Text 4. Local pyramid club schemes and gifting club scams

You will likely first get involved in a local pyramid club when a friend, neighbour, 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 offers instead an exciting shortcut to wealth, fame and adventure.

In order to join some club 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, neighbours, business associates, workmates and relatives.

Join the Club

To create an aura of respectability 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" or "Creating a New Paradigm".

Promoters of the scheme commonly describe this club as a "social" or "gift" club where participants can exchange their talents and ideas with each other.

The examples:

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. They are 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.

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.

For Ladies Only

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", "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, organizations 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, and 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. 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 gets $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 shows 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 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 so on. Now it is spreading across Great Britain fast.

Federal, state and local government officials say that not only 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.

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 whom 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.

Charity and Goodwill

"When a woman is financially gifted, she completes the circle by gifting back other women who are in need, or by aiding a charity of her choice."

That just covers the altruistic bases. Do what you think 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 fulfill the imagined mandate of the operation "we should share these gifts with our families, our communities, other women we may know well and those we may never actually meet in person."

I don’t think they mean for you to 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 to know and support each participant.

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. So, peer pressure of this sort is a key factor in recruitment.

Organizing for Legalization

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 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.

"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.

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 would never 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.

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 of imprisonment.

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 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, 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.