Examples of Illegal Pyramid Schemes / Bogus MLM Recruitment Scams
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 represented that:
|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 any property;|
|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 Star.
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 spot.
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: 04/98
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 said.
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 for consumers.
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 my case?
Marian S., Oakville, Ontario 09/27/02