Local Pyramid Club Schemes and
Cash Gifting Club Scams
You will likely first get involved in a local pyramid club when
a friend, neighbor, or coworker invites you to attend an "opportunity
meeting" to learn how to earn lots of money. At the meeting,
you sit through a well-rehearsed presentation that downplays the
traditional methods of acquiring money and will offer instead an
exciting shortcut to wealth, fame and adventure.
To join, you must pay some type of initial investment to the scheme's
promoter, which gives you the right to recruit others into the
privileged club or process.
It is typical of locally-based pyramid schemes to target closely
knit groups, like churches or civic groups, and to encourage participants
to recruit friends, family members, neighbors, business associates,
workmates and relatives via word-of-mouth.
The mechanics and pitfalls of pyramid schemes is covered in greater
detail in the Pyramid Schemes section.
This section was separated to show you the distinct method of contact
and the role that friends and associates have in causing you to
lose money, however unintentionally.
Join the Gifting Club
To create an aura of respectability or benevolence they may be
called "investment clubs" or "gifting clubs" and
have attractive names such as "The Friendship Investment Club",
"Freedom Club", "A Gift Network",
"Season of Sharing" , "The Spirit of Giving",
"Northwest Family Reunion" or "Creating a New Paradigm".
When soliciting people to join "Co-Opportunities International",
promoters of the scheme commonly described it as a "social"
or "gift" club where participants could exchange their talents and ideas with each other.
To become one of the eight members, a new recruit was required
to make a "gift" of $2000, in cash, to the "resource
chair". Once the resource chair received the $16,000 in gifts,
he was to leave that position and the pyramid was divided into
two separate pyramids, with each participant moving up into the
next level.
One popular pyramid theme is the "airplane game" in
which new recruits buy in as passengers for $100 and are then told
that if they bring in new investors they will be able to move up
to flight crew, co-pilot and finally pilot. At that point they
will receive $1,000 or more.
Or they may up the ante and have you pay $1,500 to be a "passenger".
Others are to pay also, and once the plane is full, each passenger
can become a "pilot" and start recruiting others, with
the promise of making $12,000.
One women's "wisdom circle" uses lofty terminology and
positions involving the sun, moon, sky and stars.
Investigators said recent scams, called "Pit Stop",
"NASCAR", "Men's Club" or "Money Exchange,"
attracted 4,000 participants and targeted men by using auto-racing jargon. Participants were asked to put up a $2,000 contribution to become members of a "pit
crew." They were promised $16,000 as a "lead driver" after
recruiting new participants who contribute money.
Officials received reports that those who participated could earn
$50,000 to $75,000 and also heard that one top-level participant
made $300,000 in three weeks. Some found the money to join Pit
Stop by taking out a second home mortgage, and one woman who contacted
a local radio station said she had been prepared to hock her wedding
ring. Like most pyramid schemes, few people advanced to the payoff.
Most just got taken for a a ride!
Working their way through different parts of the local community,
Pit Stop recruited participants involved in construction, such
as contractors, subcontractors and paint and hardware store employees.
One version with agricultural terminology was geared to farmers
while Dinner Party attracted middle-class to wealthy women involved
in the real-estate industry, such as sales agents and mortgage
brokers.
Modeled on the success of home party sales, a series of "ladies
only" pyramid schemes, which are known by the names "Circle
of Friends," "Women Helping Women", the "Gifting
Club", "Heart to Heart", "Gifts for Charity",
"Renewal Celebration", "Women Empowering Women," "Women's
Empowerment Network", "Women for Women," and the "Dinner
Party," are represented as a gathering of women helping one
another by "gifting" money through a tiered structure.
Recruiting material for some of the groups talks about a goddess
and sisterhood and offer an interstate conference-call system to
keep members in touch.
The system appears to be active in several circles and professions
ranging from realtors, hairdressers, professors at universities
to employees of school boards, courthouses and numerous businesses.
A lot of professionals as well as middle-and upper-class people
are involved, people one would assume to be smarter than that.
Even several male and female police officers in Auburn, Maine,
were suspended or forced to resign after spending $2,000 to join
the local "Changing Lives" pyramid scheme.
Dinner Clubs Pyramid Schemes
Dinner clubs use such euphemisms as "appetizer" and "entree" for levels of participation.
The pyramids which are misnamed as circles operate like this:
The organizers portray the program as a progressive dinner party
or birthday party. Eight people begin on the bottom rung as "appetizers" who contribute $5,000 each at a birthday party for the top person,
or the dessert.
Between those levels are four soup-and-salad people and two entree
people. Once the dessert person birthdays, or gets their $40,000,
everyone moves up a notch: the entrees become desserts and split
into two other tables, and eight more appetizers are needed for
both tables.
Statistics show that only 10 percent of people who put up the
money ever get a return. Once the pyramid reaches a certain stage,
there are always too many people to be paid off, and the pyramid
collapses. The key to the downfall of such schemes is that it eventually
and inevitably requires about eight times more participants who
put money in than actually receive it.
As if having a history provided respectability, they state that
the plan originated 11 years ago in Toronto, Canada by a group
of women to create money for charity. The concept was apparently
so successful that the women realized they could use it to help
each other. From Canada, the plan moved to Washington, then to
Texas and beyond. It is now spreading across Great Britain faster
than hoof in mouth disease.
Federal, state and local government officials say that not only
are the various gifting circles illegal pyramid schemes, but as
many as 90 percent of the overall members won't ever get "dessert",
the top level in which participants can receive thousands of dollars
beyond their initial investment.
Successful participants adamantly disagree.
Dismissing the possibility of personal gain on a large scale,
participants insist that they give their $5,000 as gifts to offer
psychological, spiritual and financial support and empowerment
to other women. The schemes also purport to help charitable causes
and women who are trying to escape an abusive husband or who have
children with medical needs.
They say they have no expectation of one day being at the top,
where they might be fortunate enough to have a "birthday" and
receive their $40,000 dessert.
This is the reason the gifting circle is not a pyramid, they say.
The group is about love and growth, the $40,000 payoff is incidental.
So whenever police issue an advisory stating the criminal aspect
of the clubs and the potential of financial loss they are inundated
with calls from residents insisting, often abusively, that they
are participating in gifting clubs and not pyramid schemes, which
are illegal.
"I believe in it and I am not going to stop doing it," one
lady said. "So there, arrest me."
They're very convincing that this is just women helping women
and it's nobody's business but theirs. They make it a very wholesome,
good thing when in fact they're simply taking other people's money.
continue QuickTour
Silencing Detractors of Gifting Clubs
Once participants have a vested non-returnable monetary interest
in the program they are quite unreceptive to negative suggestions
which might jeopardize their capital.
Early winners insist that detractors are simply jealous. Never
having seen anyone lose money (prior to the scheme’s collapse)
is their self-assurance that no one ever will.
Placing emphasis on their rights to give away money, after recouping
eight times the initial payment, they minimize the collection aspect
through continuous recruitment.
"In the beginning, it feels like it's the money," said
one promoter. "It's exciting to feel like you have a chance.
But down the road, the real gift is the networking women have with
one another and the things they learn along the journey. There's
nothing wrong with women supporting each other this way."
One individual who said she lost $5,000 in the scheme is angry
that the group is using the public's distrust of government and
the media to continue, while another, still clinging to the party
line, said that she gave $1,800 to help other people and that she
does not care if she gets anything in return.
"It's a cyclical thing. Women understand cycles. It must
be a natural process, as in life," she said.
She said she believes the plan is not illegal because women cycle
off the top and are done once they receive their payoff. She also
believes that in an illegal scheme, a person remains at the top
and continues to receive money from everyone who joins.
Such misconceptions and rebellious rhetoric are planted as seeds
of self-justification at the informational meetings.
Mathematical logic dictates that these pyramids always collapse
because their growth is not sustainable. You run out of people
to ask in. There are a few people at the top making vast fortunes
out of those at the bottom. If you are at the bottom, you will
lose your money. If you cannot afford to lose both the money and
the friends you recruit, don't take part.
Promoters suggest that while mathematics shows that it cannot
last long, these calculations do not allow for women buying back
into the system (most of whom do). They feel that WEW is a cyclic
process, like extended families who support newlyweds or struggling
mothers and that if a program fails, those with the duty of care
will, in most cases, reimburse those who have fallen short. Beneficiaries
though are generally unwilling to be interviewed or photographed.
Women Empowering Women Gifting Clubs
Women Empowering Women claims to be "basically a support
group for women whose main goal is the empowerment of women by
providing for them the financial and emotional abilities to support
themselves, their loved ones and their community."
Realistically, the same motto could apply to a streetwalkers’ union.
And support for your community could simply mean you are going
to pay higher taxes or make a $10 donation to the local food bank.
"By creating a positive network, we facilitate a safe place
to help eradicate the poverty and isolation that many women suffer.
This provides a place for companionship that helps women to overcome
shyness and fears that they do not have the ability to generate
money."
As the principle means of group contact is by phoning from your
home we have to conclude that that is fairly safe, but with a $5000
entry fee you have to wonder about the poverty aspect. Most participants
to-date have been outgoing and sociable individuals, able to influence
the participation of friends or acquaintances to participate.
A noble cause indeed until you examine the means by which this
is done. Once the meaningless platitudes are evaluated under the
strong light of reason one comes to the inevitable conclusion that
this process is nothing more than a dressed-up pyramid scheme.
For what is empowerment here but the ability to make money from
others who you convince to join your money-making scheme.
And make no mistake about the basic underlying concept. Eight
people each pay out $5000 to one person in order to join. Then
the group splits in half and eight new people pay one person to
join one breakaway group and eight others do the same for the other
top dog. Supposedly forever.
Although the number crunching somehow instantly gets confusing,
you must remember that for the process to continue the number of
new recruits must DOUBLE each time the people at the top get paid.
Mathematics aside, let’s get back to some of their pronouncements.
According to the literature provided by the organizers "it
is the belief that there is plenty for everyone." Stressing
togetherness, the only pronouns used in their literature are "us" and "we".
"We are not only able to enjoy the rewards for our own
personal benefit, but for the entire group and those who we will
be inviting to join us and share in the Gifting Circle."
When you first come into the group you join the top line of eight
heart shaped spaces wherein you place your name and phone number.
When the eight hearts are filled you each pay the Receiver $5000.
As the process will not be newly formed you will have four people
above you and two above them, even though the triangular chart
is inverted and called a circle to mask the obvious.
Then the structure breaks in half and becomes two groups whereby
the top individual gets money from eight new participants. Then
the upside-down pyramid splits again with you progressing one step
higher after each payout split.
As new "Gifters" you can "experience trust balanced
with action." "By giving an unconditional gift, you become
open to receive unconditionally." Sort of like God’s
love.
"Trust the system and remember this "feminine process" works
best through sharing with others this opportunity."
Without an endless stream of participants it doesn’t work
at all.
"Men cannot be involved."
Seeking to create an exclusively female operation that can quickly
dismiss male detractors as lacking the global wisdom and understanding
of such things female, they neglect to acknowledge the numerous
male-oriented schemes like Pit Stop and the Airplane Crew which
are identical in form, but lack the fantasy.
Instead of just saying they get together and enthusiastically
talk about how much money they are making from the process, in
a bid to lure in others, they mask it as "creating new ways
of providing emotional support and financial gain in all of our
lives".
"We support the circle by sharing the experiences of the
gift of support, the gift of sharing, of feeling valued and appreciated
and celebrating with each other as each of our group receives
their gifts."
When you join up you go to meetings three times a week and everyone
is handing over cash. It turns your head seeing all that money
and they make sure all the new recruits see it being counted at
the end of the night.
Participants recruit only family, friends and colleagues, and
keep in contact through weekly meetings or conference phone calls
to see if you have got your new recruits yet, creating a club-like
feel. Soon they are acting like cult members and the more cautious
cannot reason with them.
I know I would certainly appreciate your giving me your money
as a gift and I am sure it must be quite a party atmosphere when
a woman wallows in her $40,000 windfall.
The second level tier is the Supporter Position where you "assist
in the continual expansion of the circle with a combination of
trust and gratitude, balanced with a willingness to encourage each
other."
Talk it up and get out promoting it to new entrants or you won’t
make it to the top.
"We are literally creating a new economic experience. The
old belief of having to work hard for anything worthwhile in
life is now changing and shifting with this process."
Nothing much new about getting ripped-off but as I never liked
the concept of working hard for something worthwhile, they’ve
got my vote there.
Once in the third tier Apprentice Position you learn that "while
our culture has taught us that it is more blessed to give than
to receive; without people to receive the giving is not complete."
I knew I should have paid more attention in bible study class.
Keep promoting girls, you can’t move up a tier until eight
new people join at the bottom, crack a cheque, and a new "circle" is
formed.
"This is a circular process; no one holds any position
that will reap more rewards than anyone else above or below her."
This somewhat conflicting statement is belied by the fact that
the never-ending circle of plenty has only one top level Receiver
Position, which out of fifteen players is cryptically called the
end and the beginning of the circle. "Now that "we" have
received, "we" are once again in a position to give and
the cycle continues."
In other words, hey, I just got eight times what I put in, so
sure, why not start again. After all, I am way ahead of the game
and the momentum is still strong for new recruits clamoring to
get in.
One participant acknowledged that many women do use some of their
profits to start again at the bottom level but declined to say
how many times she has gone through the system.
Charity and Goodwill in Gifting Clubs
"When a woman is financially gifted, she then completes
the circle by gifting back other women who are in need, or by
aiding a charity of her choice."
That just about covers the altruistic bases. Do what you think
best with the money you took unconditionally from the others. How
wonderful that because you can make a donation with a portion of
your booty, participants can portray it is a charitable organization.
Of course what you do with your winnings are your business now,
but to truly fulfill the imagined mandate of the operation "we
should share these gifts with our families, our communities, other
women we may well know and those we may never actually meet in
person."
I don’t think they mean for you to actually share the money,
for they stress that you should really be sharing the "opportunity" to
belong to the circle and all the joy and happiness it brings when
you provide your own money for gifting.
And that person you may never meet; it’s likely an earlier
winner who has rejoined several circles with other victim’s
money, hoping to multiply their take eightfold, on a continuous
basis.
"You should remember you are not just doing this to make
money, but to help and encourage others. This is the only way
that women can become truly empowered financially and emotionally."
Telephone contact among circle members is maintained through weekly
conference calls. "Without them we risk losing our sense of
purpose and motivation to talk to others enthusiastically about
what we are doing." "No one is left alone without support."
"There will be no soliciting using the internet to source
new people. We only share our process with our friends, families
and acquaintances, in order that we can know and support each
participant fully within the framework of WEW."
Avoiding law enforcement aside, the influence one person has on
another is greatly enhanced when there is a personal or business
relationship involved. Anyone whose friend has invited them to
a home party certainly knows the pressure felt to buy at least
one item so as not to hurt your relationship.
Peer pressure of this sort is a key factor in recruitment. Asking
questions seems rude and unfriendly. Your name will be penciled
into the chart, holding your position as the excitement builds,
provided you can make the payment before the eight entry level
positions are filled.
Wishes become facts. Skeptics become idiots for not getting on
board. Desires become reality.
"We will not hold any organized public meetings."
This is generally meant to mean not advertised other than by word
of mouth. In fact, promotional informational meetings are key to
achieving mass hysteria and widespread acceptance within a short
period of time. Often, once the ball is rolling strongly, key organizers
must allow for the exchange of cash at these meetings just to take
advantage of pent-up demand.
At one party last fall, the Washington AG office alleges 1,800
people attended and as much as $2.1 million was put into the plan.
Women often use only their first names during the meetings.
"Women are invited to join unconditionally. They are not
required to bring anyone else into the group..."
Goodness, then how can the cycle continue if you can’t convince
others to join. Sounds like we have an unempowered, shy freeloader.
"... but are simply asked to gift another woman on becoming
receiver or make a donation to a charity of their own choice."
So get promoting or give up $5,000 out of your take. That it might
go to charity only adds to the aura of respectability and goodwill.
Give So That More Can Lose
If someone involved with WEW wishes to lend the initiation fee
to a new Gifter, conditional upon it being paid back once they,
in turn, become a Receiver, they may do so.
Clearly, far from being part of their altruistic aim of supporting
women in financial need, this loan is almost certainly restricted
to women in a position to influence others to join or is given
by relatives, friends or cohorts higher up the food chain seeking
to swell the ranks of gifters to the magic figure of eight whereby
at least a now seven to one payout is made, if the donator is at
the receiver position.
Lax About the Tax on Gifting Club Earnings
They profess that: "Although gifting someone is completely
legal ( it has been checked by Lawyers and Accountants ) it is
best not to draw attention to your bank account from the tax department."
Certainly that should be the final word then if they say it’s
okay. And as for tax evasion, surely that is every citizens right
and larcenous duty.
They talk about how legal it is, but spend about 20 minutes talking
about how to avoid the Internal Revenue Service.
People are often of the belief that because the money was a "gift" and
is under $10,000, they do not have to pay income tax on it. They
even suggest that although they get $40,000, it's really eight
gifts of $5,000.
The IRS will not consider money made in this way as a gift so
it is reportable.
Legal Loopholes for Gifting Club Activities
Professing to have loopholes, official documents and personal
endorsements from both law enforcement and government officials,
promoters explain that laws against pyramid schemes allow for gifting
clubs.
The people running the meetings swear up and down that they have
sought legal counsel and that the clubs are legal. They often claim
that they have recently been declared legal or approved by the
attorney general’s office which has retracted its earlier
warnings.
"The attorney general was contacted, and he said it was fine."
The Office of the Attorney General, regardless of state, does
not provide a stamp of approval to any type of business or plan,
nor provide opinions stating these groups are acting within the
law.
In the meetings, when they explain it to you, they say a pyramid
scheme has to be selling something. This however is exactly contrary
to what most pyramid laws reflect.
"An illegal pyramid promotion is a plan by which a person
gives consideration (usually money) for the opportunity to receive
money that is derived primarily from a person's introduction of
other persons to participate in the plan rather than from the sale
of a product by the person who is introduced into the operation."
Violators of the law in most states face jail time and possible
civil penalties. The punishment for this type of felony is up to
two years in prison and a fine of up to $10,000.
More on the laws regarding Pyramid Schemes.
While police are more likely to focus their investigation on people
at the top of scheme, once you give somebody your $5,000, you have
yourself just committed a felony.
Two women were arrested in Princeton, Texas after
they took part in one women-only gifting scheme. Both were charged
with a felony count of promoting an illegal pyramid scheme; this
because of a complaint when the one refused to return a $5,000
investment she made to the other.
Fears that the schemes make the women involved vulnerable to robbery
were realized when two armed men stole up to £60,000 from
15 Irish housewives in the affluent Dublin suburb of Blackrock.
The men forced their way into a house where a pyramid meeting,
where members bring along their investments in cash, was taking
place.
The attorney general of Missouri issued a temporary
restraining order against five women and one man for their involvement
in a "gifting" organization for women.
One lawsuit sought to stop the defendants from operating pyramid
schemes, pay restitution to those who lost money, pay civil penalties
of up $2,000 per violation and reimburse the state for legal fees.
The attorney general of Massachusetts devotes
an entire section of the office's Web site to explaining the pitfalls
of the appetizer-to-dessert club.
New Mexico has won civil suits against those
running gifting circles there. The Attorney General's Office pursuit
of criminal indictments resulted in one felony plea. The pyramids
were so prevalent--the most popular being an appetizer-to-$40,000-dessert
setup--that the state set up a restitution program and a way that
participants could avoid prosecution by paying back the money they'd
accepted.
Wisconsin also has an amnesty program that will
protect participants who come forward and pay back the money they
received in what they refer to as illegal lotteries in the form
of "get-rich-quick" pyramid schemes.
In 1999, Montana's Legislature passed a law specifically
forbidding gifting circles.
Despite the threat of criminal charges many women find it hard
to believe the clubs are illegal even after reading consumer alerts
issued by the Federal Trade Commission.
Just because members say they consider their payments a gift and
expect nothing in return doesn't make it so. When they enter a
plan with a payoff at the top, that constitutes an expectation
of a return. "This is an attempt to make an illegal transaction
look legal," the alert states.
Neither providing money to needy recipients, nor disclosing the
potential risk of losing one's money, nor `gifting' the money to
avoid tax consequences makes the conduct legal.
Gifting Club Scams
Organizing for Legalization of Gifting Clubs
Noting that bingo and horse racing used to be illegal, promoters,
who hope to eventually circumvent pyramid laws, have drafted a
proposal that would add a subsection to the law that would read: "A
plan or operation is not a pyramid promotional scheme if each participant
in the plan or operation has signed a document stating that all
the money the participant contributes into the plan or operation
is a gift and that the participant has not been promised any compensation
in return for the contribution."
One industrious paralegal advisor who gives opinions on the legality
of the schemes to groups being investigated by authorities, bases
his argument on the idea that money given in the clubs is a gift
and that nothing is promised or expected in return.
He even gives women at his seminars, which are sponsored by the
pyramid’s key players, an affidavit to give to participants
stating such. He feels this gives ample grounds for defense and
a counterclaim against anyone who demands a return of any nature
for their having given away their property as a gift.
"It's by courtesy alone that they move up that board," he
says.
"Nobody who states that their contribution is a gift has
any legal claim against the recipient of the gift. Anyone who
claims that they have a right to compensation for their gift
is either claiming falsely that they made an investment and not
a gift, or that they committed fraud by telling the recipient
that the contribution was a gift when indeed the party making
the gift intended it as an investment. In addition, reasserting
rights to a gift constitutes a breech of an implied contract
to not reassert such rights."
This is contrary to the reassurance given some people who are
told they can get their money back at any time. Key organizers
often tell people operating groups to deal only in cash because
they would have no recourse if a check bounced.
He feels that gifting clubs across the country have been wrongfully
harassed, libeled, and raided by the media and law enforcement,
resulting in serious criminal charges being brought against gifting
club organizers and participants.
His views on how the government continues to mis-enforce the law
has resulted in a restraining order wherein he has been prohibited
from expressing his opinion about the legality of gifting programs.
Some women at these advisory meetings are surprised to learn that
the clubs are illegal because they had been assured that they were
legal.
"I never would have signed something like that," one
victim said, adding that she realized too late that eventually
enough people would not participate and someone at the bottom of
the pyramid would lose money, never imagining from all the hype
that it would be her.
If, prior to joining this game of musical chairs, participants
realized nine players were dancing around one chair, they might
not let wishful thinking take over where critical thinking should
step in.
Hope Springs Eternal with Gifting Club Participants
New pyramid schemes are springing up across Britain on the coattails
of Women Empowering Women (WEW), despite universal condemnation
from the government and industry bodies.
Trading Standards officers in Ipswich and York are reporting an
increase in queries about Matchboard, a scheme which promises to
turn £1,000 into £8,000. The new Matchboard scheme
has four levels and is based on chess terminology. Members enter
as one of eight pawns before moving up to knight, castle and finally
king. The king takes the cash, the board splits and the cycle,
hopefully, starts again.
The Community Investment Club, started after the WEW collapse
on the Isle of Wight promises to turn £100 into £88,300
but fails to mention that one £88,300 winner requires 882
losers. This "club" is open to both sexes but seems,
incredibly, to be made up of people who lost out in the earlier
program.
Officially OK
In 1995-96, at least 67 employees of the Sacramento Police Department,
including 45 officers, were investigated for their alleged involvement
in a pyramid scheme.
It was hyped by a police officer as being legal because it required
people to sign a waiver claiming that they were making an unconditional
gift, but since the people who were signing the waiver expected
to get back money for the money they were allegedly making a gift
of, the money wasn't really a gift.
A Slap on the Wrist
Close to two years after being indicted on one count each of violating
Oklahoma's Pyramid Promotional Act and one count of conspiracy,
five Oklahomans accused of operating an illegal pyramid scheme
were given sentences which ranged from a five-year deferred sentence,
$2,000 fine and court costs, to a two-year deferred sentence, $500
fine and court costs.
The scam, called Friends Helping Friends, operated by recruiting
eight "volunteers" to form the bottom tier of a four-tier
pyramid. Each volunteer was required to pay $2,000 cash in hundred
dollar bills to a "chief executive officer" in order
to become part of a board.
The boards would then split into two new boards which would recruit
eight new volunteers. Each time the board split and "rolled," volunteers
would ascend to become vice presidents, presidents and ultimately
chief executive officers. When the chief executive officers rotated
off the boards, each would receive $16,000 in cash.
The state alleged that Friends Helping Friends meetings were held
in local homes during a four month period during which many citizens
borrowed money and even mortgaged property to participate. Those
charged had all completed a rotation on a board and collected their
$16,000, but others lost money.
"Friends Cheating Friends would have been a more accurate
name for this scheme." said Attorney General Drew Edmondson.
A Smack Upside the Head
The State of New Jersey is suing four corporations
and their agents for allegedly enticing trusting consumers into
paying thousands of dollars to join one of several "gifting
clubs," which are nothing more than unlawful pyramid schemes.
The State's suit accuses the defendants of defrauding consumers
out of hundreds of thousands of dollars after inviting them to
purchase membership positions in their "gifting clubs." The
complaint also asserts that the defendants violated the State's
Uniform Securities Law by offering or selling investment contracts,
such as the gifting clubs, without lawfully registering them with
the Consumer Affairs Bureau of Securities.
Represented as investment opportunities, consumers were told that
as members of the gifting clubs they were virtually guaranteed
returns eight times greater than their initial average investments
of $2,000.
The promoters referred to the pyramids as "boards," "ships," or "gifting ships" whereby four-tier pyramids consisted of fifteen membership
positions: eight entry-level positions ("stars"), four
second-level positions ("all-stars"), two third-level
positions ("superstars"), and one top-level position
("the team captain").
The games were promoted through various media, including a toll-free
hotline number and an Internet website.
To make money, members would have to recruit new entrants into
the scheme and get them to also contribute the $2,000. Once the
eight entry-level positions on the pyramid were filled, the top-level
player or "team captain" would graduate off the board,
which would split, creating two new boards or ships. The players
would advance up one level, creating sixteen new entry-level positions
to be filled.
In this pyramid scheme, once all entry-level positions were filled,
the "team captain," would leave the pyramid after collecting
the $16,000 paid by the eight new members and paying a required
$500 participation fee paid to the organizer. That, supposedly
meant that each successful team captain would leave the pyramid
with $15,500 a $13,500 profit or nearly 700 percent over the original
$2,000 investment.
At one point twenty-five team captains graduated off their boards,
collecting nearly $400,000, and resulting in income of $12,500
to the promoter.
However, according to the State's expert, to remain afloat, the
clubs must continually double in size. The team captain must bring
in two new recruits, who then need four new recruits, then eight.
After the first split, 16 new players are needed, then 32 (after
the second split) then 64, then 128 and so on. Without luring additional
members into the scheme, those in the bottom rungs could not profit
or move up higher in the pyramid.
For example, in only eight rounds of so-called "giftings" and "boards" splitting,
the number of new recruits would have to reach approximately 1,024
to provide the funds necessary for each preceding member to obtain
$16,000. But after just 18 rounds, the number of new recruits required
would be more than one million, and after 28 rounds, the number
of new recruits needed would be more than one billion.
In terms of money, that equates to $2 trillion in new money required
to allow the pyramid to thrive. The State alleges that this mathematical
impossibility, and the defendants failure to disclose it, lies
at the heart of the pyramid-scheme fraud.
The state is seeking, among other things, temporary and permanent
restraints against the defendants; the appointment of a receiver;
an order freezing their assets and directing the defendants to
refund affected consumers at their own expense; and monetary penalties
assessed for violations of the Consumer Fraud Act and of Uniform
Securities Law.
Canadian Crackdown on Gifting Clubs
A Barrie, Ontario woman who held recruitment
meetings targeting women across Ontario was charged with both money
laundering and running a pyramid scheme after a police investigation,
which involved infiltrating at least one of the meetings, determined
her to be a ringleader.
In addition to being ordered to forfeit two vehicles and $50,000
she was ordered to donate $5,000 to charity and do 100 hours of
community service.
Police were able to trace $262,000 in spending over a one year
span, presumably gained from the numerous times she was at the
top position of the scheme which required a $5,000 initiation "gift" from
participants.
The We'll Show You State
The Missouri Attorney General's office (consumer
protection division) handed out several subpoenas to people who
had promoted the pyramid scheme there.
Eight Missouri women, all from the Kansas City area, were ordered
to pay nearly $200,000 in restitution for their alleged involvement
in the Women's Empowerment Network, also known as the Original
Dinner Party and often referred to as "gifting trees" or "gifting
networks". Information revealed that they had profited by
$40,000 or more.
The clubs and networks gained popularity in St. Francois and surrounding
counties in early summer after arriving from Washington, though
eventually the latest participants voiced concern over collectively
losing hundreds of thousands of dollars and anger at being taken
in by so-called friends.
At some of the meetings it was stated by promoters that they had
contacted the Attorney General's office and the AG or one of his
spokesmen said the clubs were perfectly legal. The names of local
attorneys were also being used for this purpose.
Punishment for participating in an illegal pyramid scam in Missouri
carries a range of two to five years in prison, and a fine not
to exceed $5,000 for the Class D felony.
Anyone with information regarding the pyramid schemes or "clubs" are
encouraged to contact the Attorney General's consumer protection
hotline at 1-800-392-8222. 01/12/01
Better To Give
Organizers of another pyramid scam, uncovered in Texas,
invited recruits to "Jubilee Celebration" meetings where
they were asked to contribute $2,000 "in the name of God" in
exchange for a chance to earn $16,000 if they recruited eight others.
The pitch was that it was "blessed to give", and apparently
people believed it, for at a raided meeting deputies arrested eight
people and confiscated nearly $700,000 from 80 people who had brought
amounts ranging from $2,000 to $144,000.
Participants at the meeting carried driver's licenses from as
far away as Washington state and Alaska. At the four meetings held
in Texas it's estimated more than 1,000 people participated.
The meetings were held in private halls and hotels and were by
invitation only, with participants passing through metal detectors
before entering. Once inside, people were told that they could "harvest" thousands of dollars in profits in exchange for "sowing" a $2,000
investment. Participants were instructed to make their contributions
in $100 bills, cash only.
There was so much money being handled that they hired off-duty
deputies to provide security. They would even lock down the buildings
where they were 'gifting,' or exchanging money.
The District Attorney's Office, which was tipped off by the moonlighting
deputies, said more than $2 million was exchanged during a meeting
attended by more than 150 people. Officials in Florida estimate
as many as 4,000 people participated in similar meetings held throughout
the Florida panhandle.
Patriotic Pyramid Scheme
One home party group urges you to put down just $400 for a certificate
entitling you to "American Eagle Silver Coins" then have
a party and get fifteen others to continue to do the same and you
could make $74,000 in under a year.
The Given In Freedom Trust or G.I.F.T. which
targeted Montana woman for a while listed a fax number of (869)
469-0996 with an address of William A. Hull Business Center,
Suite 201, Main Street, Charlestown, Nevis, West Indies.
A resource relating to "cash gifting" schemes. CashgiftingWatchdog
Biblical Seven Gifting Scheme
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