BEWARE OF PYRAMID SCHEMES
by NM Attorney General Patricia Madrid
Since the beginning of the year, many parts of the United States have seen the spread of a "gifting club." This pyramid is promoted as a private club or dinner party where members are eager to help new friends.
A gifting scheme referred to as "Women Empowering Women," "The Dinner Party," or the "Gifting Circle" has gained attention in New Mexico as well as Missouri and Oregon during the last six months. The Missouri Attorney General has obtained temporary restraining orders against some participants in the pyramid scheme. The scheme reported in Missouri takes the same form as the one reported by the 8th Judicial District Attorney John Paternoster earlier this year. The scheme takes the form of a four-course "dinner party" with women entering at the "appetizer level" at a cost of $5,000. Appetizer-level participants move up to through the "soup/salad," "entree," and "dessert" levels as more participants are recruited at the appetizer-level.
Material provided by organizers of these schemes will frequently report that the scheme is legal and has been approved by government authorities. In Missouri the FBI is alleged to have given their approval to the gifting scheme. The gifting literature seen in New Mexico implies the Attorney General has found the scheme to be legal. That is not the case.
What is a pyramid? A pyramid scheme may take many forms. The form that we have been hearing about lately is where a person makes a payment into an operation called a "Dinner Party" for the opportunity to receive more money from other women who participate in the party. In another variation, the payment is referred to as a gift. But, it is not a gift if you make it with the intent that you will get back more "gifts."
What is wrong with a pyramid scheme? Pyramids are illegal. Participation in a pyramid is a 4th degree felony which carries a possible eighteen months in prison. In addition, you may be fined up to $10,000 for each violation. You might even find yourself sued by those who lose money. Pyramid schemes are nothing new. They have been around for years. There are outbreaks from time to time across the country, much like the flu. A few people will make money. Typically, those who make money are the promoters of the scheme. But, it's a mathematical certainty that the majority of participants will lose money. There are always victims. Simply, the pyramid collapses when new members are not recruited. The fraudulent nature of the pyramid scheme is the claim that everyone will make money. It is mathematically impossible for such a scheme to work.
How can you protect yourself? Promises of quick, easy money are a powerful lure to many. I suggest you ask some questions if you are asked to join one of these gifting schemes:
- Is there an expectation that I will get my money back and even make money? A legitimate gift does not have strings attached and is not an "investment."
- Participants in the scheme may say they expect nothing back, but isn't that just a pretense to make an illegal act look legal? Those individuals who will walk up to a stranger and give them $5,000 and walk away are rare individuals, and unless you are one, you are likely engaging in illegal activity with the dinner party.
- Who are these people who are making money? Beware of the success stories. In these schemes, few people actually make money. It is true that some people make quite a bit and that is at the expense of others. Most success stories will be from friends of friends, rather than from a primary source.
- How is the money being made? Typically, the actual mechanism by which money is made is not explicit because of the illegality of the scheme.
- If you are invited to join a scheme that appears to be a pyramid, just say no.
Pyramids can't work without players. The office of the Attorney General has prosecuted pyramid schemes in the past and may in the future.
Your money is hard earned and I'd like you to be careful with it. If you have lost money in a pyramid scheme please contact my office at 827-6060 or 1-800-678-1508. You may write the office at PO Drawer 1508 Santa Fe 87504-1508, or visit our web site at www.ago.state.nm.us.
Patricia Madrid is the Attorney General of New Mexico.
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