A Michigan newspaper reports that “seven Newaygo County women have been arraigned… on felony charges in connection with a pyramid scheme targeting women.” The article states that the women are facing charges of pyramid chain promotions, which carries up to a seven-year sentence and a $10,000 fine.  These are not necessarily ringleaders, it reports. Each one participated in a different part of the pyramid, unrelated to each other. In short, they are just one of many, many others.

The article continues, “Michigan State Police … said scammers, working under names such as the Women Integrity Group, invite women to give $5,000 cash, with the potential of gaining $40,000.” It then includes an appeal from the police for citizens to come forward and, effectively, inform on friends or neighbors who might be involved in the scheme, which is apparently widespread in this area of Michigan.

What’s wrong with this story? It would seem to have been written by Rip Van Winkle. Gifting schemes did not just pop up in Michigan this year. In reality, Gifting Schemes are all the rage all over America and Canada. They have been pervasive for more than 15 years. A flurry of prosecutions and news media coverage occurred in 2000-2001. Then, under the George W. Bush administration,  the US government closed its eyes to “gifting” pyramids as it also, coincidentally, took a holiday from prosecuting “product-based” pyramid schemes (multi-level marketing). The states followed the FTC’s direction and essentially looked the other way. The protection of multi-level marketing, which was bought and paid for with millions in campaign contributions, has had the unintended consequence of spawning the spread of “gifting schemes” and other types of pyramid fraud such as “matrix” selling. The MLM schemes have also expanded tremendously and moved into more areas of commerce from real estate to meal replacements and public utilities. The false and misleading “income promise” of the pyramid is now treated as a “marketing tool” just as predatory “gifting” is sold as a way to “help women.”

For the last  8 years, pyramids of any type have not  been prosecuted to any significant extent in the USA or Canada. When  the Bernard Madoff Ponzi scheme collapsed (it was never prosecuted while it operated, despite repeated whistleblower warnings) the police and media began to suddenly focus on “investor” pyramids on Wall Street.  Consumer pyramids schemes on Main Street, however, were allowed to run wild. They have vastly increased in number and size. To get a sense of how mainstream schemes like the one in Michigan are, just Google “Gifting Clubs”. There are over 1.4 million entries! Googling “Gifting Clubs” and “legal” yields 1,500 sites, many of them aggressive and sophisticated arguments for the legitimacy of these blatant frauds. As an example, see http://www.giftingislegal.org/.

Meanwhile, the police in Michigan have seemingly  awakened from a long slumber and have  have rounded up 8 ordinary women, not ringleaders, and charged them with crimes that could put them in jail, and strip of the voting rights, among other disgraces. The realities of the gifting scheme epidemic renders these arrests absurd and misdirected.

1. Gifting schemes are not recent or  isolated incidents, as the Michigan arrests would seem to indicate. The police don”t need “informers.”  The schemes  are not in hiding. They are widely advertised. And perhaps millions of people are in them!

2. If these scapegoated women are felons, then there are perhaps a million other such felons at large. Gifting schemes are hyped and defended in blogs and Internet articles that are widely read on the Internet. In Texas, several years ago, a bill was introduced in the state legislature to officially legalize them (it never got out of committee). Gifting schemes are  operating in nearly every state, and many other countries (they apparently were invented in Canada or in the USA or both) and the police have been not only negligent, in many places, the police themselves are participating! After all, police officers are ordinary Americans too, and it’s the Average Joes who are participating, encouraged by the apparent legality of these schemes, based on bogus claims of legality by the promoters and the near total absence of prosecutions by the authorities.

Why are people joining the schemes? Pyramid schemes are replacing hope for real jobs or even valid returns on real investments. This degradation and corruption are largely the result of government support in the form of negligent or even helpful regulators.

The Michigan police told the newspaper, “Those running the scam persuade people to donate by saying the money is used to help other women “get out of domestic situations… They also tell participants they can gain by recruiting others to join and hand over cash… The people who market this stuff are good salesmen. They make it sound good… people involved have defended the practice, saying it’s legal under “gifting laws.”