New Wrappings for Old "Gift"

An old style pyramid scheme is moving across the country like a locust plague. It has been renamed and dressed up to lure new types of victims, but underneath the gift-wrappings is a well-known scam with its inevitable, sad consequences.

It is variously called "Gifting Club," "Women Empowering Women," "Dinner Party," "Circle of Friends, " Women's Empowerment Network," "Gifting Circle," among other such pretentious and beguiling titles. The scheme may involve "giving" from $500 to $5000 or more. It may have four or more levels and require recruiting one, two or as many as eight more participants.

Two indisputable facts need to be understood by consumers.

These two facts must be highlighted at the start because a hallmark of the scheme is for organizers to tell people it is legal and that everyone can win. Both are flagrant lies. In some states, participants are boldly told that the scheme has been specially approved and cleared for operation by the state legislature or state attorney general. These are extravagant, entrapping lies.

As to the legality, if you are in doubt about this, the end of this essay offers a link to a list of articles and press releases from Attorney General Offices, police departments, Better Business Bureaus, major newspapers, and State Departments of Commerce in Wisconsin, Texas, Virginia, West Virginia, Maine, Illinois, California, Kansas, Minnesota and other states. This is just a samping of reports and warnings. All say the same thing. The scheme is illegal and the great majority of people who participate will lose their money.

The majority will lose because the scheme cannot grow forever at the rate that it requires. If each person must recruit 8 others, then in just 8 recruitment cycles more than 1.5 million people will be involved. A few more cycles of recruitment and the number required exceeds the population of the earth. Of course, the schemes do not run that long. They collapse sooner as reality dawns or authorities close in.

Why is participating in this scheme illegal? Because the scheme requires that a certain group cannot recoup their money. It is designed to trick and defraud these people. The losses occur not because demand declines or markets have changed or because of competition or any other cause that is normal and legal in business. The Gifting Scheme is set up from the beginning so that, at a certain point, the people at the bottom won't be able to find new investors and will therefore lose their money. If you recruit someone into such a scheme, you are participating in a fraud upon those at the end, whoever they are.

Should you care? Beyond the legality is the ethical question of enrolling friends and neighbors into an illegal scheme and one in which the majority will eventually be defrauded. No matter how many join, the bottom level will always have 88% of the participants -- who will eventually lose. If you accept that the scheme is illegal but believe that the losses are largely harmless, consider this: If the scheme requires each person to enroll just eight others, by the sixth level (starting with just one person at the first level), there will be 37,449 people involved. Of this number 32,768 people will be on the bottom losing level. And if each one pays in $5,000, that's a loss of more than $163 million. Consider the effect of this on one community. Consider the effect on your neighbors, friends, and relatives. This is a very large-scale swindle, bigger than most embezzlements, stock frauds, bank robberies or deceptive advertising scams.

Finally, beyond the illegality and on top of the losses of money, consider the effect on people's relationships. All those who lose their money will have given their money to someone they knew well, trusted or loved - perhaps a next door neighbor, a fellow church member, a brother-in-law. When the people realize they were lied to and defrauded, often these cherished, important relationships end with the scheme's collapse.