Illegal Pyramid Schemes / Recruitment Scams
What is a Pyramid Scheme?
Pyramid schemes, also referred to as "chain referral", "binary compensation" or "matrix marketing" schemes, are marketing and investment frauds which reward participants for inducing other people to join the program.
Ponzi schemes, by contrast, operate strictly by paying earlier investors with money deposited by later investors without the emphasis on recruitment or awareness of participation structure.
Pyramid schemes focus on the exchange of money and recruitment. At the heart of each pyramid scheme there is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment.
For each person you bring in you are promised future monetary rewards or bonuses based on your advancement up the structure. Over time, the hierarchy of participants resembles a pyramid as newer, larger layers of participants join the established structure at the bottom.
They say you will have to do "little or no work because the people below you will". You should be aware that the actual business of sales and supervision is hard work. So if everyone is doing little or no work, how successful can a venture be?
The marketing of a product or service, if done at all, is only of secondary importance in an attempt to evade prosecution or to provide a corporate substance. Often there is not even an established market for the products so the "sale" of such merchandise, newsletters or services is used as a front for transactions which occur only among and between the operation's distributors.
Therefore, your earning potential depends primarily on how many people you sign up, not how much merchandise is sold.
Pyramid schemes are not the same as Ponzi schemes which operate under false pretences about how your money is being invested and normally benefit only a central company or person along with possibly a few early participants who become unwitting shills.
Pyramid schemes involve a hierarchy of investors who participate in the growth of the structure with profits distributed according to one's position within the promotional hierarchy based on active recruitment of additional participants.
How are Pyramid Schemes Disguised?
These illegal money-making ventures are modified and adapted to suit the victims. They may be disguised as games, chain letters, buying clubs, motivational companies, mail order operations, or investment organizations.
Because of the similarity in structure to legitimate multi-level marketing plans, which survive by making money off product sales to actual customers, not new recruits, pyramid schemes may occur when you are offered a distributorship or franchise to market a particular product. Your investment contract will also authorize you to sell additional franchises.
For each person you bring into such a company, you receive, or are promised, future monetary rewards or bonuses based on the number of people below you (commonly referred to as a "downline") which ( and this is the key factor in pyramid schemes ) are unrelated to the sale of the product to consumers. The real profit is earned, not by the sale of the product, but by the sale of new distributorships.
Promoters of pyramid schemes stress the selling of additional franchises for a quicker return on your investment. Investors, therefore, expend their energies selling franchises rather than the product. At some point, the supply of potential investors is exhausted, leading to the inevitable collapse of the pyramid. The sale of the actual product often fails because it is overpriced or no real market exists for it.
Once the number of actual product buyers diminishes new recruits will focus primarily on recruiting others into the system without any realistic expectation that they can profit from retailing alone.
This lack of actual retail sales may be hard to determine as many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.
Inventory loading occurs when a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices.
Legitimate multilevel marketing plans actually sell their product to members of the general public, without requiring these consumers to pay anything extra or to join the MLM system. MLM's may pay commissions to a long string of distributors, but these commission are paid for real retail sales, not for new recruits.
Such incentive purchases, which are tied to a higher distributorship level position in the "business opportunity ", lead participants to stockpile or give away unneeded product purchases, all the while chasing the elusive rainbow of imminent success. Often the costs of even long term participation far exceed the payments received.
One indication of a pyramid structure is one which pays override commissions on more than five levels of participation. Even the largest corporations can not stretch the markups on products beyond the hierarchy of sales person, branch manager, district manager, regional manager and national manager without becoming uncompetitive with standard retail outlets.
According to Jon M. Taylor of www.pyramidschemealert.org the suggested retail prices for MLM products are almost always too high to be competitive because huge margins have to be built in to allow for commissions to be paid to down-line distributors for item sales without compromising the company's overly generous profits.
This need to avoid retail competition is achieved by the marketing of unique or miraculous new products which are unavailable elsewhere or presented as cutting edge technology accessible only to those with the vision to appreciate its benefits to humanity or the American Way.
Many pyramid schemes will also advertise that they are in the "pre-launch" stage, yet they never can and never do launch.
Why do Pyramid Schemes Fail?
Pyramid schemes are inherently injurious to consumers because as a mathematical certainty, they are doomed to collapse. As in the case of chain letters that require a payment, only the people at the very top make any money.
The only way anybody can make money through a pyramid scheme or chain letter is if participants in levels below them are defrauded into giving money based upon a rapidly diminishing promise of eventually getting something in return.
Eventually they must break down because the pool of possible recruits becomes exhausted and recruitment stops. Those at the bottom of the pyramid, the vast majority of the participants, lose money because there is no one below them.
They won't get their money back or earn their promised fortune because no one is beneath them in the pyramid adding new money to the pot. All pyramid schemes will begin to die when later recruits don't sign on in numbers large enough to pay off the earlier recruits.
An infinite number of people is the weak link in the required "endless chain" of new participants. In order for a pyramid scheme to profit, there would have to be a never-ending supply of potential, and willing, participants.
In reality, however, the supply of participants is limited, and each new level of participants has less chance of recruiting others and a greater chance of losing money.
The diminishing odds of making money with a pyramid scheme make it a losing proposition because each time a new level rises to the top, a new level must be added to the bottom, each one at least twice as large as the one before.
Pyramid schemes are based on simple mathematics: many losers pay a few winners. A nine-level pyramid, which is built when each participant gets six "friends" to join, would involve over ten million people!
Who are the Victims of Pyramid Scemes?
Most pyramid schemes seem intent on exploiting people with limited means and limited knowledge of business such as individuals who have little experience in direct sales, distributorships, or franchise enterprises or who have limited money or credit with which to establish their own businesses.
They rely on widespread ignorance of basic mathematics. Participants are promised large rewards for putting up a certain amount of money and then recruiting the next level of members. But the schemes always collapse because the supply of potential recruits quickly runs out, making many participants both victims and perpetrators.
Many victims of these scams sell first to their friends. When the supposed money-making opportunity goes belly up, most lose not only their money —but also their friends. The Pentagono promotions have apparently targeted deaf people in some states while the main focus appears to be on senior citizens in others.
Why Would Anyone Pay to Join a Pyramid Scheme?
They're sold to investors with the assurance that they are perfectly legal, approved by the IRS or a CPA, and that they are definitely "not" a pyramid scheme. Promoters may even flaunt the fact that they are illegal and are therefore secret and exclusive. This adds to the allure and mystery of this larcenous, but seemingly harmless, act.
Pyramid promoters are masters of group psychology. At recruiting meetings they create a frenzied, enthusiastic atmosphere where group pressure and promises of easy money play upon people's greed and fear of missing out on a good deal.
It is difficult to resist this kind of appeal unless you recognize that the scheme is rigged against you.
When the expected wealth does not materialize, participants often blame their own lack of recruiting skills for the failure, rather than the original promoters who have benefited most, and almost exclusively, from their deception.
The pyramid promoter is likely to persuade the investor that he is "getting in early" and that he should consider himself at the top of the matrix. Most participants don't envision themselves anywhere near the bottom layer of the pyramid.
Even the greediest person on the planet would probably see that if one is near the bottom layer it will be very hard to get new recruits. They have to see themselves near the top in order to envision the immense wealth, from minimal effort, that is going to come their way.
The con artist at the top views each new investor as a predicable set of revenues and expenses, with the revenues flowing directly to him. He happily pays out commissions for the recruitment efforts of others.
Investigators say pyramid schemes come in waves of three to six years and rise during times of economic boom by playing upon the greed and envy among those who are eager to participate in moneymaking ventures.
As the losers rarely advertise the truth of their folly, the myth of their success resurfaces with each new outbreak.
Pyramids are deceptive and participants in a pyramid, whether they mean to or not, are deceiving those they recruit. Few would pay to join if the odds stacked against them were fully explained.
Because pyramid sales plans are by their very nature deceptive, they are illegal. There is a real risk that a pyramid operation will be closed down by police and the participants subject to fines and possible arrest.
Since most MLMs are outright scams, please take a moment to sign the global anti-MLM petition here.
In Canada, the Competition Act explains the differences between multi-level marketing and pyramid selling, and sets out the responsibilities for operators and participants in these types of plans.
Multi-level marketing, when it operates within the limits set by the Competition Act, is a legal business activity, while pyramid selling is a multi-level marketing plan that incorporates various deceptive marketing practices, making it a criminal offence under the Competition Act.
When it comes to pyramid schemes it is illegal to:
|pay money for the right to receive compensation for recruiting new participants;|
|require a participant to buy specific products before he/she is allowed to join the plan;|
|sell unreasonable quantities of the product or products to participants (this practice is called inventory loading); and|
|refuse to allow participants to return products on reasonable commercial terms.|
People who break the law relating to multi-level marketing or pyramid selling can be convicted and sentenced to a fine or a prison term. Amendments to the Act passed in 1999 now allow the court to impose a fine of up to $200,000 or a prison term of up to one year, or both, for a less serious offence. For a more serious offence, the court may set its own fine or a prison term of up to five years, or both.
The Bureau conducts its investigations in private and keeps confidential the identity of the source and the information provided. However, if someone has important evidence about an offence under the Act, that person may be asked to testify in court.
Sometimes, no clear line separates illegal pyramid schemes from legitimate multilevel marketing programs. To differentiate between the two regulators in the U.S. evaluate the marketing strategy (e.g., emphasis on recruitment versus sales) and the percentage of product sold compared with the percentage of commissions granted.
A business venture that meets all three of these descriptions is an illegal pyramid:
- You must make an investment to get the right to recruit others into the program...and
- When you recruit another person into the program, you receive what the law calls "consideration." That usually means money, but can be anything of value...and
- Your new recruits must make an investment to get the right to recruit, and they receive "consideration" for getting others to join.
An investment includes any money paid to enter the venture. Though it may be called a "membership fee" or "bookkeeping charge," the law still considers it to be an investment. And an inventory of products you must buy to re-sell is also considered to be an investment. Giving of your time or talents, or buying demonstration samples at cost is not considered to be an investment under the law.
Pyramid Scheme Situation in the U.K. involving Gifting Scams
While Women Empowering Women does not, according to Government lawyers, appear to contravene current UK legislation on pyramid schemes or multi level marketing, because it does not involve any trading of products or services, nor have any form of company structure or control, this loophole clearly defies the intent of these laws which simply failed to anticipate such a format.
Until now, intensive efforts to find legislation that could stamp out gifting clubs have failed because the schemes appear to sidestep various financial regulations in a number of ways: new members are required to sign statements stating that they are making an unconditional gift to another woman, thereby avoiding the aspect of investment which would bring them under the auspices of the financial services authority; gifts are capped at £3,000, the upper limit for inheritance tax-free gifts; and they escape advertising standards authority censure by using only word of mouth and leaflets passed between individuals.
Past cash pyramids have violated the rules due to their company structure - although usually after the scheme originators have scooped the cash leaving the victims to rue their gullibility. The problem is that in this case there appears to be no one person or company behind it which can be brought to task or investigated.
However, all schemes where money changes hands may be subject to the general criminal law on fraud, theft, and deceit. Anyone with evidence that such a criminal offence may have been committed should report the matter to the police.
Estimates of numbers of women who have joined WEW run into the tens of thousands, though pinning down the number is difficult because WEW lies outside the financial regulatory environment, with recruits found through informal networks of friends and families. The ringleaders and ultimate benefactors though are few and represent only tens out of the thousands.
Legally, these schemes are difficult to crack but the Government is currently looking at how they are dealt with internationally, particularly in the USA where they are more common. They indicate that they are examining all avenues for protecting the public.
There has just been a Review of Gambling and the Dept for Culture, Media and Sport (DCMS) will be undertaking follow up work considering whether WEW type "gifting" schemes could be regulated under gambling legislation and existing lottery laws, if suitably amended.
Just a Little for a Lot
Webco promotion flyers tell you that when you join, you will be in position number three. You sign up ten new participants who sign ten more who sign ten more, etc, until there are 1,000 participants in your down line. The proposed theory is that the 1,000 participants in your downline will send you a $10 non-repayable loan, a total of $10,000, when you reach the number one position in the structure.
A Leg Up on the Others
International Metals and Trade Corporation operates a "Binary Compensation Program" in which members pay to play. You pay $288 to join, $200 of which is a down payment on future purchases from the company's catalog.
"It's so easy. All you do is bring in two people who become legs of your marketing cell. They bring in two more, who bring in others and the larger your cell becomes, the more cash you receive every month! You can't lose!"
"When 12 people have joined, you get $400. When 36 have joined, you receive $800 and when 50 have joined, $1,175. You can operate a total of eight business centers at one time, for a potential monthly income of $18,528."
They falsely claim that: the Attorney General has approved this program; the Better Business Bureau endorses it; and that a Harvard University study has also endorsed such pyramid-type offers.
The Allure of Gold
For two years, American Gold Eagle offered a "Gold Matching Program" to the public: participants placed a $200 down payment on $800 worth of gold and paid the balance by receiving commissions after recruiting new participants.
The original participant would pay the $200 and then recruit two separate "investment groups" into the Gold Matching Program (much like cells in hierarchical organizations, with the original participant at the top and with two branches diverging from the center, each branch containing three recruits).
For every group of three that joined the matching program, the original participant received a $300 commission toward the purchase of the laid-away gold.
After recruiting two groups (six individuals), the original participant could take the gold but are encouraged to roll over the $600 credit into a new recruitment arrangement that offered a higher ceiling on future enrollment commissions.
After being issued cease and desist orders the corporation failed amid problems with vendors which resulted in the end of gold deliveries and a swelling of anger by representatives seeking to realize the fruits of their recruiting efforts.
The promoters moved on, leaving over five hundred complaints unresolved with losses of $370,000.
Undaunted by past troubles, they soon offered people the opportunity to participate in the new "Gold Earning Program" ("Gold I"). Participants paid $200 toward a $400 gold coin then, by recruiting new investors, earned commissions toward the cost of the coin or payment in cash.
New charges found that Gold I emphasized recruitment of clients, not sales of products, and thus constituted an illegal pyramid scheme. They signed a settlement agreement with the state, agreeing to pay restitution to Gold I's participants and submitting to a permanent injunction against operating pyramid schemes and making unrealistic earnings claims.
Not letting an injunction stand in the way, they launched a new marketing plan, referred to imaginatively as "Gold II." Under Gold II, participants could purchase gold and jewelry from them and resell it, or they could join the "Binary Compensation Program."
To differentiate it from the earlier plans, and to at least give the impression of a legal MLM organization, they added more product lines (supplementing Gold I's gold coins with silver coins and gold jewelry), changed manuals, strengthened refund policies, and supposedly attempted to emphasize product sales over recruitment.
It appears recruitment was more rewarding though, for within just three years 96,000 participants had paid $43,000,000 to join Gold II, which had disbursed $25,000,000 in commissions. The product line produced sales of 12,628 coins, with a gross profit from the coins of only $552,620.
The district court sentenced the owner to 135 months in prison and his wife to 121 months. Allowed to remain free until the sentence started, they created the "Freedom I" program, disappeared, and presumably are still at large.
Upper School Charm
The Oxford Savings Club has business addresses in Amsterdam and Antigua, West Indies. Their promotional materials say that a loan of from $25 to $2,500 to Oxford Savings will earn 10% interest compounding monthly for ten years.
The promotional materials also provide that they have a "Profit Sharing" plan where they will pay you 1% of the amount loaned to them from your referrals down through five levels, every month.
"This is MLM at its best. Everyone makes money, whether they recruit or not."
Buy Your Way to the Top
A group named Equinox operated a multi-level marketing company which offered distributorships for products including water filters, vitamins, nutritional supplements, and skin care products. Their distributors ran classified ads in the "Help Wanted" sections of newspapers which implied that a salaried position was being offered.
When you responded to the career ad you were instead given a sales presentation designed to recruit new distributors. They said you could earn money by selling products or recruiting but emphasized that the real way that distributors make money is through recruiting, not through sales.
You were encouraged to purchase $5,000 worth of products so you could enter the program at the manager level, to rent desk space for $300 to $500 a month, to subscribe to a phone line so you could begin recruiting others, and to attend seminars designed to train you.
The seminars cost between $300 and $1000 and stressed that you could make substantial amounts of money.
A very small percentage of distributors who became participants in the program actually made more money than they expended for front-end expenses, and the vast majority of people quit the program with little or no earnings.
While they purported to link compensation to retail sales, they really didn't focus on the products. The structure and operation of the program was geared such that financial gains were primarily dependent upon the continued, successive recruitment of other participants, and retail sales were supposedly not required to realize such financial gains.
The deceptive earnings claims were false and misleading and violated federal law. By furnishing you with promotional recruiting materials that contained false and misleading information, including the deceptive earnings claims, they supplied the means for you to break the law as well.
Do It For Others
Global Assistance Network for Charities
- The Vision -
To create a path to financial independence for ourselves and worthy causes.
A TRUE $$$ INCOME MAKER $$$
while funding your favorite cause or organization.
This pyramid scheme based in Arizona, promises that by joining, members will donate to worthy charities and at the same time "earn" well over $89,000 per month. Marketed primarily on the Internet, they post invitations at Internet newsgroups for others to visit their home page, e-mail or telephone requests for more information, and to ask for more information through a fax-on-demand phone number.
In order to join, you pay an initial fee of $70 and $50 per month thereafter. As a member you designate in excess of ten percent of your "earnings" to charity. These "earnings" though, are based solely on the number of people you recruit. There is no product —only a monthly newsletter distributed by them.
Freedom to Lose
The organization GIFT- "Given in Freedom" claims to be a humanitarian group of wealthy philanthropists who give away large amounts of tax-free money in the name of God.
In return for sponsoring three people, a person is 'gifted' an accumulation of tax-free money in an offshore trust account that will generate as much as $20,000 in interest payments annually.
It is a pyramid scheme because participants are required to sponsor three people, who in turn sponsor three people, etc..
The group does not request money up front. It does however ask for a copy of your driver's license and another piece of documentation such as a telephone or credit card bill. This information is then forwarded to an address in the West Indies. They also have a toll-free number to call for more information.
Police are concerned the fraud artists can use the information from driver's licenses to manufacture phony passports and credit cards. They can also use phone bills to charge calls and use credit card statements to charge purchases.
Learning to Lose
International police have been monitoring the activities of a company soliciting funds from investors through participation in a five-series "financial educational program" which claims to create wealth through education.
The multi-level marketing scheme, known as Investors International (II), was "conceived" by a Dr. RUDOLF VAN LIN (whose real name is believed to be Rudolf Alexander Victor LINSCHOTEN), the Chairman of Investors International Publishing.
The scheme involves the purchasing of a five-part "education service" array of cassettes, literature and videos on topics including offshore technology, government and tax havens.
In order to be able to purchase the next series, participants must first qualify with a sales quota. The quota is six sales in each series, which must be made under the guidance of an approved director.
You pay approximately $1,250 US for what is considered the first series or level. The first two levels consist of video tapes and audio cassettes which provide information that is considered nothing more than what could be obtained at a library.
Clients that reach level 3 are then invited to attend offshore seminars where they are advised that they will learn about international financial programs that are secret in nature and only available to investors who are able to invest large amounts of monies such as $5 million or $10 million.
It is during these seminars that the clients are informed of investment opportunities with Sabre Asset Management Corporation which, certainly from its description, is likely a "prime bank opportunity".
Levels 4 & 5 involve ten to fourteen day international seminars which offer "certification as an international financier and membership in the Society of International Financiers."
Investigation by authorities has established that IIP and SAMC have held cruise seminars and offshore seminars soliciting investors. One of the most current seminars was scheduled to be held in Fiji.
Information has also been received that they are currently establishing the multi-level marketing of IIP within Australia and soliciting investors into SAMC.
A review of this activity by the RCMP Economic Crime Branch suggests it has many of the properties of an illegal scheme pursuant to Section 55 of the Competition Act or possibly Section 206(1) of the Criminal Code.
The Competition Act regulates multi level marketing plans and specifically restricts involvement in a scheme of pyramid selling. The Criminal Code section makes it unlawful for a person who participates in a scheme involving the recruitment of other persons, to expect more in return than what was initially invested.
Using a "Guide To Success" that made grossly inflated earnings claims and saying that they possessed the "financial clout of a major corporation" and a "4,000-plus dealer network", the Five Star Auto Club lured people into a scheme which promised the opportunity to "lease your dream vehicle for free", regardless of the price of the vehicle, while earning a huge monthly income.
In exchange for payment of a fee of $395 plus $100 per month, you could become a "consultant" in a "VIP program" and make "projected monthly commissions of between $180 and $80,000 per month by recruiting other $100-a-month members", who in turn would recruit additional members themselves.
When five others had been recruited and these five people recruit an average of three others apiece, the company promised to lease you a vehicle valued at $15,000 for $100 monthly.
In reality, the auto leasing and roadside services were worth only a fraction of the $395 memberships. You could neither lease a "free" car, nor earn money from joining the scheme. Some 7,000 individuals lost an estimated $5 million as a result of joining.
New Markets Are Developing
In Eastern Europe, the life and accident insurance industry has seen the widespread organization of "pyramid sales" networks (also known as the snowball system). These networks seek to take advantage of naïve consumers and utilize the methods developed in the late 1950s and 1960s by Bernie Cornfeld's notorious Investors Overseas Services Inc (IOS).
In a typical operation, the aim is to turn all policy purchasers into agents. The purchase of a policy, typically a 10- or 15-year life policy, together with accident cover, is a requirement for becoming an agent.
The agent earns "points" for each sale, depending upon the details of the policy, and commission is calculated by points. Points are also earned for the recruitment of new agents. Incentives, such as holidays and gifts typically accompany increasing points totals.
In order to attempt to evade local insurance legislation, some of these organizations have organized bus trips to foreign cities for prospective clients, where they can be more easily pressured to sign a policy.
Postage of policy applications is another method. The simple expedient of driving across a border with a trunk-load of policies and foreign currency is also used.
Cancel My Other Cards
"Every one qualifies! Guaranteed Card Approval! You may never again have to pay for anything you charge!
One group offered Visa cards to the credit-challenged "to put you back in the mainstream of financial life in high style" at an interest rate of only 4.9%.
How? Through the magic of using offshore banks in tax haven countries. With just a $100 processing fee and $25 per month charge you can earn fabulous commissions if you recruit others.
The All-in-None Card
One recent scheme is based on the development of a card called the "World Netsafe ATM Card". On joining, at a cost of $2389, you become a "first generation" member in relation to your sponsor, who gets "20% of 20%" of your joining fee.
Along with the Card you are to get access to the methods and techniques used by the leaders in business and personal development.
You are told that when people you sponsor use their Card at an automatic teller machine, you will receive a percentage (paid in "teleminutes") paid directly into your account and that you could earn income from up to ten generations, or in excess of $230,000 per month.
They say these teleminute payments are loyalty payments earned when you introduce someone else. Despite being unaware of it, the Bank of South Louisiana was said to be issuing thousands of Cirrus or Maestro cards for members of the scheme. Under an injunction the promoters can no longer claim that:
|the card is of any assistance in making telephone calls or that it records teleminutes;|
|any record of any currency is kept in relation to the card;|
|any arrangement has been made with any bank or other financial institution in relation to the card or has any association with Visa, MasterCard, Maestro or Cirrus cards;|
|the card possesses any debit, credit or ATM card facilities;|
|it is possible for a member of the scheme to earn money from their membership.
Plus Two Cars In Every Garage
The courts felt that the "F.I.R.E. - Family Internet Real Estate" scheme and their "Matrix Marketing Plan" falsely represented that:
|that it purchases land, builds new homes and purchases existing homes using its own investment capital and at no time are purchasers' funds used to construct any property;|
|that on entering the scheme investors have a legal contract on real property,|
|investors can buy a second house with a nominal deposit as low as $100,|
|it can earn investors up to $156,000 in commissions in one year;|
|every transaction is scrutinized by the Australian Treasury;|
|the homes that are built are designed to be maintenance-free, so much so that the Queensland Government Housing Commission is purchasing several this year for its own tenant program.
Lie Down For This One
An Australian company called "Giraffe World" engaged in an $18 million dollar pyramid scheme under the auspices of selling a health-enhancing "Mat" or mattress. They claimed that when connected to a source of electricity the Mat emitted negative ions which would benefit the health of a person who slept on it.
Once introduced to the product you are shown the possibility of becoming a member of the Giraffe Club and the Grow Rich System through presentations at "Happiness Circle" meetings.
At the introductory "Happiness Circle" meeting you get a "Giraffe World VIP tag" while the higher-ups present have photo identification badges showing their rank.
After the doors are closed, the lights are dimmed and the stage area is illuminated. A man and a woman run to the front of the stage from the back of the room amid applause from the audience.
They show a video explaining how the business is based on the following six elements which form a "circle of happiness": "Company, Industry, Products, Systems, Training and You"
GW is described as: "an international organization utilizing communications, information technology, satellite and multi-media communication. With high-quality products manufactured using high-technology and its international and professional image, it has been recognized as an established organization."
They say they have developed a system which enables people to achieve their ideal lifestyle and to become entrepreneurs by fostering friendships so that "everyone involved will become richer both spiritually and financially and thus produce more entrepreneurs and successful people."
Here they stated that if you bought a Mat and joined the Giraffe Club and the Grow Rich System, you could earn commissions by introducing others, and yet further commissions if those people also joined and introduced others.
"The Kingdom of Happiness from Giraffe World, which gives you billions of dollars of business potential, is inviting you to be an entrepreneur."
At the meetings the health benefits of the Mat are extolled in on-stage "presentations" to prospective buyers who are told that upon paying $2,900 for the Mat, $50 as a "membership application fee" and $300 as a "membership fee", you can become members of the GC.
A pre-condition of your membership in the GRS is that you attend a "Business School" (often appropriately referred to as "BS"), attend a two-day "Management Consultant Class" and "pass an interview" which does no more than ensure that you have friends or acquaintances you can invite to Happiness Circle meetings.
There are eight classes of membership of the GRS. Giraffe Member (GM), Giraffe Leader (GL), Giraffe Retail Assistant (GRA), Giraffe Retail Manager (GRM), GRM 3 Star, GRM 5 Star, GRM 7 Star, GRM Super Star.
The higher one's category of membership, the more "downline" agents one has and the more indirect commissions one can earn. The commissions earned are calculated according to a formula based on "Business Volume" measured by dollar amount. Each successful introduction has a Business Value of $2,500.
"Once you have reached GM level, you are already earning 15 to 25%. After you introduce three more people either yourself, or through the members you have already introduced, then you will be earning 19 to 33%."
"Introduce three more people and you move to the next stage where you will become Giraffe Retail Assistant. Here the percentages start to get exciting, because now you receive 41% commission. Introduce three other GRA's, then you will become a Giraffe Retail Manager where you can receive 51% commission.
And the best part about this level is that you get a national income bonus level of 3%."
"Once you move to the GRM stage you can really start to see the potential of the grow rich scheme, because here you will start to earn between $30,000 to $70,000 a month. Our president is earning $120,000 a month as a GRM 3 Star."
"Last month the company turned over $2 million and this month it looks like it will turn over about $3 million. We have almost 6,000 members and by this time next year we hope to have 50,000 members. When Giraffe World starts to bring in about $6 to $8 million a month, then you can see where the additional 3% bonus really kicks in for those at the GRM level."
"Unlike other direct selling companies Giraffe World focuses on limiting the number of people directly below you to just three. It wouldn't work without having a great product. And the negative ion mat is a real innovation that will help you personally, which you can then share with your friends."
After the meeting is over you go to a "VIP Lounge" where a more senior member of the GRS promotes the benefits of the Mat and membership in the GC and the GRS on a one-to-one basis. They emphasize the strong desirability of deciding and signing on the spot.
Out of 4,656 persons who joined, 3,238 had applied to join the GC and the GRS on the same date. People who joined thought it was a good business opportunity to earn money.
Giraffe World sought to portray their court case as a battleground between conventional and alternative health care systems while qualified experts questioned the mat's worth. A Dr Nicholls denounced the Product Manual's numerous claims as having no foundation in science, and, in many cases, as being simply nonsense.
"A body lying on the mat would be subjected to an electric field with both direct and alternating components. There is no magnetic field generated by the mattress. Similar electric fields, generated by electrical appliances may be found in an electric blanket, household wiring or an electric toaster."
A Slow and Painful Recovery
May 2000 - After a 4 1/2 year investigation International Metals and Trade Corporation, president Neil Phillips, and V.P. Robert Benzing pleaded guilty to fraud and were ordered to return $2.9 million to the 3,936 people they scammed.
Philips was ordered to make full restitution, serve two years in jail and 10 years probation and Benzing was ordered to pay $65,000 in restitution and serve three years on probation.
From between October 1994 and June 1996, over 29,000 people in Florida joined IMTC which claimed to be a multi-level marketing company that sold products from catalogs.
The criminal investigation however revealed that their computer system and financial structure were designed from the beginning to pay commissions on the number of business centers sold to distributors and not on the amount of products sold. This factor identifies it as a classic pyramid scheme.
The 3,936 victims will only recover about 19% of their initial investment based on recovery efforts so far, unless Phillips is able to meet the full restitution order in the future.
I took a survey a week ago and yesterday the "Professional Savings Network" called and said I was receiving $50 in gas coupons and a free vacation if I go pick them up.
It turned out to be a fairly impressive slide show that essentially stated that for $2000 for the first year and $350 for every year after we could get two weeks in a hotel or condo for just $49 a week, in the off-peak time.
Also, you partake in a wholesale buying program and get $1000 dollars in coupons in almost any food product possible. I think I have seen this on an infomercial but I'm not sure.
Zawojski, Frank -Professional Savings Network
Stearns, Brian - Network Direct
5320 College Boulevard,
Shawnee Mission, KS 66211,
913-451-0960 Fax: 913-451-2141
Phone #913-338-3072, URL www.psnonline.com .Reg: 04/98
We have until Monday to decide and I don't want to waste money we don't really have. They say that they're in good standing with the BBB but I haven't checked. And the only thing I can find online is online scams!!
Benjamin E. Nelson 04/11/02
Her Nickel's Worth
My husband and I were victims of Professional Savings Network and still have not received the almost $2,000 we feel they owe us, not to mention the awful vacation that we took on our honeymoon through them. The condominium was NOTHING like what they said.
We also ended up with a broken juicer and luggage that ripped the very first time we used it (on our honeymoon). I called seven times to get the 10 year warranty on the luggage as was promised and UPS NEVER came to pick up my luggage for an exchange like the CSR said would happen.
It was not until we threatened them that they credited our money back and that was after they said that they did, when they didn't, and that they were unable to credit it back to our bank card.
They seem to charge whatever a person is willing to give them. I think if we had said it was still too much they would have lowered it again. While they supposedly gave us a discount, since my husband was a student, at $1,995 it still looks like they still charged us the top rate and we then had to pay $98 to get it started.
We picked up a BINGO card in a grocery store which said that we won a vacation or money and that is how they reeled us in back in Oct '99 then went out of business in December.
We were told that we could cancel or that if we did not want their service for one year they would waive the $98 annual fee but it turns out it is non-cancelable and you can NEVER leave!
For every year that we were a member they added $98 to financing which we had initially with PCS Financial and then with Fair Financial who knew what was going but still charged around $65 per month with an 18% interest rate.
They appear to still be in business under the name of Global Connections, Inc. using the same mailing address but different phone number. We also received an e-mail from PSN for the Diamond Savings Network, which also have a website.
Check out the KansasCity.bbb.org report. There is still a Professional Savings Network website likely deceiving others into thinking that they are getting a great deal when in fact they are wasting their hard earned money.
As far as I have experienced... THEY ARE A SCAM and I would NEVER waste that much money for a stupid savings network when it is cheaper to buy retail! They LIED about getting it 3% above wholesale. The products were either the same price as in retail stores, more expensive or literally 5 cents less!!!! Now how ridiculous is that!?
You may also want to check out this website: http://freecorp.com/prod.html which promoted foreign and domestic estate planning, asset protection, and tax analysis; access to business telecommunications; and access to the Professional Savings Network.
Eileen Carroll 06/30/02
09/00 AUSTIN - A final judgment and permanent injunction was granted against Asif Shamsi, the owner of the Professional Savings Network of Texas, Inc. requiring them to pay $43,000 in attorney fees and restitution for consumers.
The suit alleged that PSN misrepresented the true nature of any discounts the consumer would receive on retail items such as furniture and electronics by being a member of PSN's buyer's club.
After consumers purchased the membership and attempted to use it, they learned that representations during the initial solicitation were false, and that the savings, if any, were far less than represented and were obtainable at local retail stores at the same or lower prices than offered at PSN.
The State's investigation revealed that PSN actually purchased some electronic equipment ordered by consumers at local retail stores such as Best Buy and Circuit City--instead of purchasing the products directly from the manufacturer as represented to consumers.
PSN also engaged in deceptive advertising by distributing "scratch off lotto cards" showing that consumers had won a valuable "prize" if they called in.
Once they were on the phone, a PSN representative then told them to come to the store for a brief tour in order to redeem their prize. The brief tour was, in fact, a lengthy sales presentation focusing upon memberships in the buyer's club for $800 to $1,695. The actual prize awarded was always a "vacation certificate" of little or no value.
The formerly Houston-based company which went out of business in December of 1999 was sued for violations of the Texas Contest and Gift Giveaway Act, the Texas Deceptive Trade Practices Act and other consumer protection statutes.
Pyramid Exposure "Summed Up" as Death Threats
My daughter and her friend were involved in what we perceived to be a pyramid scam called The Sum-it Club located in Woodbridge, Ontario, Canada. They both laid down $300.00 one evening with a promise to come back the next day to authorize them to withdraw $120.00 a month for the next 2 years.
The whole focus of the evening was to recruit other people and then get paid $400.00 for each recruitment. After several phone calls asking for a refund of her deposit we were told she was out of luck as she had signed a non-refundable deposit form.
The man who was also their "in-house lawyer" told us basically too bad and I am going to enjoy spending your daughters' money. I called them several times and informed them that I would be calling newspapers, radio stations, their sponsors and would show up at their next meeting to tell these kids not to sign. I planned to at least expose them for the scam that they were.
Low and behold, I get a call from the police and I am arrested for saying that I was going to kill them. So with two signatures (the lawyers and a women I spoke with), I went from being the accuser to being the one accused. Can you think of anything to help my case?
Marian S., Oakville, Ontario 09/27/02
Petition to Protect Consumers from the Legalization of Product-Base Pyramid Scheme Marketers
Take Action Now!
Call or write to your elected officials and urge them to reject the current effort of the Direct Selling Association to enact its industry-sponsored legislation that would serve to legalize all product-based pyramid schemes.
Points to make in your statement:
|The bills that are sponsored by the DSA both at the state and federal level create loopholes and exclusions that allow harmful, predatory, and deceptive marketing practices.|
|The clever and misleading wording of the bill gives the appearance of consumer protection, but in fact achieves the opposite.|
|The effect of the bills is to permit marketing practices that are currently prosecuted as pyramid fraud by state and federal authorities. Effectively, this proposed law would enable pyramid fraud to operate with the cloak of legitimacy.|
Call or write to your State's Attorney General to express your concern about the DSA-sponsored pyramid scheme legislation. Ask them to issue a statement about it.
Call or write to the Federal Trade Commission to express your concern about the DSA-sponsored pyramid scheme legislation.
Let PSA Know!
Please let Pyramid Scheme Alert know who you're contacting, and what their response is. You can email them copies of correspondence at "petitions at pyramidschemealert.org." (Take out the spaces and put in the appropriate symbols instead of the words. They're trying to cut down on spam.)