Pyramid Clubs

Schemes, Scams, Frauds.

Home Up Gifting MB Pyramid Cash Gifting Articles Gifting Overseas Site Directory

Local Pyramid Club Schemes and Cash Gifting Club Scams

Beware the pyramid party scheme

By Julie Sturgeon • 05/27/03

Lisa Bernfield is a rare woman not because she was duped out of $4,000 but because she publicly admits it.

Six years ago, she accepted an invitation from a girlfriend to attend a financial meeting. An independent publicist, Bernfield was open to wealth-increasing strategies. She drove to the home of an interior decorator whose floor space was packed with people interested in learning more about The Platinum Gift Club.

"The host was gorgeous, throwing this party with the help of his sweet, dear mom," Bernfield recalls. By the end of that perfect fall night in Southern California, Bernfield bought two opportunities for $2,000 each with the understanding that her investment would eventually reap $32,000 as more people learned about this great way to invest their cash.

"I knew I'd have troubles getting my circle of friends involved. I relied on the friend who recruited me to pitch in with invitations on my behalf," Bernfield says. It might have worked given all the time in the world, but after the holidays, the group meetings ceased.

She didn't get rich; she was out $4,000.

Costly "parties"

Bernfield is not alone. Across the country, people, particularly women, are targets of this latest cottage-industry craze. They are pitched as parties to help others earn money, but critics and law enforcement officers warn that the gatherings are scams.

The names vary -- Friends Helping Friends, Women Helping Women, The Friendship Investment Club, The Spirit of Giving -- but the concept is the same. To become a member, the new member makes a cash gift to the person at the top. Once this head honcho receives a predetermined amount in gifts, he or she vacates the chair, the group divides into two and everyone moves up to the next level.

James Walsh, author of You Can't Cheat an Honest Man: How Ponzi Schemes and Pyramids Work and Why They're More Popular Than Ever, calls these invitations by their true name: pyramid schemes, a transfer of capital not based on any profit-earning activity. For each investor to recoup money, two more must join the club.

The imagery built around the operation varies. Some use dinner-menu symbols where participants move from entrees to dessert. Others construct a birthday party theme where the person on top unwraps wonderful cash presents. The party version operates on amounts ranging from $500 to $2,000. The occasional club requires a $5,000 buy-in. That price, says Les Henderson, author of Crimes of Persuasion, is the first sign you're dealing with professional swindlers rather than naïve citizens.

The gifting investments typically offer a more informal setting and seek to capitalize on a network-marketing emphasis. But don't confuse gift clubs with multilevel marketing, Walsh warns.

"Even a poor MLM sells a product and you must take a risk. There's no such thing as guaranteed profit. Risk-ratio awards are one of the eternal truisms of a capitalist economy," he says. The Federal Trade Commission rule of thumb: If a group bases more than 30 percent of its compensation on recruiting new members, watch out.

No members, no money

Investors typically lose their money when the group runs out of steam on the recruiting side.

In Bernfield's case, the organizer announced he intended to devote time to establishing gift clubs in Oklahoma and had no more time for his California ventures. The sheep in his pasture tried to carry on, but the effort soon petered out.

Left out in the cold, most pyramid participants rationalize or blame external forces: bad press, overzealous government attorneys, sexist oppressors who don't want women to help each other make money.

"People just don't realize these are scams. They think of them as bad consumer dealings, poor recruiters or unlucky investors," Henderson says.

That's perfectly understandable, given the truckloads of assurances the hosts spoon-feed at every meeting, Walsh says. The clubs tend to spend a large part of the meetings defending their tactics. Most attack the legalities head on, claiming they're not pyramids because the host is eventually forced to retire rather that keep raking in the dough as is typical of pyramid schemes. They also devote reams of paper to approval statements from vague authorities like "a police officer" or "a federal judge."

Bernfield says she knew at first glance the club was illegal but still joined. "I'm a risk taker," she explains. "I saw the money in action and understood the logic. As long as you get people to buy, you move up the ladder."

Her candor is rare. Henderson has found that most participants get sucked in because they can't say no to a friend. Walsh blames the fun atmosphere cloaking the parties. "It's like a Tupperware or Pampered Chef gathering," he notes.

And many experts hold the economy responsible for the growing number of people willing to throw their money into the pot.

"Generally, these schemes signal a growing gulf between the haves and have-nots," says Walsh. "One of the dangers of the bubble was that it de-linked notions of real value with compensation. When the unsophisticated investor lost in the downfall, he decided the whole system was a crooked scheme anyhow, so this little party isn't any worse than eToys."

Striking back with limited results

Bernfield took her beef against the gift club host to small claims court, where the charismatic creator failed to show. The judge was amused by her bald-faced assertion that she thought the investment legal but ruled in her favor anyhow.

During the collection process, Bernfield learned her host hadn't used his real name. She invested hundreds of hours into tracking him down only to find him living in a nice home nowhere near Oklahoma.

Other disillusioned folks share her pain. Pyramid schemes are difficult to litigate because most attorneys won't jump into the fray for amounts less than $50,000, says Walsh. "Most gift club perpetrators count on the nuisance value. They hope the legal hoops are more than what most people will bear. They're right."

The clubs also avoid prosecution by employing cash-only transactions to sidestep proof. Some insist members use only their first names.

The tide, however, is turning. In 2003, club busts and pending charges have been reported in California, Hawaii, Oregon, North Carolina, Maine, Iowa, Pennsylvania, Texas, Oklahoma and New Mexico. In addition to seeking the usual criminal penalties, some prosecutors want club sponsors to make restitution to the victims. But the chances are slim that the once-enthusiastic club members will ever get their money back. As Bernfield learned, even when repayment is ordered, collection isn't easy.

The best defense, Walsh maintains, is to avoid forking over the dough in the first place, despite the friendships involved.

"Ask, 'What is the business?' What are we selling? Recognize that 'networking opportunities' is not a commodity," he reminds. "Don't accept the gibberish about the new economy and the velocity of money. Keep asking, 'What's the underlying transaction?'"

And keep the questions handy. Henderson doesn't expect gift clubs to disappear. "Nothing will ever stop it," he says. "They will continue to work because human nature never changes."

WEW Bust Article By JENNIFER COLEMAN Associated Press Writer

10/23/02 SACRAMENTO -- They met in beauty salons and suburban homes with the guests -- all invitation only -- coming for the promise of helping their community while making a huge profit for themselves.

The "Women Helping Women" parties featured a lucky "birthday girl," who would receive up to $40,000 in cash from the new participants, who each donated up to $5,000 to get in and eventually celebrate her own "birthday."

But for many women, the birthday never came, say authorities, who call "Women Helping Women" a $12 million pyramid scheme for which they have arrested four Sacramento-area women. Their investigation also revealed a candidate for district attorney in a neighboring county told partygoers the events were legal and then asked them for campaign contributions.

The parties, authorities and experts said, were part of a pattern of pyramid schemes found in nearly every state. Beyond women, these schemes focus on other groups, such as Hispanics, blacks or members of the same church, said Robert L. FitzPatrick, author of "False Profits," a book on pyramid schemes.

A scheme "travels very much like a virus. It could move in any direction. There's no mastermind behind it," FitzPatrick said.

Recently, officials in New Mexico indicted 20 people for allegedly running similar schemes, said Sam Thompson, spokeswoman for the New Mexico attorney general's office.

"It's a cottage industry here," Thompson said. "People get a hold of the paperwork, sometimes it's 'The Spirit of Giving' or 'Women Helping Women' or 'The Dinner Party,' and they just copy part of it and start their own pyramid."

In Maine, the state attorney general's office last year warned of a similar scheme that targeted men, sometimes using the names "NASCAR" or "Men's Club."

In Sacramento, the four women face charges that could result in five years in prison, fines and restitution. They are Cheryl Bean, 54, former human resources officer at Pacific Bell; Anne Marie King, 47, co-owner of a Roseville Montessori school; Pamela Garibaldi, 57, a part-time English professor at a community college; and Cathy Lovely, 49, a homemaker.

Sheriff's detectives Mike Wright and Eric White said the enterprise bragged of distributing $12 million and having 10,000 women participate in the last two years and have documented more than $7 million that has been collected, distributed or pledged in the Sacramento region.

Despite the charges against them, Bean, King, Garibaldi and Lovely have plenty of supporters. A cheering crowd of women greeted them in the courtroom for a recent hearing.

"They're genuinely good people," said Wayne Ordos, Lovely and King's attorney. "They're taxpayers, they're den mothers. This is very difficult for them."

None has entered a plea yet, but the four will return to court Wednesday.

Sacramento authorities placed undercover officers in five meetings, starting in July, after similar parties had already been detected in neighboring El Dorado County. There, District Attorney Gary Lacy warned his employees against participating in them as early as April 2001.

But one El Dorado County party had another attendee -- Deputy District Attorney Eric Schlueter, Lacy's opponent in next month's election. Schlueter reportedly told party participants there were legal loopholes that allowed such schemes, and then he solicited campaign contributions.

Schlueter told The Sacramento Bee newspaper that he didn't advocate "gifting," but didn't believe it was prosecutable under California law. "It may be a pyramid scheme," he told The Bee. "But whether it's illegal is another matter."

FitzPatrick said he's never found a legal opinion calling the parties anything other than an "endless chain" operation. "The first lie is that it's legal," FitzPatrick said. "They'll tell you it's not a pyramid, it can work and everyone can win."

But no pyramid can survive its unsustainable mathematics, FitzPatrick said. Each woman must recruit eight others to get her $40,000. Then each of those eight women must get another eight. Eventually, that pace can't be sustained, and the pyramid collapses, leaving about 90 percent of the participants out their investment.

"Women Helping Women" and other groups appeal to patriotism, religious faith or the desire to help others, FitzPatrick said, and use "the idea that women are helping women, supporting each other."

Women Helping Women organizers told their recruits they gave 1 percent of their birthday awards to charities, but investigators said they haven't seen evidence of such charitable activity in the Sacramento area.

Although pyramid deals gone bad often get attention, the early victims rarely come forward, FitzPatrick said, making it difficult to steer potential victims away.

"A lot of people feel embarrassed and worry about their jobs," one victim said, adding that some victims "are afraid that they'll be arrested if they go to the police."

White said he's faced that problem in Sacramento, too, but "our goal is not to arrest everybody. We've made a few arrests, and we're going to make a few more, but not a whole lot more, and then we want to move on."

Sacramento County Sheriff detectives would like to hear from people with information about the "Women Helping Women" parties. The telephone numbers are (916) 874-5848 and (916) 874-5845.


For ONCE be where the Players are
This is YOUR Private Invitation

Leverage $1,000 into $50,000 Over and Over Again

I am tossing you a financial lifeline and for your sake I
Hope you GRAB onto it and hold on tight For the Ride of your life!


Hear what average people are doing their first few days:

“We've received 8,000 in 1 day and we are doing that over and over again!' Q.S. in AL
“I'm a single mother in FL and I've received 12,000 in the last 4 days." D. S. in FL
“I was not sure about this when I sent off my $1,000 pledge, but I got back $2,000 the very next day!" L.L. in KY

“I didn't have the money, so I found myself a partner to work this with. We have received $4,000 over the last 2 days. I think I made the right decision; don't you?" K. C. in FL
“I pick up $3,000 my first day and I they gave me free leads and all the training, you can too!" J.W. in CA

ANNOUNCING: We will CLOSE your sales for YOU! And Help you get a Fax Blast IMMEDIATELY Upon Your Entry!!! YOU Make the MONEY!!! FREE LEADS!!! TRAINING!!!

FAX BACK TO: 1-800-421-6318 OR Call 1-800-896-6568

A resource relating to "cash gifting" schemes. CashgiftingWatchdog

Biblical Seven Gifting Scheme

Order a book

Crimes of Persuasionon

Home Page / Model Scams Index / © 2000-2017 /Disclaimer / Privacy Statement