This article by Patty Wentz of the Willamette Weekly in Oregon is
a refreshingly humorous look at Gifting Clubs.
The Alameda living room is packed. Women fill the couch, balancing
plates of cheese and crackers on their knees--they crowd the piano
bench, curl on the floor and spill through the dining room entryway
holding glasses of red wine. They are young hipsters, lesbian couples,
elegant WASPS and aging flower children. The gathering is semi-secret,
only for the invited, and everyone uses first names only. Men are
not allowed. This is a woman thing.
"Men would only want to make rules," a middle-aged woman
named Pamela says mockingly, as her girlfriend laughs at the truth
of that.
"This is my chance to connect to other women," says one
fresh-faced woman with long mouse-brown hair. "There are good
things I want to do." Besides, she says, her savings were sitting
stagnant in the bank, earning low interest, while she sees fortunes
being made in financial markets. "What was I supposed to do,
call Dean Witter and ask them what I should do with my money? I don't
think so."
The other women nod. Some talk about how they have paid off their
school loans or those of their children or finally helped their aging
mothers. One mentions setting up a fund to help Hispanic women fly
home to Mexico to escape abusive husbands. They all agree: Sisterhood
will raise them up from the bonds of their second-class-citizen status.
These women know money means freedom and power, and they aim to get
some.
Welcome to the Women's Dinner Party, the latest pyramid scheme to
hit Portland. For the past four months, metro-area women have been
going to clandestine meetings to learn how they can help other women--and
themselves--change their lives by getting rich quick. Part safe house,
part slumber party, part revival meeting, the gatherings have been
held as often as four nights a week. While it's impossible to know
how many people belong, members say that more than 200 women have
each paid $5,000 in cash in hopes of reaping a $40,000 jackpot five
to seven weeks later. If true, there is at least $800,000 to $1 million
of unreported, unearned cash in the safety deposit boxes, dresser
drawers and bedroom closets of women around Multnomah County.
The steep initial investment and high payoff appeals to a mostly
middle-class crowd, the kind of women who have access to five grand
(although half-spots for $2,500 are available) and are willing to
hand it over to a stranger.
The Dinner Party might look like a clever gifting system that skirts
the IRS, but in reality it's nothing more than a basic pyramid scam,
similar to a chain letter. Pyramid scams have been around as long
as there have been people who want to believe they can get something
for nothing. They've been described as being like wildfires, flaring
bright until they're stomped out, only to spark again in another
location.
As much as its members want to think otherwise, the Dinner Party
isn't about women helping women; it's about women cheating women.
It's an illegal scam that's bound to collapse on the very people
it claims to be empowering. In other words, sisters are doing it
to themselves.
When they first hear about the Dinner Party, skeptics wonder how
anyone could be so stupid as to join. But the most successful pyramids
have a hook that appeals not just to greed but to something higher,
to social or political affinities or emotional connections, allowing
people to suspend logic in pursuit of the payoff. Sometimes it's
religion, sometimes it's race, sometimes it's political affiliation.
For this group, it's a pair of X chromosomes.
Rebekah Folsom, until recently a technical writer at Marketing One
in Portland, was invited by a friend to a Dinner Party meeting last
month at Northeast 22nd Avenue and Knott Street. Folsom's friend
boasted that she had joined a women's group that was going to help
her get out of debt.
"At first, I thought of it as a board of women with money," she
says, "that she'd met some nonprofit group."
Folsom was keen to find out more. She is carrying school loans and
$23,000 in medical debt. She was intrigued by the idea of women taking
care of their own. Moreover, she trusted her friend, whom she knew
through volunteering at a women's social-service agency.
"God, I was thrilled. I wanted very much to believe some generous
feminists had an organization that could help me out."
She found something else entirely.
Victoria is beaming like Tipper Gore at a meeting of Iowa grange
wives. Big-boned and blond, she wears a corporate-casual outfit of
khakis and a blazer. Paula Sanderson is hosting the meeting at her
Irvington home tonight, and Victoria is the "presenter." You're
here, Victoria says, because you have been invited to take part in
an exciting women-based financial opportunity. The system has been
working in Seattle since last spring, she says, and in Canada for
10 years. Holding a small white board, she draws 15 Xs to form the
shape of a triangle, with a single X at the top.
Each of the Xs is worth $5,000, and the payoff is $40,000--a 700
percent return. Because it is, after all, a "dinner party," she
explains the process in terms of food--calling new members "appetizers" and
saying women progress up the ladder until they reach the "dessert" level
and the payoff.
"That's when she gets her 'just desserts!'" Victoria gushes.
When a woman signs up to join the club, Victoria says, within 24
hours she will get a phone call telling her who the "birthday
girl" is. That's the woman to whom the new "appetizer" will
be giving her $5,000 "gift." Seven other appetizers join
in to make a combined $40,000 "gift."
The birthday girl sets up the meeting, but Victoria urges the appetizers
to be creative in giving their gift (which is given in cash, preferably
small bills). Some have delivered the money in a box of chocolates
or a bouquet of roses, or stuffed in red peppers with clever notes.
Just think what $40,000 would mean, Victoria says. Women rarely
have access to big chunks of money like this. It's enough to pay
off credit-card debt or school loans or put a down payment on a house.
No need to grovel before Regis Philbin. Women can take care of their
own.
The group operates on trust and integrity, Victoria explains. There
are no printed materials and no leaders. Volunteers give the presentations
and track the progress of the members on computer.
Several women attest that while they were at first nervous about
taking so much money out of the bank in cash, they soon found the
experience of holding and controlling their own money empowering.
And giving it away, they all agreed, was as good as the idea of getting
gifted themselves.
This isn't a pyramid, Victoria says, as if oblivious to the triangle
of Xs she has drawn on the board. It's a circle. A circle of women.
She explains that when the dessert girl collects all her gifts,
she can leave the circle with her $40,000 worth of presents and "have
a nice life," or she can join back up again as an appetizer.
Someone asks the essential question: When every woman in the area
has signed up, how will they add new members and pay off the desserts?
Another woman jumps in to reassure her. There are innumerable women
in the metro area, and it's growing constantly. Besides, she says,
there are more women than men.
At a Dinner Party, emotion roars like a she-lion while logic whimpers
forgotten and ignored in the corner.
For a single woman to receive $40,000, eight women have to come
in at the appetizer level. That seems plausible. But consider that
the Dinner Party claims at least 200 members. If each of them is
to get the $40,000 "dessert," 1,600 women have to be recruited.
For those 1,600 to be paid, 12,800 will have to join. And so on.
Three cycles from now, the Dinner Party will need to recruit 819,200
women. Considering there are only about 245,000 adult women in Multnomah
County and 1.3 million in the entire state, it's easy to see that
sustaining the group is impossible.
But Victoria and the other presenters don't want anyone to do the
numbers.
"They make it sound as if the math is a little out of reach
by being very obfuscating," says Folsom, describing a meeting. "That
thing they do with the white board doesn't explain anything."
Sanderson says that because women have the opportunity to join again,
the circle can maintain itself, as if the same money could infinitely
cycle through the group. Also, she says, there's no reason the group
can't keep growing. It's been growing in Seattle, she says, and she
believes the organizers' claim that it came down from Canada 10 years
ago.
"Wouldn't it be wonderful if it would compound itself all over
the world?" It's as if Sanderson and the other members believe
they can defy gravity by not looking down.
Some of the club members, however, have been unable to silence their
consciences completely; they say they planned to go through the cycle
only once, as if that would keep their hands clean. Others sense
the small window of opportunity and grudgingly admit it's better
to have come early to dinner when the feast is still hot than show
up late when there is nothing left on the table.
Yet they attack nonbelievers as being too linear and too male. At
the meetings, members testify that outsiders are opposed to any gains
made by women, including the accumulation of wealth. Folsom says
when she presented evidence to her girlfriends that they were involved
in a scam, she was accused of buying into the system that wants to
squelch any advances made by women and minorities.
"The thing that made me so mad about that was I wasn't talking
about the white male power structure, I was talking about math," she
says wryly. "Math knows no gender or color."
After the pitch, Victoria puts aside the white board and opens up
the floor for questions. The group is sprinkled with veterans who
say they come each week for the chance to bond with the other women.
As if rehearsed, one of them prods Victoria to talk about how people
come up with the initial $5,000.
"Well," says Victoria, "some women have used those
blank checks that come with their credit cards." Other women
say they've taken out signature loans, cashed out 401(k) plans or
borrowed from a boyfriend.
Victoria waves her hand with glee and says that men can't join but
they can "donate."
Pamela says she put the $5,000 on her credit card. When she talks
about being part of the group, tears of happiness and excitement
well up in her eyes at the thought of paying off her debt.
Finally, another woman asks the most important question of all:
Is this legal?
"Good question!" Victoria says approvingly. Members of
the Dinner Party include CPAs and lawyers, she says, and it isn't
an illegal pyramid for three reasons: There isn't anyone on top raking
in the money, there is no central organization controlling the money,
and the members don't have to recruit (although they are encouraged
to do so and it is clearly in their interest).
She adds that the IRS does not require taxes on gifts of up to $10,000
from one person. "But you can report it if you want to," she
smiles. "There's a place for that on your tax return. We tell
women to follow their hearts and do what they think is best."
Victoria adds that while some people want to paint the Dinner Party
as an illegal activity, the attorney general's office in Washington
state has taken a hands-off approach.
Although it may seem that foolishness is punishment enough and that
those at the bottom of the pyramid should be left to their own devices,
a participant can find herself in both civil and criminal trouble.
Gifting clubs such as this are illegal in Oregon and all other states.
Despite the reassuring definition put forth at the meeting, a pyramid
scheme is simply any system where no products are sold and new money
is made only by the addition of new recruits. Pyramids are illegal
because they must inevitably fail and the few will make money at
the expense of the many.
Jan Margosian, consumer information coordinator for the attorney
general's office, says her office is investigating Dinner Parties
in Portland and in Lane and Linn counties.
"We are looking at Portland," she says. "We have
names."
In Eugene, a similar group moved through the real-estate industry,
beauty salons and other places women tend to frequent or work, according
to Det. Steve Williams of the financial crimes unit of the Eugene
Police Department. The group hit Lane County in July of last year
and started coming loose in September when recruiting became difficult.
By that time it had spread so fast and far that the wives of high-ranking
officials in the Eugene police department were being invited to the
meetings.
When the group started falling apart, Williams says, his office
started getting calls from people who were afraid of being ripped
off. The club had hit saturation point, and organizers were desperate.
"They were changing money in the parking lot, like a drug deal," he
says. "We had one local business where so many people were playing
it was becoming intimidating to the women who were not."
Just last week, the chief of police in Pendleton notified the state
attorney general's office, suspecting the Party has come to his town.
Margosian considers the Women's Dinner Parties particularly insidious
because of their sophisticated sales pitch, which ultimately turns
women against women.
"How empowering is that?" Margosian asks. "How much
of a friend are you being if you're ripping off other women?"
Paula Sanderson maintains that the Dinner Party meetings she's been
holding at her house on Monday evenings are not illegal.
"We come, we eat, we talk," she says.
Trying to reason with her is as frustrating as giving a cat a bath.
WW: "The Dinner Club fits the criteria of a pyramid scam, and
pyramids are illegal."
Sanderson: "Multi-level marketing is legal."
WW: "Yes, but in multi-level marketing, there is a product."
Sanderson: "What about the stock market? Are you trying to
tell me the stock market isn't a pyramid?"
WW: "In the stock market, you're buying equity in a company
or trading actual commodities."
Sanderson: "We have a commodity."
In a sense, she's right. It's the same commodity that made Waiting
to Exhale and Beaches top-grossing movies. But it's more than cheap
sentimentality. It's the connection that women share--the Sisterhood.
The Sisterhood that says--when the boys are getting the good jobs,
your man has disappeared, your work is undervalued and you're underpaid--your
girlfriends will always be there. The Sisterhood that says the system
isn't working for us, and we need to create our own rules.
"I trust women," Sanderson says. "If it were men,
I wouldn't trust it. If I have to explain that to you, you have totally
missed the point. Come to another meeting."
Reprinted with Permission
05/02 - For almost a year, dozens of women from Chico, California
and neighboring communities have been meeting in private homes and
via conference calls as part of a "dinner circle" called
The Women's Circle, or Women Empowering Women, which claims to empower
women by creating a monetary and emotional support system that deftly
operates outside of male- and media-dominated mainstream financial
society.
At the secret sisterhood meeting, women are told those dreams can
come true if they come together to subvert the dominant paradigm--to
the tune of a $5,000 "gift."
Some elements of the structure seem almost cult like, such as the
closed-circle secrecy that builds a false sense of intimacy and the
new-age ideals and terminology used as a recruiting tool to get more "women
of integrity" involved.
"It's not about money. It's so much more," says one woman,
speaking with the intensity of a Baptist preacher at a revival. "We're
holding on to each other's dreams."
In communities nationwide and overseas, women have similarly sought
to have their dreams fulfilled through "gifting circles" only
to watch their money disappear when the circle breaks apart once
the supply of new members is exhausted, or someone runs to law enforcement
or the media.
The California Attorney General's Office confirmed that they are
illegal and stated people who conduct an "endless chain" can
be prosecuted for a misdemeanor or felony under Section 327 of the
Penal Code, or Section 484, "your general theft statute."
In New Mexico the Women Empowering Women setup resulted in four
grand jury criminal indictments. More than 400 people who bought
into the New Mexico scheme have applied to get at least some of their
money back through a restitution program that may let those who profited
avoid prison time.
Believers counter that it's not an endless chain for several reasons:
because it's not an investment and the women give the money with
no promise of any returns; the exchange is between a giver and recipient
(not the group); the IRS allows people to give away money; and there's
no product involved. Plus, there's no fixed hierarchy. If you get
your $40,000, you're off the top, but you can choose to pay and re-enter
at the appetizer level.
But no matter how pure the intentions of the women who join, it
is based on somebody beyond you getting hurt.
It takes eight to pay one, which means that eight out of nine people
have to go home empty-handed, even if the cycle progresses to infinity.
The moment it begins there is the certainty that 88 percent can't
be paid. It simply transfers the money from 88 percent and
gives it to 12 percent.
For the full story and some excellent graphics see the Just Desserts
article by Devanie Angel.
www.newsreview.com/issues/chico/2002-03-07/cover.asp
'Gifting'
parties crashed - Pyramid alleged; 4 arrested
By Peter Hecht -- Bee Staff Writer 10/3/02
Sacramento sheriff's detectives Wednesday arrested four women, alleging
they took in hundreds of thousands of dollars by promoting a pyramid
scheme and secretly cheating in the "gifting" club marketed
as empowering to women.
The four women -- described as major promoters of Women Helping
Women dinner parties -- surrendered Wednesday morning with their
attorneys at the Sacramento County Sheriff's Department.
Those arrested were Cheryl Lorraine Bean, 54, and Anne
Marie King, 47, both of Fair Oaks, and Pamela Ann Garibaldi,
57, and Cathy Louise Lovely, 49, both of Rocklin.
Authorities said Bean is a former Pacific Bell human resources officer,
Garibaldi is a part-time English professor on leave from Sierra College,
and King is co-owner of a Roseville Montessori school. Lovely was
described as not working and having no source of income other than
gifting parties.
The women surrendered without comment, but one of their attorneys,
Bill Portanova, said they have been unfairly labeled.
"These are PTA leaders, den mothers, baby sitters and career
women, present and retired," Portanova said. "They were
playing a sort of parlor game in the same way that a man might bet
on a football game. It's devastating to them after lives of law-abiding
citizenship to be characterized as criminals."
Authorities say Bean was a leading regional director and the other
women were area "chart monitors" in a scheme that drew
10,000 women and took in as much as $12 million.
Sheriff's Lt. Tom McMahon said the four women each reaped more than
$100,000 in personal profit from multiple "birthdays" on
the dinner party circuit. At the parties, individual women or groups
of women pooling their money give $5,000 to a "birthday girl" to
secure one of eight "appetizer plates" on a club chart.
As more women come in they can advance up the dinner party ladder
to the "soup and salad" level, then to the "entree" and
ultimately to the "dessert" level -- where the "birthday
girl" gets $40,000 in cash.
But Sacramento County Sheriff Lou Blanas said the chances of other
women cashing out as the birthday girl decreased because some of
the promoters -- including the four women arrested Wednesday -- were
secretly manipulating the charts.
"Our investigation has uncovered a fraud within a fraud," Blanas
said of the Women Helping Women circuit. "The money is systematically
being manipulated by 'chart leaders' and organizers, significantly
reducing the chances of others."
Portanova said that the arrested women were merely participants
at dinner parties and that there isn't any evidence they manipulated
charts. He also said Women Helping Women "has no high corporate
structure."
The four women were each booked on suspicion of felony conspiracy
to cheat and defraud, and felony violations of state securities laws
and the California endless chain statute. If convicted, they face
up to three years in prison and fines of up to $10,000 per offense.
The California Department of Corporations also is considering seeking
separate civil penalties for alleged violations of state securities
laws through false claims in marketing the gifting scheme, said Jo
Dunlap, a supervising attorney for the agency.
The arrests followed police raids on the homes of six other women
Tuesday night, including two residences in Rocklin and one each in
Granite Bay, Sacramento, Fair Oaks and Colfax. Six houses were searched
Sept. 16, leading to Wednesday's arrests.
More arrests are expected in the investigation into a gifting club
phenomenon that has spread throughout the region despite warnings
from district attorneys or sheriffs in Sacramento, El Dorado and
Placer counties.
"Over the last four months my office has fielded inquiries
about the Women Helping Women scheme and we have consistently indicated
this is illegal," said Sacramento County District Attorney Jan
Scully in a press conference announcing the arrests. "The
promoters have said, 'If this is illegal, why hasn't anyone been
arrested? Why hasn't anyone been prosecuted?' Today we're answering
that."
Amid gracious dinner parties and the festive atmosphere of a girls'
night out, Women Helping Women was marketed as being empowering for
women. "Birthday girls" would testify about how they could
pay off bills, aid ailing relatives, leave abusive relationships
and elevate their lives.
Many participants were fiercely loyal to the gifting circuit, discounting
law-enforcement warnings and condemning critics as "anti-women." Some
parties were organized around charitable donations, but authorities
say Women Helping Women has no ties to legitimate charities.
"It should be named Women Fooling Women," Scully said.
On Wednesday, Blanas said authorities are investigating another
woman, who hasn't been arrested, for possibly manipulating gifting
charts to earn "as much as $400,000," including the bounty
from eight "birthdays" in a five-month period. Undercover
officers infiltrated dinner parties and recorded activities.
Authorities said Bean was the virtual regional director for the
scheme and a regular dinner party circuit speaker who repeatedly
made false claims that the activity was legal.
After Bean took a leave from her corporate job, sheriff's Lt. McMahon
said, she earned full-time income on the gifting party circuit and
was rewarding herself handsomely, including $80,000 in home remodeling.
According to reports, Bean's alleged manipulation of the dinner party
charts included inserting her husband under the name "Paulette."
Authorities described Lovely as an "area monitor" for
gifting club parties that took in more than $1 million.
McMahon said Lovely profited more than $100,000 through multiple "birthdays." He
said she recently paid $27,000 cash for a new Volkswagen Jetta and
then insisted that the car salesman leave no paper trail.
"She got into an argument with the salesman about filing the
sales tax paperwork," McMahon said. He said authorities confiscated
the car after Lovely "couldn't show us that she had the money
(in a bank account) to legitimately buy the car."
According to materials seized from her home, Lovely tracked more
than 25 "chart leaders" running Women Helping Women gatherings
and compiled phone numbers, e-mail addresses and other information
for gifting activity as far away as Bakersfield.
Authorities say Garibaldi brought two adult daughters into the scheme
and the trio reaped a profit of at least $185,000. In an arrest warrant
affidavit, Sacramento Sheriff's Detective Eric L. White said Garibaldi
told investigators she held weekly Women Helping Women parties at
the Edgewater apartments in Citrus Heights and recruited some of
her students from Sierra College before she went on leave this fall.
"Garibaldi said in some instances she has 'sponsored' her students
with the pledge amount, which was repaid to her when her students
received their birthday presents," White wrote.
While the four women and others were profiting, many women were
losing out, investigators say. McMahon, who said Sacramento detectives
started investigating in June, said women began coming forward saying
they had been taken.
"People at the bottom of charts that aren't moving are getting
wind of people 'birthdaying out' multiple times," McMahon said. "They
are becoming disgruntled and they're becoming vocal about the internal
fraud."
McMahon said authorities are targeting key promoters and don't intend
to go after the women who attended gifting parties or put in money
at low levels and never profited.
Beware the pyramid
party scheme
By Julie Sturgeon • Bankrate.com 05/27/03
Lisa Bernfield is a rare woman not because she was
duped out of $4,000 but because she publicly admits it.
Six years ago, she accepted an invitation from a girlfriend
to attend a financial meeting. An independent publicist, Bernfield
was open to wealth-increasing strategies. She drove to the home of
an interior decorator whose floor space was packed with people interested
in learning more about The Platinum Gift Club.
"The host was gorgeous, throwing this party with
the help of his sweet, dear mom," Bernfield recalls. By the
end of that perfect fall night in Southern California, Bernfield
bought two opportunities for $2,000 each with the understanding that
her investment would eventually reap $32,000 as more people learned
about this great way to invest their cash.
"I knew I'd have troubles getting my circle of
friends involved. I relied on the friend who recruited me to pitch
in with invitations on my behalf," Bernfield says. It might
have worked given all the time in the world, but after the holidays,
the group meetings ceased.
She didn't get rich; she was out $4,000.
Costly "parties"
Bernfield is not alone. Across the country, people,
particularly women, are targets of this latest cottage-industry craze.
They are pitched as parties to help others earn money, but critics
and law enforcement officers warn that the gatherings are scams.
The names vary -- Friends Helping Friends, Women Helping
Women, The Friendship Investment Club, The Spirit of Giving -- but
the concept is the same. To become a member, the new member makes
a cash gift to the person at the top. Once this head honcho receives
a predetermined amount in gifts, he or she vacates the chair, the
group divides into two and everyone moves up to the next level.
James Walsh, author of You
Can't Cheat an Honest Man: How Ponzi Schemes and Pyramids Work
and Why They're More Popular Than Ever, calls these invitations
by their true name: pyramid schemes, a transfer of capital not
based on any profit-earning activity. For each investor to recoup
money, two more must join the club.
The imagery built around the operation varies. Some
use dinner-menu symbols where participants move from entrees to dessert.
Others construct a birthday party theme where the person on top unwraps
wonderful cash presents. The party version operates on amounts ranging
from $500 to $2,000. The occasional club requires a $5,000 buy-in.
That price, says Les Henderson, author of Crimes
of Persuasion, is the first sign you're dealing with professional
swindlers rather than naïve citizens.
The gifting investments typically offer a more informal
setting and seek to capitalize on a network-marketing emphasis. But
don't confuse gift clubs with multilevel marketing, Walsh warns.
"Even a poor MLM sells a product and you must
take a risk. There's no such thing as guaranteed profit. Risk-ratio
awards are one of the eternal truisms of a capitalist economy," he
says. The Federal Trade Commission rule of thumb: If a group bases
more than 30 percent of its compensation on recruiting new members,
watch out.
No members, no money
Investors typically lose their money when the group
runs out of steam on the recruiting side.
In Bernfield's case, the organizer announced he intended
to devote time to establishing gift clubs in Oklahoma and had no
more time for his California ventures. The sheep in his pasture tried
to carry on, but the effort soon petered out.
Left out in the cold, most pyramid participants rationalize
or blame external forces: bad press, overzealous government attorneys,
sexist oppressors who don't want women to help each other make money.
"People just don't realize these are scams. They
think of them as bad consumer dealings, poor recruiters or unlucky
investors," Henderson says.
That's perfectly understandable, given the truckloads
of assurances the hosts spoon-feed at every meeting, Walsh says.
The clubs tend to spend a large part of the meetings defending their
tactics. Most attack the legalities head on, claiming they're not
pyramids because the host is eventually forced to retire rather that
keep raking in the dough as is typical of pyramid schemes. They also
devote reams of paper to approval statements from vague authorities
like "a police officer" or "a federal judge."
Bernfield says she knew at first glance the club was
illegal but still joined. "I'm a risk taker," she explains. "I
saw the money in action and understood the logic. As long as you
get people to buy, you move up the ladder."
Her candor is rare. Henderson has found that most participants
get sucked in because they can't say no to a friend. Walsh blames
the fun atmosphere cloaking the parties. "It's like a Tupperware
or Pampered Chef gathering," he notes.
And many experts hold the economy responsible for the
growing number of people willing to throw their money into the pot.
"Generally, these schemes signal a growing gulf
between the haves and have-nots," says Walsh. "One of the
dangers of the dot.com bubble was that it de-linked notions of real
value with compensation. When the unsophisticated investor lost in
the downfall, he decided the whole system was a crooked scheme anyhow,
so this little party isn't any worse than eToys."
Striking back with limited results
Bernfield took her beef against the gift club host
to small claims court, where the charismatic creator failed to show.
The judge was amused by her bald-faced assertion that she thought
the investment legal but ruled in her favor anyhow.
During the collection process, Bernfield learned her
host hadn't used his real name. She invested hundreds of hours into
tracking him down only to find him living in a nice home nowhere
near Oklahoma.
Other disillusioned folks share her pain. Pyramid schemes
are difficult to litigate because most attorneys won't jump into
the fray for amounts less than $50,000, says Walsh. "Most gift
club perpetrators count on the nuisance value. They hope the legal
hoops are more than what most people will bear. They're right."
The clubs also avoid prosecution by employing cash-only
transactions to sidestep proof. Some insist members use only their
first names.
The tide, however, is turning. In 2003, club busts
and pending charges have been reported in California, Hawaii, Oregon,
North Carolina, Maine, Iowa, Pennsylvania, Texas, Oklahoma and New
Mexico. In addition to seeking the usual criminal penalties, some
prosecutors want club sponsors to make restitution to the victims.
But the chances are slim that the once-enthusiastic club members
will ever get their money back. As Bernfield learned, even when repayment
is ordered, collection isn't easy.
The best defense, Walsh maintains, is to avoid forking
over the dough in the first place, despite the friendships involved.
"Ask, 'What is the business?' What are we selling?
Recognize that 'networking opportunities' is not a commodity," he
reminds. "Don't accept the gibberish about the new economy and
the velocity of money. Keep asking, 'What's the underlying transaction?'"
And keep the questions handy. Henderson doesn't expect
gift clubs to disappear. "Nothing will ever stop it," he
says. "They will continue to work because human nature never
changes."
Come on Home, We Miss You
CANADIAN PRESS
01/04 CHATHAM, ONT - A once-prominent businesswoman who's in a Las Vegas
jail after her arrest for skipping out on a fraud hearing has waived
the extradition process, paving the way for her return to Canada.
Lisa Fulkerson, 33, was found earlier this week near a Las Vegas
casino, two months after skipping out on a court appearance in Chatham,
where she faces charges of fraud and theft totaling more
than $600,000.
During a Las Vegas court appearance yesterday, Fulkerson signed
documents waiving her right to an extradition hearing, Chatham-Kent
police and a source in the U.S. Marshals Service told the Chatham
Daily News.
That prompted an immediate extradition order, said Chatham-Kent
police Insp. George Flikweert. Two officers have already been assigned
to travel to Nevada to pick up the woman in the next few weeks, he
added.
Fulkerson is a past member of the Chatham and District Chamber of
Commerce's board of directors who was named entrepreneur of the year
in 2001.
She will remain behind bars until she is escorted back to Chatham,
police said. Her next court appearance is scheduled for Jan. 23 in
Las Vegas.
Fulkerson's fraud charges are in connection with a so-called pyramid
investment scheme.
She was picked up Monday by police in Las Vegas without incident
after she was recognized by a vacationing Chatham woman who happened
to be a former investor.
FBI spokesman Todd Palmer said Fulkerson had been working selling
lotions and hand creams in a shopping mall kiosk attached to the
Alladin Hotel and Casino.
FT MONEY - MONEY: Well-off women fall for 'dodgy' Hearts schemes
By Lucy Warwick-Ching
Financial Times; Apr 26, 2003
Thousands of women across the UK are putting money into dodgy investment
schemes, in spite of warnings that they could lose it all.
The latest is a get-rich quick scheme called "Hearts",
which is sweeping the suburbs. Wherever there is a concentration
of 30, 40, and 50-something women with £3,000 to spare - and who
understand the meaning of an eight-fold return - the scheme is being
punted.
"The meetings are full of very glamorous women talking about
how much money they'd made on the scheme and what they'd spent it
on," says one young woman who lost money in a scheme last year. "There
was one women who'd made over £100,000 and had bought her flat with
the money that she got back from Hearts."
Hearts is a variation of the Women Empowering Women schemes that
started on the Isle of Wight two years ago. The scheme is simple.
A friend who has already invested £3,000 invites you and a friend
along to a women-only party hoping each will invest a further £3,000.
At a subsequent party, these guests must bring two more guests of
their own, each again prepared to put up £3,000.
The scheme is not illegal because the investments are technically
gifts to other women, which means they are not covered by investment
regulations. And the figure of £3,000 is not an accident: this is
the maximum amount that can be gifted to another individual each
year without triggering a tax liability.
Every new "gifter" has her name entered on the first tier
of a pyramid chart. The names of her friends (and friends of those
friends) are added on each of the next tiers until the pyramid represents £24,000
worth of gifting - which is then passed back to the first gifter
as an eight-fold return on her stake.
The catch is that if each of the eight gifters is to turn their
money into £24,000, 64 members must be recruited. Those 64 will need
to find 512 people who will need 4,096 gifters. And so on.
"It's all very cleverly done with formal gifting covenants
and there is no mention of formal guarantees on the money invested,
so there is no come-back on the women recruiting," says Donna
Bradshaw, a director at financial advisers Fiona Price & Partners,
which specialises in giving advice to women.
She has been contacted by several women seeking advice on whether
to invest in Hearts. "I was surprised because I thought all
these schemes had collapsed, but they're coming back again, just
packaged in a new way."
The onus is on each of the stakeholding participants to recruit
the necessary numbers of new gifters to make their pay-outs possible.
"New recruits are told that, if they really want to make it
work, they can and that it's just about wanting it to happen," says
Bradshaw. "But they can't go on for ever; eventually, the supply
of new members will dry up and the scheme will collapse, leaving
thousands of people deprived of their money."
The Hearts scheme tries to restrict membership to the comfortably-off
and well-connected. It has even tried to get celebrities involved
with television presenter Cilla Black initially supporting the scheme,
but recently backing away from it.
To find new recruits, it appeals to women by telling them they will
be helping other women and getting their own back on a male dominated
society.
Although there is no central organisation literature is distributed
to new recruits at meetings.
"There was some information, but it consisted of a few badly
photocopied sheets and some stuff downloaded from the internet," says
a young woman who went to a meeting, but decided not to sign up.
Printed forms feature flowery lettering and heart logos. They are
full of touchy-feely words and phrases such as "supporting other
women" and "standing up for ourselves against men".
One flier claimed: "Our main goal is the empowerment of women
in providing for them the financial and emotional abilities to support
themselves and their loved ones."
Another doing the rounds at these meetings says: "We are literally
creating a new economic experience. The old belief of having to work
hard for anything worthwhile is changing and shifting with this process."
Judging the impact of the schemes is difficult because there are
no central records. But Les Henderson, who runs the website Crimes
of Persuasion, ( www.crimes-of-persuasion.com )
says thousands of women have joined such schemes in the UK. Others
have predicted as many as 600,000 people are involved.
Henderson says the rhetoric used in the Hearts scheme is in line
with other pyramid plans around the world, many of which concentrate
on personal contact and are geared towards a specific group of people.
Schemes in the US are run under names such as Ya-Ya Sisterhood,
The Dinner Party Scheme, Breakfast Club and Circle of Friends.
Schemes aimed at men are rarer, but they do exist. These have more
macho names such as Pit Stop and Engine Driver and involve men starting
off as firemen and moving up the pyramid to become the driver. In
Australia there is a scheme open to both sexes called Giraffe World.
"Women are targeted because they're seen as less financially
astute," says Bradshaw. "It's mainly aimed at women who
stay at home and look after the kids and is wrapped up in the image
of an exclusive club."
She predicts that Hearts will eventually collapse, like all pyramid
schemes, leaving thousands out of pocket.
"Pyramid schemes of one sort or another crop up every couple
of years, but they always end up this way, with the overwhelming
majority losing their money," says Bradshaw.
On the Isle of Wight the Hearts scheme faltered within months because
the small population could not sustain it for long. "At one
point there were over 300 schemes running with some appearing in
schools started with £10. After a while they just dried up, there
were not enough people to sustain the investments," says Richard
Stone, the island county council's trading standards manager.
Stone says he is amazed that people on the mainland are still signing
up. "I can't understand how people can be so stupid as to think
that they can benefit from these types of schemes," he says. "How
can people have such short memories?"
Pyramid gifting schemes are illegal in many parts of the US, but
not in the UK. "The only remote possibility of getting some
compensation is that if you can find someone with responsibility
in it you may have a case of fraud," says Stone.
"But this is very unlikely and there have been only a few people
who have won their cases so far."
Trading Schemes regulations of 1997 only cover schemes that involve
the purchase of a product. "When the Financial Services Authority
came into place there was a lot of thought that they should have
been able to cover this money marketing scheme.
"But it was taken out of the FSA's remit on the same day the
trading Scheme Act was introduced in 1996," says Stone.
Long says gifting club scam back in state
Associated Press
07/10/04 - RAPID CITY, S.D. - The state Attorney General's office
is warning South Dakotans about an illegal pyramid scam masquerading
as a so-called "gifting club."
Attorney General Larry Long said the scheme is similar to one that
swept through Rapid City, Watertown, Sioux Falls and other cities
in 2000.
"Many involved in the clubs are ... targeting their friends,
neighbors and relatives with claims that a $2,000 gift will quickly
become a $16,000 reward," Long said.
A gifting club is a classic pyramid.
Participants put their money into a pool and must find new contributors
to keep it going. Recruits add cash and go out to find more folks.
Players who get in early get paid, but the pyramid inevitably collapses
and latecomers lose it all.
Long said South Dakotans put more than $1 million into gifting clubs
in 2000 before they finally caved in.
Long would not comment on whether a new criminal investigation is
underway but said the latest scheme seems to be centered in Pierre.
"We're trying to put a lid on it before it gets rampant like
it did the last time," he said.
Pyramid schemes tend to be cyclical.
Every few years, the scams come back dressed up with new names and
new structures that make them seem different from past scams, Long
said. Sometimes they are touted as fund-raisers for a good cause
or an empowerment program to help people help themselves.
Sometimes they are nominally attached to a product line and touted
as a multilevel marketing program.
But if the program relies on new investors instead of product buyers,
then it's a pyramid scam, Long said.
In the 2000 Rapid City case, 34 people - including some business
owners and government officials - were prosecuted for their role
in the scam.
Authorities have not said how much money was involved in the scheme,
but confirmed that about $480,000 changed hands in a single day in
Rapid City before the scheme collapsed in mid-June.
Most pleaded guilty or no contest to charges of deceptive trade
practices and several people lost their jobs.
Bundle of money to be paid back in gifting club pyramid
scheme
By Joe Kafka, Associated Press Writer
07/30/01 - PIERRE — About $1 million will be repaid to people
who were duped in a pyramid scheme launched last year in several
South Dakota towns, state Attorney General Mark Barnett said Monday.
Barnett said he was tipped off about the scheme by bankers in Milbank
and Watertown, who said many elderly people were withdrawing money from
their accounts to join a so-called "gifting club."
Those who paid $2,000 were asked to recruit new members to do the
same. Eventually, each person was supposed to get $16,000.
"An awful lot of the folks who were at the bottom of these pyramids and
paid in all this money were promised that it was perfectly legal," Barnett
said. "I think a lot of them believed that and were talked into a scam."
The attorney general said his office prosecuted several people who were
involved in the illegal pyramid scheme, and state's attorneys in Brown,
Pennington and Minnehaha counties did likewise.
Barnett said his primary focus has been to stop the pyramid from spreading
and to return money to people who lost it.
"Basically, what we're doing is making everybody give the money back to
the people at the bottom of the pyramid," he said. "We prosecuted a
number of people who were organizers. I don't that we'll ever figure out who
got it going in South Dakota. These things cross state lines very easily."
Barnett said his office has recovered and returned $84,000 in Milbank;
$383,000 in restitution has been made in Watertown, with $144,000 more
to be recovered there; $225,700 has been received in other areas of the
state, and $104,000 is yet to be recovered.
People who were involved in the illegal pyramid and voluntarily came
forward were not prosecuted so long as they agreed to repay the money
they received, the attorney general said.
"We're confident that the people who owe it are going to pay it off," Barnett
said. "Once they figured out it was not legal, the vast majority of folks
wanted out as fast as they could."
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