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.
For Ladies Only Gifting Clubs
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.
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.
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.
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