Pyramid Scheme Internet Fraud Examples
Blaming the Government For a Pyramid Scheme's Downfall
To survive, pyramids need to keep and attract as many members
as possible. Thus, promoters try to appeal to a sense of community
or solidarity, while chastising outsiders or skeptics. Often the
government is the target of the pyramid's collective wrath, particularly
when the scheme is about to be dismantled.
FTC attorneys now know to expect picketers and a packed courtroom
when they file suit to halt a pyramid scheme. Half of the pyramid's
recruits may see themselves as victims of a scam that they took
too long to stop; the other half may view themselves as victims
of government meddling that ruined their chance to make millions.
It Hurts To Put You in the Drivers Seat
Credit Development International (CDI) and Drivers Seat Network
(DSN) marketed their pyramid scheme through recruitment seminars
and sales meetings across the country.
You'd get promotional materials to use in recruiting new participants
which you sent out in numerous ways, including unsolicited commercial
e-mail, postings on USENET groups and through
In the FTC v. Cano case, which targeted Credit Development International
("CDI") it was shown that consumers could join CDI's "Platinum
Infinity Reward Program" and become a participant in its "3x7
Forced Matrix" -- a structure that promised commissions going
seven layers deep and that required each participant to recruit
just three new members. CDI represented that participants could
earn more than $18,000 per month in this program.
Besides the promise of high profits, the real attraction of CDI
was its offer of an unsecured Visa or MasterCard, with a $5000
credit limit and a low 6.9% annual financing rate. This offer was
especially attractive to consumers with poor credit histories,
to whom CDI advertised saying "Guaranteed Approval, No Security
Deposit! No Credit Check, No Income Verification and Bankruptcies
CDI representatives claimed that they could offer such attractive
terms because they had a special marketing relationship with a
large overseas bank, the Banque Nationale de Paris (BNP). According
to the transcript of a taped sales meeting, CDI hinted that a broad
conspiracy prevented U.S. banks from offering such favorable terms.
A CDI representative claimed, "normal banks do not want people
to know that they could have a 6.9 [percent] credit card." In
the same meeting, CDI painted itself an alternative to a regular
bank and said "our whole concept is to have the largest membership
credit union in the world." "We're the bank."
In fact, CDI had no business relationship with Visa, MasterCard,
or BNP, and no relationship with any bank willing to issue credit
cards to CDI members and likely misled the one bank with which
they did have a relationship.
When investors paid by credit card to join CDI, the defendants
apparently processed these payments, not through CDI but through
a different "front" company with a VISA merchant account.
Consequently, the defendants put their own merchant bank at risk
for any charge backs that VISA might credit to angry investors.
People who paid the $130 initially, followed by monthly payments
of $30, never receive sums such as $18,000 per month nor do they
receive an unsecured MasterCard or Visa credit card and at least
89 percent of them would never have made enough money to recoup
their initial investment.
Over the five-month life of CDI, more than 30,000 consumers from
the U.S., Europe, Australia, and Southeast Asia are estimated to
have lost $3 to $4 million dollars in this alleged scam.
FutureNet, Inc., which was promoted on the Internet, claimed that
its recruits could earn substantial income for the rest of their
lives by joining a multi-level marketing program selling Internet
You paid fees ranging from $195 to $794 to become a distributor.
The promoters claimed that their recruits —so called "Internet
Consultants" —would receive $200 - $400 when they personally
recruited another consultant, and $25 - $50 when a person in their
downline recruited a new member.
The bulk of the income from the marketing plan did not depend
on sales of the Internet devices they were purportedly selling,
which were available at other retail distributors, including Sears
and Circuit City, at lower prices, but rather almost entirely on
the recruitment of new distributors who would in turn recruit more
distributors, and continue to seek to recruit and collect fees
from an endless "downline" of new distributors.
Since almost 90% of investors in any pyramid program actually
lose money, their earnings claims were false.
Make Nothing Partners
The Alabama Securities Commission closed down the MN Partners,
Inc. (MN) loan businesswhich attracted over 20,000 investors
in other states and 16 other countries.
The defendants, Frank De Lucca, David Cox, Jynelle Cox, Ron Clark,
and Janice Clark waived any further rights to appeal the Injunction
and a receiver has been appointed to control all assets of MN.
To invest into MN Partners, Inc. (MN) you paid either a $300 loan
fee or $100 and got two new members to enter the program, and signed
a promissory note. Then you received a $50 loan, and every consecutive
month you signed a new promissory note and received another loan
that was twice as large.
During the ninth monthand thereafter when the monthly loan
exceeded $10,000 per month, you then volunteered to loan back one-half
of the proceeds for an additional 4% interest.
After 12 months you were to have received over $200,000 in loans.
In one year MN promised investors $88,160.64 in spending cash after
fees, principal and interest payments back to the company. The
MN brochure promised even more--within two years a participant
would net over $1,000,000 of non-taxable loans which never
have to be paid back.
It was determined that they would have had to issue an astronomically
large amount of new loans to keep their promise. For the first
20,000 members they would need $10.36 billion over a two- year
period and 34.5 million people paying the $300 application fee
for the program.
For them to keep their promise to only 4 million of the 34.5 million
customers, who theoretically would have funded the first 20,000
customers, you would need over 6.8 billion new members paying the
$300 application fee which exceeds the present estimated entire
world population of 6.1 billion human beings.
And Stay Out
The Alabama Securities Commission has issued a Cease and Desist
Order against UNITE1 Investments, an Arizona Business entity which
has used the following addresses: 2733 North Power Road, Suite
102-410, Mesa Arizona 85206 and Box 20370, Mesa Arizona 85277.
They received information that UNITE1 engaged in the offer and/or
sale of securities in the form of units in a twelve month term
loan agreement without being registered to do so.
It appeared to have a striking resemblance to MN Partners, Inc.,
another scam that was operating out of Phoenix City, Alabama which
was shut down by the Commission. The UNITE1 loan program claims
to pay investors up to $125,000 within twelve months for a one-time
advance fee ranging from $250.00 to $750.00.
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