramid structure or to new recruits joining
the structure, not to consumers out in the general public.
Inventory loading occurs when a company's incentive program forces
recruits to buy more products than they could ever sell, often
at inflated prices. Legitimate multilevel marketing plans actually sell their product to members of the general public, without requiring these consumers to pay anything extra or to join the MLM system. MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits.
Such incentive purchases, which are tied to a higher distributorship level position in the "business opportunity ", lead participants to stockpile or give away unneeded product purchases, all the while chasing the elusive rainbow of imminent success. Often the costs of even long term participation far exceed the payments received.
One indication of a pyramid structure is one which pays override
commissions on more than five levels of participation. Even
the largest corporations can not stretch the markups on products
beyond the hierarchy of sales person, branch manager, district
manager, regional manager and national manager without becoming
uncompetitive with standard retail outlets.
According to Jon M. Taylor of www.pyramidschemealert.org the
suggested retail prices for MLM products are almost always too
high to be competitive because huge margins have to be built in
to allow for commissions to be paid to down-line distributors for
item sales without compromising the company's overly generous profits.
This need to avoid retail competition is achieved by the marketing
of unique or miraculous new products which are unavailable elsewhere
or presented as cutting edge technology accessible only to those
with the vision to appreciate its benefits to humanity or the American Way.
Many pyramid schemes will also advertise that they are in the "pre-launch" stage, yet they never can and never do launch.
Why do Pyramid Schemes Fail?
Pyramid schemes are inherently injurious to consumers because
as a mathematical certainty, they are doomed to collapse. As in
the case of chain letters that require a payment, only the people
at the very top make any money.
The only way anybody can make money through a pyramid scheme
or chain letter is if participants in levels below them are defrauded into giving money based upon a rapidly diminishing promise of eventually getting something in return.
Eventually they must break down because the pool of possible recruits becomes exhausted and recruitment stops. Those at the bottom of the pyramid, the vast majority of the participants, lose money because there is no one below them.
They won't get their money back or earn their promised fortune
because no one is beneath them in the pyramid adding new money
to the pot. All pyramid schemes will begin to die when later recruits don't sign on in numbers large enough to pay off the earlier recruits.
An infinite number of people is the weak link in the required "endless chain" of new participants. In order for a pyramid scheme to profit, there would have to be a never-ending supply of potential,
and willing, participants. In reality, however, the supply of participants
is limited, and each new level of participants has less chance
of recruiting others and a greater chance of losing money.
The diminishing odds of making money with a pyramid
scheme make it a losing proposition because each time a new level
rises to the top, a new level must be added to the bottom, each
one at least twice as large as the one before.
Pyramid schemes are based on simple mathematics: many losers pay
a few winners. A nine-level pyramid, which is built when
each participant gets six "friends" to join, would involve
over ten million people!
Who are the Victims of Pyramid Scemes?
Most pyramid schemes seem intent on exploiting people with limited
means and limited knowledge of business such as individuals who
have little experience in direct sales, distributorships, or franchise enterprises or who have limited money or credit with which to establish their own businesses.
They rely on widespread ignorance of basic mathematics. Participants are promised large rewards for putting up a certain amount of money and then recruiting the next level of members. But the schemes
always collapse because the supply of potential recruits quickly
runs out, making many participants both victims and perpetrators.
Many victims of these scams sell first to their friends. When
the supposed money-making opportunity goes belly up, most lose
not only their money —but also their friends. The Pentagono
promotions have apparently targeted deaf people in some states
while the main focus appears to be on senior citizens in others.
Why Would Anyone Pay to Join a Pyramid
They're sold to investors with the assurance that they are perfectly
legal, approved by the IRS or a CPA, and
that they are definitely "not" a pyramid scheme. Promoters
may even flaunt the fact that they are illegal and are therefore
secret and exclusive. This adds to the allure and mystery
of this larcenous, but seemingly harmless, act.
Pyramid promoters are masters of group psychology. At recruiting
meetings they create a frenzied, enthusiastic atmosphere where
group pressure and promises of easy money play upon people's greed
and fear of missing out on a good deal. It is difficult to resist
this kind of appeal unless you recognize that the scheme is rigged
When the expected wealth does not materialize, participants often
blame their own lack of recruiting skills for the failure, rather
than the original promoters who have benefited most, and almost
exclusively, from their deception.
The pyramid promoter is likely to persuade the investor that he
is "getting in early" and that he should consider himself
at the top of the matrix. Most participants don't envision
themselves anywhere near the bottom layer of the pyramid.
Even the greediest person on the planet would probably see that
if one is near the bottom layer it will be very hard to get new
recruits. They have to see themselves near the top in order to
envision the immense wealth, from minimal effort, that is going
to come their way.
The con artist at the top views each new investor as a predicable
set of revenues and expenses, with the revenues flowing directly
to him. He happily pays out commissions for the recruitment
efforts of others.
Investigators say pyramid schemes come in waves of three to six
years and rise during times of economic boom by playing upon the
greed and envy among those who are eager to participate in moneymaking ventures.
As the losers rarely advertise the truth of their folly, the myth
of their success resurfaces with each new outbreak.
Pyramids are deceptive and participants in a pyramid, whether
they mean to or not, are deceiving those they recruit. Few would
pay to join if the odds stacked against them were fully explained.
Because pyramid sales plans are by their very nature deceptive,
they are illegal. There is a real risk that a pyramid operation
will be closed down by police and the participants subject to fines
and possible arrest.
Since most MLMs are outright scams, please take a moment to sign the global anti-MLM petition here.
In Canada, the Competition Act explains the differences
between multi-level marketing and pyramid selling, and sets out
the responsibilities for operators and participants in these types
of plans. Multi-level marketing, when it operates within the limits
set by the Competition Act, is a legal business activity,
while pyramid selling is a multi-level marketing plan that incorporates various deceptive marketing practices, making it a criminal offence under the Competition Act.
When it comes to pyramid schemes it is
||pay money for the right to receive
compensation for recruiting new participants;
||require a participant to buy specific
products before he/she is allowed to join the plan;
||sell unreasonable quantities of
the product or products to participants (this practice is called
inventory loading); and
||refuse to allow participants to
return products on reasonable commercial terms.
People who break the law relating to multi-level marketing or
pyramid selling can be convicted and sentenced to a fine or a prison
term. Amendments to the Act passed in 1999 now allow the court
to impose a fine of up to $200,000 or a prison term of up to one
year, or both, for a less serious offence. For a more serious offence,
the court may set its own fine or a prison term of up to five years,
The Bureau conducts its investigations in private and keeps confidential
the identity of the source and the information provided. However,
if someone has important evidence about an offence under the Act,
that person may be asked to testify in court.
Sometimes, no clear line separates illegal pyramid schemes from
legitimate multilevel marketing programs. To differentiate
between the two regulators in the U.S. evaluate the marketing strategy
(e.g., emphasis on recruitment versus sales) and the percentage
of product sold compared with the percentage of commissions granted.
A business venture that meets all three
of these descriptions is an illegal pyramid:
- You must make an investment to get the right to recruit others
into the program...and
- When you recruit another person into the program, you receive
what the law calls "consideration." That usually means
money, but can be anything of value...and
- Your new recruits must make an investment to get the right
to recruit, and they receive "consideration" for getting
others to join.
An investment includes any money paid to enter the venture. Though
it may be called a "membership fee" or "bookkeeping
charge," the law still considers it to be an investment. And
an inventory of products you must buy to re-sell is also considered
to be an investment. Giving of your time or talents, or buying
demonstration samples at cost is not considered to be an investment
under the law.
Pyramid Scheme Situation in the U.K. involving Gifting
While Women Empowering Women does
not, according to Government lawyers, appear to contravene current
UK legislation on pyramid schemes or multi level marketing, because
it does not involve any trading of products or services, nor
have any form of company structure or control, this loophole
clearly defies the intent of these laws which simply failed to
anticipate such a format.
Until now, intensive efforts to find legislation that could stamp
out gifting clubs have failed because the schemes appear to sidestep
various financial regulations in a number of ways: new members
are required to sign statements stating that they are making an
unconditional gift to another woman, thereby avoiding the aspect
of investment which would bring them under the auspices of the
financial services authority; gifts are capped at £3,000,
the upper limit for inheritance tax-free gifts; and they escape
advertising standards authority censure by using only word of mouth
and leaflets passed between individuals.
Past cash pyramids have violated the rules due to their company
structure - although usually after the scheme originators have
scooped the cash leaving the victims to rue their gullibility.
The problem is that in this case there appears to be no one person
or company behind it which can be brought to task or investigated.
However, all schemes where money changes hands
may be subject to the general criminal law on fraud, theft, and
deceit. Anyone with evidence that such a criminal offence may
have been committed should report the matter to the police.
Estimates of numbers of women who have joined WEW run into the
tens of thousands, though pinning down the number is difficult
because WEW lies outside the financial regulatory environment,
with recruits found through informal networks of friends and families.
The ringleaders and ultimate benefactors though are few and represent
only tens out of the thousands.
Legally, these schemes are difficult to crack but
the Government is currently looking at how they are dealt with
internationally, particularly in the USA where they are more
common. They indicate that they are examining all avenues for
protecting the public.
There has just been a Review of Gambling and the Dept for Culture,
Media and Sport (DCMS) will be undertaking follow up work considering
whether WEW type "gifting" schemes could be regulated
under gambling legislation and existing lottery laws, if suitably
Just a Little for a Lot
Webco promotion flyers tell you that when you join, you will be
in position number three. You sign up ten new participants who
sign ten more who sign ten more, etc, until there are 1,000 participants
in your down line. The proposed theory is that the 1,000 participants
in your downline will send you a $10 non-repayable loan, a total
of $10,000, when you reach the number one position in the structure.
A Leg Up on the Others
International Metals and Trade Corporation operates a "Binary
Compensation Program" in which members pay to play. You pay
$288 to join, $200 of which is a down payment on future purchases
from the company's catalog.
"It's so easy. All you do is bring in two people who become
legs of your marketing cell. They bring in two more, who bring
in others and the larger your cell becomes, the more cash you receive
every month! You can't lose!"
"When 12 people have joined, you get $400. When 36 have
joined, you receive $800 and when 50 have joined, $1,175. You can
operate a total of eight business centers at one time, for a potential
monthly income of $18,528."
They falsely claim that: the Attorney General has approved this
program; the Better Business Bureau endorses it; and that a Harvard
University study has also endorsed such pyramid-type offers.
The Allure of Gold
For two years, American Gold Eagle offered a "Gold Matching
Program" to the public: participants placed a $200 down payment
on $800 worth of gold and paid the balance by receiving commissions
after recruiting new participants.
The original participant would pay the $200 and then recruit two
separate "investment groups" into the Gold Matching Program
(much like cells in hierarchical organizations, with the original
participant at the top and with two branches diverging from the
center, each branch containing three recruits). For every group
of three that joined the matching program, the original participant
received a $300 commission toward the purchase of the laid-away
After recruiting two groups (six individuals), the original participant
could take the gold but are encouraged to roll over the $600 credit
into a new recruitment arrangement that offered a higher ceiling
on future enrollment commissions.
After being issued cease and desist orders the corporation failed
amid problems with vendors which resulted in the end of gold deliveries
and a swelling of anger by representatives seeking to realize the
fruits of their recruiting efforts. The promoters moved on, leaving
over five hundred complaints unresolved with losses of $370,000.
Undaunted by past troubles, they soon offered people the opportunity
to participate in the new "Gold Earning Program" ("Gold
I"). Participants paid $200 toward a $400 gold coin then,
by recruiting new investors, earned commissions toward the cost
of the coin or payment in cash.
New charges found that Gold I emphasized recruitment of clients,
not sales of products, and thus constituted an illegal pyramid
scheme. They signed a settlement agreement with the state, agreeing
to pay restitution to Gold I's participants and submitting to a
permanent injunction against operating pyramid schemes and making
unrealistic earnings claims.
Not letting an injunction stand in the way, they launched a new
marketing plan, referred to imaginatively as "Gold II." Under
Gold II, participants could purchase gold
and jewelry from them and resell it, or they could join the "Binary
To differentiate it from the earlier plans, and to at least give
the impression of a legal MLM organization,
they added more product lines (supplementing Gold I's gold coins
with silver coins and gold jewelry), changed manuals, strengthened
refund policies, and supposedly attempted to emphasize product
sales over recruitment.
It appears recruitment was more rewarding though, for within just
three years 96,000 participants had paid $43,000,000 to join Gold II, which
had disbursed $25,000,000 in commissions. The product line produced
sales of 12,628 coins, with a gross profit from the coins of only
The district court sentenced the owner to 135 months in prison
and his wife to 121 months. Allowed to remain free until the sentence
started, they created the "Freedom I" program, disappeared,
and presumably are still at large.
Upper School Charm
The Oxford Savings Club has business addresses in Amsterdam and
Antigua, West Indies. Their promotional materials say that a loan
of from $25 to $2,500 to Oxford Savings will earn 10% interest
compounding monthly for ten years.
The promotional materials also provide that they have a "Profit
Sharing" plan where they will pay you 1% of the amount loaned
to them from your referrals down through five levels, every month.
"This is MLM at its best. Everyone
makes money, whether they recruit or not."
Buy Your Way to the Top
A group named Equinox operated a multi-level marketing company
which offered distributorships for products including water filters,
vitamins, nutritional supplements, and skin care products. Their
distributors ran classified ads in the "Help Wanted" sections
of newspapers which implied that a salaried position was being
When you responded to the career ad you were instead given a sales
presentation designed to recruit new distributors. They said you
could earn money by selling products or recruiting but emphasized
that the real way that distributors make money is through recruiting,
not through sales.
You were encouraged to purchase $5,000 worth of products so you
could enter the program at the manager level, to rent desk space
for $300 to $500 a month, to subscribe to a phone line so you could
begin recruiting others, and to attend seminars designed to train
you. The seminars cost between $300 and $1000 and stressed
that you could make substantial amounts of money.
A very small percentage of distributors who became participants
in the program actually made more money than they expended for
front-end expenses, and the vast majority of people quit the program
with little or no earnings.
While they purported to link compensation to retail sales, they
really didn't focus on the products. The structure and operation
of the program was geared such that financial gains were primarily
dependent upon the continued, successive recruitment of other participants,
and retail sales were supposedly not required to realize such financial
The deceptive earnings claims were false and misleading and violated
federal law. By furnishing you with promotional recruiting materials
that contained false and misleading information, including the
deceptive earnings claims, they supplied the means for you to break
the law as well.
Do It For Others
Assistance Network for Charities
The Vision -
create a path to financial independence for ourselves and worthy
TRUE $$$ INCOME MAKER $$$
funding your favorite cause or organization.
This pyramid scheme based in Arizona, promises that by joining,
members will donate to worthy charities and at the same time "earn" well
over $89,000 per month. Marketed primarily on the Internet, they
post invitations at Internet newsgroups for others to visit their
home page, e-mail or telephone requests for more information, and
to ask for more information through a fax-on-demand phone number.
In order to join, you pay an initial fee of $70 and $50 per month
thereafter. As a member you designate in excess of ten percent
of your "earnings" to charity. These "earnings" though,
are based solely on the number of people you recruit. There is
no product —only a monthly newsletter distributed by them.
Freedom to Lose
The organization GIFT- "Given in Freedom" claims to
be a humanitarian group of wealthy philanthropists who give away
large amounts of tax-free money in the name of God.
In return for sponsoring three people, a person is 'gifted' an
accumulation of tax-free money in an offshore trust account that
will generate as much as $20,000 in interest payments annually.
It is a pyramid scheme because participants are required to sponsor
three people, who in turn sponsor three people, etc..
The group does not request money up front. It does however ask
for a copy of your driver's license and another piece of documentation
such as a telephone or credit card bill. This information is then
forwarded to an address in the West Indies. They also have a toll-free
number to call for more information.
Police are concerned the fraud artists can use the information
from driver's licenses to manufacture phony passports and credit
cards. They can also use phone bills to charge calls and use credit
card statements to charge purchases.
Learning to Lose
International police have been monitoring the activities of a
company soliciting funds from investors through participation in
a five-series "financial educational program" which claims
to create wealth through education.
The multi-level marketing scheme, known as Investors International
(II), was "conceived" by a Dr. RUDOLF VAN LIN (whose
real name is believed to be Rudolf Alexander Victor LINSCHOTEN), the
Chairman of Investors International Publishing.
The scheme involves the purchasing of a five-part "education
service" array of cassettes, literature and videos on topics
including offshore technology, government and tax havens.
In order to be able to purchase the next series, participants
must first qualify with a sales quota. The quota is six sales in
each series, which must be made under the guidance of an approved
You pay approximately $1,250 US for what
is considered the first series or level. The first two levels consist
of video tapes and audio cassettes which provide information that
is considered nothing more than what could be obtained at a library.
Clients that reach level 3 are then invited to attend offshore
seminars where they are advised that they will learn about international
financial programs that are secret in nature and only available
to investors who are able to invest large amounts of monies such
as $5 million or $10 million. It is during these seminars that
the clients are informed of investment opportunities with Sabre
Asset Management Corporation which, certainly from its description, is
likely a "prime bank opportunity".
Levels 4 & 5 involve ten to fourteen day international seminars
which offer "certification as an international financier and
membership in the Society of International Financiers."
Investigation by authorities has established that IIP and SAMC have
held cruise seminars and offshore seminars soliciting investors.
One of the most current seminars was scheduled to be held in Fiji. Information
has also been received that they are currently establishing the
multi-level marketing of IIP within Australia
and soliciting investors into SAMC.
A review of this activity by the RCMP Economic
Crime Branch suggests it has many of the properties of an illegal
scheme pursuant to Section 55 of the Competition Act or possibly
Section 206(1) of the Criminal Code.
The Competition Act regulates multi level marketing plans and
specifically restricts involvement in a scheme of pyramid selling.
The Criminal Code section makes it unlawful for a person who participates
in a scheme involving the recruitment of other persons, to expect
more in return than what was initially invested.
Using a "Guide To Success" that made grossly inflated
earnings claims and saying that they possessed the "financial
clout of a major corporation" and a "4,000-plus dealer
network", the Five Star Auto Club lured people into a scheme
which promised the opportunity to "lease your dream vehicle
for free", regardless of the price of the vehicle, while earning
a huge monthly income.
In exchange for payment of a fee of $395 plus $100 per month,
you could become a "consultant" in a "VIP program" and
make "projected monthly commissions of between $180 and $80,000
per month by recruiting other $100-a-month members", who in
turn would recruit additional members themselves. When five others
had been recruited and these five people recruit an average of
three others apiece, the company promised to lease you a vehicle
valued at $15,000 for $100 monthly.
In reality, the auto leasing and roadside services were worth
only a fraction of the $395 memberships. You could neither lease
a "free" car, nor earn money from joining the scheme.
Some 7,000 individuals lost an estimated $5 million as a result
New Markets Are Developing
In Eastern Europe, the life and accident insurance industry has
seen the widespread organization of "pyramid sales" networks
(also known as the snowball system). These networks seek to take
advantage of naïve consumers and utilize the methods developed
in the late 1950s and 1960s by Bernie Cornfeld's notorious Investors
Overseas Services Inc (IOS).
In a typical operation, the aim is to turn all policy purchasers
into agents. The purchase of a policy, typically a 10- or 15-year
life policy, together with accident cover, is a requirement for
becoming an agent. The agent earns "points" for each
sale, depending upon the details of the policy, and commission
is calculated by points. Points are also earned for the recruitment
of new agents. Incentives, such as holidays and gifts typically
accompany increasing points totals.
In order to attempt to evade local insurance legislation, some
of these organizations have organized bus trips to foreign cities
for prospective clients, where they can be more easily pressured
to sign a policy. Postage of policy applications is another method.
The simple expedient of driving across a border with a trunk-load
of policies and foreign currency is also used.
Cancel My Other Cards
"Every one qualifies! Guaranteed Card Approval! You may never
again have to pay for anything you charge!
One group offered Visa cards to the credit-challenged "to
put you back in the mainstream of financial life in high style" at
an interest rate of only 4.9%.
How? Through the magic of using offshore banks in tax haven countries.
With just a $100 processing fee and $25 per month charge you can
earn fabulous commissions if you recruit others.
The All-in-None Card
One recent scheme is based on the development of a card called
the "World Netsafe ATM Card". On joining, at a cost of
$2389, you become a "first generation" member in relation
to your sponsor, who gets "20% of 20%" of your joining
fee. Along with the Card you are to get access to the methods and
techniques used by the leaders in business and personal development.
You are told that when people you sponsor use their Card at an
automatic teller machine, you will receive a percentage (paid in "teleminutes")
paid directly into your account and that you could earn income
from up to ten generations, or in excess of $230,000 per month.
They say these teleminute payments are loyalty payments earned
when you introduce someone else. Despite being unaware of
it, the Bank of South Louisiana was said to be issuing thousands
of Cirrus or Maestro cards for members of the scheme. Under an
injunction the promoters can no longer claim that:
||the card is of any assistance in
making telephone calls or that it records teleminutes;
||any record of any currency is kept
in relation to the card;
||any arrangement has been made with
any bank or other financial institution in relation to the
card or has any association with Visa, MasterCard, Maestro
or Cirrus cards;
||the card possesses any debit, credit
or ATM card facilities;
||it is possible for a member of
the scheme to earn money from their membership.
Plus Two Cars In Every Garage
The courts felt that the "F.I.R.E. - Family Internet Real
Estate" scheme and their "Matrix Marketing Plan" falsely
||that it purchases land, builds
new homes and purchases existing homes using its own investment
capital and at no time are purchasers' funds used to construct
||that on entering the scheme investors
have a legal contract on real property,
||investors can buy a second house
with a nominal deposit as low as $100,
||it can earn investors up to $156,000
in commissions in one year;
||every transaction is scrutinized
by the Australian Treasury;
||the homes that are built are designed
to be maintenance-free, so much so that the Queensland Government
Housing Commission is purchasing several this year for its
own tenant program.
Lie Down For This One
An Australian company called "Giraffe World" engaged
in an $18 million dollar pyramid scheme under the auspices of selling
a health-enhancing "Mat" or mattress. They claimed that
when connected to a source of electricity the Mat emitted negative
ions which would benefit the health of a person who slept on it.
Once introduced to the product you are shown the possibility of
becoming a member of the Giraffe Club and the Grow Rich System
through presentations at "Happiness Circle" meetings.
At the introductory "Happiness Circle" meeting you get
a "Giraffe World VIP tag" while the higher-ups present
have photo identification badges showing their rank. After the
doors are closed, the lights are dimmed and the stage area is illuminated. A
man and a woman run to the front of the stage from the back of
the room amid applause from the audience.
They show a video explaining how the business is based on the
following six elements which form a "circle of happiness": "Company,
Industry, Products, Systems, Training and You"
GW is described as: "an international organization utilizing
communications, information technology, satellite and multi-media
communication. With high-quality products manufactured using
high-technology and its international and professional image,
it has been recognized as an established organization."
They say they have developed a system which enables people to
achieve their ideal lifestyle and to become entrepreneurs by fostering
friendships so that "everyone involved will become richer
both spiritually and financially and thus produce more entrepreneurs
and successful people."
Here they stated that if you bought a Mat and joined the Giraffe
Club and the Grow Rich System, you could earn commissions by introducing
others, and yet further commissions if those people also joined
and introduced others.
"The Kingdom of Happiness from Giraffe World,
which gives you billions of dollars of business potential,
is inviting you to be an entrepreneur."
At the meetings the health benefits of the Mat are extolled in
on-stage "presentations" to prospective buyers who are
told that upon paying $2,900 for the Mat, $50 as a "membership
application fee" and $300 as a "membership fee",
you can become members of the GC.
A pre-condition of your membership in the GRS is that you attend
a "Business School" (often appropriately referred to
as "BS"), attend a two-day "Management Consultant
Class" and "pass an interview" which does no more
than ensure that you have friends or acquaintances you can invite
to Happiness Circle meetings.
There are eight classes of membership of the GRS. Giraffe Member
(GM), Giraffe Leader (GL), Giraffe Retail Assistant (GRA), Giraffe
Retail Manager (GRM), GRM 3 Star, GRM 5 Star, GRM 7 Star, GRM Super
The higher one's category of membership, the more "downline" agents
one has and the more indirect commissions one can earn. The commissions
earned are calculated according to a formula based on "Business
Volume" measured by dollar amount. Each successful introduction
has a Business Value of $2,500.
"Once you have reached GM level, you are already earning
15 to 25%. After you introduce three more people either yourself,
or through the members you have already introduced, then you
will be earning 19 to 33%."
"Introduce three more people and you move to the next
stage where you will become Giraffe Retail Assistant. Here the
percentages start to get exciting, because now you receive 41%
commission. Introduce three other GRA's, then you will become
a Giraffe Retail Manager where you can receive 51% commission.
And the best part about this level is that you get a national
income bonus level of 3%."
"Once you move to the GRM stage you can really start to
see the potential of the grow rich scheme, because here you will
start to earn between $30,000 to $70,000 a month. Our president
is earning $120,000 a month as a GRM 3 Star."
"Last month the company turned over $2 million and this
month it looks like it will turn over about $3 million. We have
almost 6,000 members and by this time next year we hope to have
50,000 members. When Giraffe World starts to bring in about $6
to $8 million a month, then you can see where the additional
3% bonus really kicks in for those at the GRM level."
"Unlike other direct selling companies Giraffe World focuses
on limiting the number of people directly below you to just three.
It wouldn't work without having a great product. And the negative
ion mat is a real innovation that will help you personally, which
you can then share with your friends."
After the meeting is over you go to a "VIP Lounge" where
a more senior member of the GRS promotes the benefits of the Mat
and membership in the GC and the GRS on a one-to-one basis. They
emphasize the strong desirability of deciding and signing on the
Out of 4,656 persons who joined, 3,238 had applied to join the
GC and the GRS on the same date. People who joined thought it was
a good business opportunity to earn money.
Giraffe World sought to portray their court case as a battleground
between conventional and alternative health care systems while
qualified experts questioned the mat's worth. A Dr Nicholls
denounced the Product Manual's numerous claims as having no foundation
in science, and, in many cases, as being simply nonsense.
"A body lying on the mat would be subjected to an electric
field with both direct and alternating components. There is no
magnetic field generated by the mattress. Similar electric fields,
generated by electrical appliances may be found in an electric
blanket, household wiring or an electric toaster."
A Slow and Painful Recovery
May 2000 - After a 4 1/2 year investigation International
Metals and Trade Corporation, president Neil
Phillips, and V.P. Robert Benzing pleaded
guilty to fraud and were ordered to return $2.9 million to the
3,936 people they scammed.
Philips was ordered to make full restitution, serve two years
in jail and 10 years probation and Benzing was ordered to pay $65,000
in restitution and serve three years on probation.
From between October 1994 and June 1996, over 29,000 people in Florida
joined IMTC which claimed to be a multi-level marketing company that
sold products from catalogs.
The criminal investigation however revealed that their computer
system and financial structure were designed from the beginning
to pay commissions on the number of business centers sold to distributors
and not on the amount of products sold. This factor identifies
it as a classic pyramid scheme.
The 3,936 victims will only recover about 19% of their initial investment
based on recovery efforts so far, unless Phillips is able to meet the
full restitution order in the future.
I took a survey a week ago and yesterday the "Professional
Savings Network" called and said I was receiving $50 in gas
coupons and a free vacation if I go pick them up.
It turned out to be a fairly impressive slide show that essentially
stated that for $2000 for the first year and $350 for every year
after we could get two weeks in a hotel or condo for just $49 a
week, in the off-peak time.
Also, you partake in a wholesale buying program and get $1000
dollars in coupons in almost any food product possible. I
think I have seen this on an infomercial but I'm not sure.
Zawojski, Frank -Professional Savings Network
Stearns, Brian - Network Direct
5320 College Boulevard,
Shawnee Mission, KS 66211,
913-451-0960 Fax: 913-451-2141
Phone #913-338-3072, URL www.psnonline.com .Reg:
We have until Monday to decide and I don't want to waste
money we don't really have. They say that they're in good
standing with the BBB but I haven't checked. And the only
thing I can find online is online scams!!
Benjamin E. Nelson 04/11/02
Her Nickel's Worth
My husband and I were victims of Professional Savings Network
and still have not received the almost $2,000 we feel they owe
us, not to mention the awful vacation that we took on our honeymoon
through them. The condominium was NOTHING like what they
We also ended up with a broken juicer and luggage that ripped
the very first time we used it (on our honeymoon). I called
seven times to get the 10 year warranty on the luggage as was promised
and UPS NEVER came to pick up my luggage for an exchange like the
CSR said would happen.
It was not until we threatened them that they credited our money
back and that was after they said that they did, when they didn't,
and that they were unable to credit it back to our bank card.
They seem to charge whatever a person is willing to give them. I
think if we had said it was still too much they would have lowered
it again. While they supposedly gave us a discount, since my husband
was a student, at $1,995 it still looks like they still charged
us the top rate and we then had to pay $98 to get it started.
We picked up a BINGO card in a grocery store which said that
we won a vacation or money and that is how they reeled us in back
in Oct '99 then went out of business in December.
We were told that we could cancel or that if we did not want their
service for one year they would waive the $98 annual fee but it
turns out it is non-cancelable and you can NEVER leave!
For every year that we were a member they added $98 to financing
which we had initially with PCS Financial and then with Fair Financial
who knew what was going but still charged around $65 per month
with an 18% interest rate.
They appear to still be in business under the name of Global Connections,
Inc. using the same mailing address but different phone number. We
also received an e-mail from PSN for the Diamond Savings Network,
which also have a website.
Check out the KansasCity.bbb.org report.
There is still a Professional Savings Network website likely deceiving
others into thinking that they are getting a great deal when in
fact they are wasting their hard earned money.
As far as I have experienced... THEY ARE A SCAM and I would NEVER
waste that much money for a stupid savings network when it is cheaper
to buy retail! They LIED about getting it 3% above wholesale. The
products were either the same price as in retail stores, more expensive
or literally 5 cents less!!!! Now how ridiculous is that!?
You may also want to check out this website: http://freecorp.com/prod.html
which promoted foreign and domestic estate planning, asset protection,
and tax analysis; access to business telecommunications; and access
to the Professional Savings Network.
Eileen Carroll 06/30/02
09/00 AUSTIN - A final judgment and permanent
injunction was granted against Asif Shamsi, the
owner of the Professional Savings Network of Texas, Inc.
requiring them to pay $43,000 in attorney fees and restitution
The suit alleged that PSN misrepresented the true nature of any
discounts the consumer would receive on retail items such as furniture
and electronics by being a member of PSN's buyer's club. After
consumers purchased the membership and attempted to use it, they
learned that representations during the initial solicitation were
false, and that the savings, if any, were far less than represented
and were obtainable at local retail stores at the same or lower
prices than offered at PSN.
The State's investigation revealed that PSN actually purchased
some electronic equipment ordered by consumers at local retail
stores such as Best Buy and Circuit City--instead of purchasing
the products directly from the manufacturer as represented to consumers.
PSN also engaged in deceptive advertising by distributing "scratch
off lotto cards" showing that consumers had won a valuable "prize" if
they called in. Once they were on the phone, a PSN representative
then told them to come to the store for a brief tour in order to
redeem their prize. The brief tour was, in fact, a lengthy sales
presentation focusing upon memberships in the buyer's club for
$800 to $1,695. The actual prize awarded was always a "vacation
certificate" of little or no value.
The formerly Houston-based company which went out of business
in December of 1999 was sued for violations of the Texas Contest
and Gift Giveaway Act, the Texas Deceptive Trade Practices Act
and other consumer protection statutes.
Pyramid Exposure "Summed Up" as Death Threats
My daughter and her friend were involved in what we perceived
to be a pyramid scam called The Sum-it Club located in Woodbridge,
Ontario, Canada. They both laid down $300.00 one evening
with a promise to come back the next day to authorize them to withdraw
$120.00 a month for the next 2 years.
The whole focus of the evening was to recruit other people and
then get paid $400.00 for each recruitment. After several phone
calls asking for a refund of her deposit we were told she was out
of luck as she had signed a non-refundable deposit form.
The man who was also their "in-house lawyer" told us
basically too bad and I am going to enjoy spending your daughters'
money. I called them several times and informed them that
I would be calling newspapers, radio stations, their sponsors and
would show up at their next meeting to tell these kids not to sign. I
planned to at least expose them for the scam that they were.
Low and behold, I get a call from the police and I am arrested
for saying that I was going to kill them. So with two signatures
(the lawyers and a women I spoke with), I went from being the accuser
to being the one accused. Can you think of anything to help
Marian S., Oakville, Ontario 09/27/02
Petition to Protect Consumers from the Legalization of Product-Base
Pyramid Scheme Marketers
Take Action Now!
Call or write to your elected
officials and urge them to reject the current
effort of the Direct Selling Association to enact its industry-sponsored
legislation that would serve to legalize all product-based
Points to make in your statement:
bills that are sponsored by the DSA both at the state
and federal level create loopholes and exclusions that
allow harmful, predatory, and deceptive marketing practices.
clever and misleading wording of the bill gives the appearance
of consumer protection, but in fact achieves the opposite.
effect of the bills is to permit marketing practices that
are currently prosecuted as pyramid fraud by state and
federal authorities. Effectively, this proposed law would
enable pyramid fraud to operate with the cloak of legitimacy.
or write to your State's Attorney
General to express your concern about
the DSA-sponsored pyramid scheme legislation. Ask them to issue
a statement about it.
or write to the Federal
Trade Commission to express your concern
about the DSA-sponsored pyramid scheme legislation.
let Pyramid Scheme Alert know who you're contacting, and what
their response is. You can email them copies of correspondence
at "petitions at pyramidschemealert.org." (Take
out the spaces and put in the appropriate symbols instead of
the words. They're trying to cut down on spam.)