What You Should Know About Cash Gifting: Don't Get Scammed!

(Image from Wikipedia)

Cash gifting schemes are the quintessential example of a pyramid scheme. Instead of selling products, cash gifting schemes forego the sale of products and just give people cash, but the premise is the same - like other pyramids, cash gifting schemes are based on the amount of people recruited.

Generally, these gifting "circles," "clubs," or "groups" encourage participants to pay a substantial entry fee (which can range anywhere from $500 to $5,000 or more). This entry fee will guarantee the participants a place on a chart of members. The participants will move on the chart every time they recruit more people into the "circle" or "club." And once the participant moves enough on the chart, they are "guaranteed" a large payout. Gifting schemes operate under a variety of names, as con artists that start these schemes are endlessly creative in their quest to con a lot of people out of a lot of money. But most gifting schemes follow the general pattern outlined in this alert.

Pyramid schemes, including cash gifting schemes, can become popular very quickly, because early participants often receive their payout as promised. Those participants that receive their money then relay their success stories to prospective participants, and the cycle continues. The problem is that eventually the pool of new participants runs out, and the pyramid collapses, and very few participants actually receive any money. Once a pyramid collapses, everyone, except the initial con artist that started the scam, will have limited prospect of ever getting their money back.

-- Cash Gifting Schemes
State of Michigan
Office of the Attorney General
10/2008

-- IN THE COURT OF APPEALS OF
THE STATE OF OREGON
FILED:
May 12, 2004

-- PREPARED STATEMENT OF
DEBRA A. VALENTINE,
GENERAL COUNSEL FOR
THE U.S. FEDERAL TRADE
COMMISSION on
"PYRAMID SCHEMES"

-- Cash Gifting Schemes - State of Michigan
Office of the Attorney General
10/2008

-- Wahington State
Office of the Attorney General

-- The New York State
Attorney General's Office

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.

-- Butte County
District Attorney's Office
Butte County, California

-- ATTORNEY GENERAL,
DISTRICT ATTORNEYS,
AND SHERIFF ISSUE ALERT
ABOUT GIFTING PROGRAM PYRAMIDS
Colorado Department of Law

A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, often without any product or service being delivered.

Pyramid schemes are illegal in many countries, including the United States, the United Kingdom, France, Germany, Canada, Romania, Colombia, Malaysia, Norway, Bulgaria, Australia, New Zealand, Japan, Nepal, Philippines, South Africa, Sri Lanka, Thailand, Iran, and the People's Republic of China. These types of schemes have existed for at least a century...

Pyramid scheme - Wikipedia, the free encyclopedia

...What is striking about these schemes is that while they are very old forms of fraud, modern technology has vastly multiplied their potential for harming our citizens. The Internet in particular offers pyramid builders a multi-lane highway to world-wide recruits in virtually no time...

...State officials independently file cases in state court, often under specific state laws that prohibit pyramids. California defines pyramids as "endless chains" and prohibits them under its laws against illegal lotteries. In a slightly different vein, Illinois classifies pyramid schemes as criminal acts of deception directed against property. Some states like Georgia prohibit pyramid schemes under a statutory framework that regulates business opportunities and multilevel marketing.

At the Commission, we bring cases against pyramid schemes under the FTC Act, which broadly prohibits "unfair or deceptive acts or practices in or affecting commerce." That Act allows the Commission to file suit in federal court and seek a variety of equitable remedies, including injunctive relief, a freeze over the defendants' assets, a receivership over the defendants' business, and redress or restitution for consumers...

"PYRAMID SCHEMES"
by
DEBRA A. VALENTINE, GENERAL COUNSEL FOR
THE U.S. FEDERAL TRADE COMMISSION
presented at the
INTERNATIONAL MONETARY FUND'S
SEMINAR ON CURRENT LEGAL ISSUES AFFECTING CENTRAL BANKS
Washington, D.C.
May 13, 1998

(Image from Wikipedia)

Holiday Magic was a multi-level marketing organization, founded in 1964, by William Penn Patrick (1930-1973) in the United States. Originally the organization distributed goods such as home-care products and cosmetics.

Company distributors were encouraged to recruit other distributors in a multilevel marketing structure, which was later characterized as a pyramid scheme.

On May 16, 1974, a compromise settlement with approximately 31,000 class members, establishing a trust fund worth $2,600,381, was approved by the court. The organization was dissolved in 1974, subsequent to the death of Patrick in 1973.

The company had been investigated by the Market Court of Sweden, United States Securities and Exchange Commission, the Federal Trade Commission, and the State of California. Holiday Magic is cited as an example in graduate level coursework on criminal justice and law journals...

Holiday Magic - Wikipedia,
the free encyclopedia

Oregon Attorney General Dave Frohnmayer has filed suit in Multnomah County Circuit Court accusing 200 unidentified people of engaging in an illegal scheme called the 'Airplane Game.'

The game involves the sale of eight 'seats' on a mythical airplane for $1,500 each. After all the seats are sold, the 'pilot' receives a total of $12,000 and the airplane is split, creating two new planes. The two 'co- pilots' of the first plane become pilots of the new planes...

OREGON SUES IN A BID TO GROUND 'AIRPLANE GAME'
SATURDAY, May 23, 1987

Attorney General Hardy Myers today warned Southern Oregon residents that participation in an illegal pyramid scheme known as the Northwest Family Reunion may result in fines of $25,000 for each person they attempt to recruit. The so-called "gifting" pyramid is currently most active in Klamath, Lake, Jackson and Josephine counties but reports of meetings have been received from the Portland area and from throughout Central Washington.

"The name is new but the scheme is not," Myers said. "We have dealt with similar gifting pyramids since 1994, and we have little tolerance for pyramid organizers and participants." Earlier pyramids with similar characteristics included the Airplane Game, Friends Network and The Gift Club.

Prospective players are told that the scheme is legal because it is a gift between friends and relatives, that they are not required to report the "earnings" to the Internal Revenue Service, and that both Oregon and Washington Attorneys General have approved the scheme. These representations are false.

"All pyramids are illegal because they are designed to collapse, making money for a few at the expense of many," Myers said. "When this one falls apart, we will not be able to spend tax dollars to assist individuals who lost money as willing participants in an illegal scheme."

Department of Justice investigators working with the Klamath Falls Police Department, the Klamath County District Attorney's Office and the Washington Attorney General's Office, have received reports of millions of dollars being illegally transported across the Washington-Oregon border. Players in both states are advised to stop all recruiting activities and return all money collected from participants. Failure to do so may result in legal action taken by the Attorney General...

Northwest Family Reunion:
Oregon Department of Justice
July 27, 1999

Irving L. Faught, Administrator of the Oklahoma Department of Securities, announced today that he has issued a Notice of Hearing on a Recommendation to Issue an Order to Cease and Desist against "Private and Confidential," a money exchange program that operates as a pyramid scheme.

Mr. Faught warns Oklahomans to avoid participation in any type of pyramid scheme offered in Oklahoma. "Participants should be aware that these schemes violate both criminal and securities laws. The 'Private and Confidential' program has every appearance of a pyramid scheme that violates Oklahoma law, and I strongly urge Oklahomans to avoid it," Faught said...

Gifting Program Ordered to Cease and Desist:
OKLAHOMA SECURITIES COMMISSION Oklahoma City, Oklahoma PRESS RELEASE
Gifting Program Ordered to Cease and Desist
For Immediate Release
Thursday, November 30, 2000

Pyramid selling, the get-rich-quick phenomenon that is gripping thousands of British women, is to be outlawed. Ministers fear it is creating debt and misery.

Patricia Hewitt, the Trade Secretary, who has warned women not to take part in the risky schemes, will this week meet Tessa Jowell, the Culture Secretary, to discuss how existing lottery laws can be used to ban them.

Hewitt last week condemned the Women Empowering Women plan: "This is a nasty scheme which preys on vulnerable women, many of whom can least afford to lose their hard-earned savings...

Pyramid selling scam that preys on women to be banned
Tracy McVeigh
The Observer, Sunday 5 August 2001

It's very hard to find reliable information about Cash Gifting and related Pyramid Scams using search engines because most of the results are sites trying to sell people on joining these scams.

There are some sites which appear to be confirming that these are scams, but then they try to get you to join THEIR version of the scam. Many of these people sound convincing because they've already spent money on the scam, and disparately need this to not be a scam if they are to get their money back.

Some sites actually admit that these "Programs" are illegal Scams, but then try to get you to join by telling you how to do it and not get caught.

The truth can be found, if one takes time and searches carefully, extensively examining the results. Some of these pages are quite old, as far as the Internet is concerned, and they do not get republished year after year, so they are not considered "fresh" and loose their relevance in the search engines. The scammers, on the other hand, are constantly cramming the Web with new pages, and using SEO tricks to keep their sites at the top of the search results.

Gifting Scams:
When Giving Goes Bad - There is something particularly alluring about gifting scams. Perhaps more than any other type of get-rich-quick scheme out there, illegal gifting appeals to our sense of charity and goodwill, which is what makes these scams all the more disturbing.

Unfortunately, for as charitable as these scams sound, they are illegal.

If you haven't heard of organized gifting schemes, you're probably wondering what they're all about. Well...

Organized Gifting Scams

CONSUMER ALERT

MIKE COX
ATTORNEY GENERAL

The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern.

CASH GIFTING SCHEMES

Local police departments and the Attorney General's Office have noticed a recent surge in inquiries regarding cash gifting schemes. These schemes are presented in an endless variety of ways -- including schemes targeting NASCAR fans, or "socially conscious women."

No matter how these schemes are presented, the bottom line is the same for all -- cash gifting schemes are illegal in Michigan. This consumer alert will provide Michigan consumers with information on how to spot illegal cash gifting scams, and what to do if they believe one of these scams is operating in Michigan...

..Cash gifting schemes are the quintessential example of a pyramid scheme. Instead of selling products, cash gifting schemes forego the sale of products and just give people cash, but the premise is the same -- like other pyramids, cash gifting schemes are based on the amount of people recruited.

Generally, these gifting "circles," "clubs," or "groups" encourage participants to pay a substantial entry fee (which can range anywhere from $500 to $5,000 or more). This entry fee will guarantee the participants a place on a chart of members. The participants will move on the chart every time they recruit more people into the "circle" or "club." And once the participant moves enough on the chart, they are "guaranteed" a large payout. Gifting schemes operate under a variety of names, as con artists that start these schemes are endlessly creative in their quest to con a lot of people out of a lot of money. But most gifting schemes follow the general pattern outlined in this alert...

...If you are currently involved in a gifting scheme, you should consider contacting a private attorney... ..Along with violations of the Michigan Franchise Investment Law, charges under other state statutes are also possible...

...if you are currently involved in a gifting scheme, or have participated in a gifting scheme in the past, keep in mind that you are also required to report any earnings you received to the Internal Revenue Service. Despite any promises made to you by those operating cash gifting schemes, earnings received from a gifting pyramid are taxable...

AG - Cash Gifting Schemes 10/2008

Dear Assembled Vaisnavas,

For those interested in the legality of "Private Gifting Clubs" recently becoming the rage, the following Florida Statute, curiously located in the "Gambling" section, may be of interest. There will be a condensed version afterwards.

849.091 Chain letters, pyramid clubs, etc., declared a lottery; prohibited; penalties...

VNN Editorial - Private Gifting Clubs
August 15, 2000

When is a gift not a gift? When it's a "gotcha."

In a scam spreading throughout the mid-Atlantic states and the Pacific Northwest, people pay to join a "gifting club," billed in promotional materials as a private club with members eager to help new friends -- often from within their own neighborhood or church group.

In reality, the clubs are illegal pyramid schemes. New club members give cash "gifts" to the highest-ranking club members, with titles such as "captains." And they're promised that if they get additional members to join the club, they, too, will rise to become captains and receive money - far more than they initially paid to join the club -- from newer club "friends."

The problem is that, like most pyramid schemes, illegal gifting clubs must continually recruit ever-increasing numbers of members to survive. When the clubs don't attract enough new members, they collapse. Most members who paid to join the clubs never receive the financial "gifts" they expected, and lose everything they paid to join the club.

The Gifting Club "Gotcha"

Attorney General Ken Salazar, District Attorneys Frank J. Daniels, and Alex Hunter of Grand Junction and Boulder and Sheriff Riecke Claussen of Mesa County issued a consumer alert today warning consumers to avoid certain pyramid schemes promoted as "gifting programs" in several counties in Colorado. While promoted as being legal under state and federal laws, some reported programs such as "Gift Givers," "Women Empowering Women," and "Private Gifting - A Total Team Concept," appear to be classic money chains or pyramid schemes, which are illegal in Colorado and subject those who promote them to criminal prosecution and civil liability to others in the chain.

Under Colorado law, a pyramid scheme is any program which uses a pyramid or chain process in which participants pay in excess of $50 for the opportunity to receive a payoff for inducing others to become participants. In simple terms, a pyramid scheme is a program which derives its funding primarily from money paid by newly recruited members and not from the actual sale of products or merchandise to individuals outside of the program.

This alert is being issued following a number of complaints and inquiries from individuals across the State regarding the so-called "gifting programs." Participants are required to invest $2,000 to $5,000 cash, with the promise by the promoters of the program that participants will eventually receive up to $35,000 for simply recruiting others to join.

ATTORNEY GENERAL, DISTRICT ATTORNEYS,
AND SHERIFF ISSUE ALERT ABOUT GIFTING PROGRAM PYRAMIDS
07/20/2000

With offices in the US and Canada, the Better Business Bureau has been trusted by many for fraud prevention, consumer protection and truth in advertising.

It would seem like if they are warning about Cash Gifting being a scam, people who might consider getting involved with such programs might want to listen:

Online promotions promising easy wealth by joining a cash gifting program or gifting club are flourishing on the Internet. With many families struggling to make ends meet in the current economy, Better Business Bureau warns that cash gifting is not a legitimate way to make a few extra dollars, and in fact, is nothing more than a pyramid scheme.

Little Bernie Madoffs Abound on the Internet;
BBB Warns Cash Gifting Pyramid Schemes Flourishing Online

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
Butte County
District Attorney's Office

Millions of Americans have lost money participating in pyramid schemes which are also known as "endless chains" - - because they cannot work unless the chain is endless and, of course, it cannot really be endless because at some point there are no more people willing to join the scheme. While there are legitimate multi-level or network marketing companies, many of them are illegal pyramids or gifting clubs. They are often portrayed as business opportunities, and victims who thought they were paying start up costs to buy a small business of their own eventually find they have lost money or are responsible for others losing money.

An "endless chain" or an unlawful pyramid is a plan in which a person pays money or buys merchandise for the chance to receive money when additional participants are introduced into the scheme. For example, Mr. Washington pays $3,000 for cosmetics. He recruits Mr. Jefferson who also pays $3,000 for cosmetics, in order to have the opportunity to recruit others. Mr. Washington gets a commission of $500 from Mr. Jefferson's $3,000 purchase. Mr. Jefferson recruits Dolly Madison who also pays $3,000 for cosmetics. From this, Mr. Jefferson gets $500 and Mr. Washington gets $200. Because there is no legitimate retail sale to an end user on which to base the distribution of the commissions, it is an unlawful pyramid.

It is sometimes difficult to tell the difference between a pyramid scheme and normal multi level marketing program. Multi level marketing can be a lawful business which uses a network of independent distributors to sell consumer products. The difference between a pyramid scheme and a legitimate multi level marketing plan is that in the latter, money is only made through the eventual retail sale of a product to an end user. It is unlawful if Mr. Washington and Mr. Jefferson obtain commissions by selling the cosmetics to another distributor, who is buying the cosmetics not for their personal use, but merely to recruit others into joining the scheme.

Consumers - Pyramid Schemes
California Dept. of Justice
Office of the Attorney General

Have you ever received a chain letter that asked you to mail one dollar to the top person on the list and forward the letter to 10 friends? If so, you have been solicited for an illegal pyramid.

Pyramid Schemes
Illinois Attorney General

The focus is on recruiting participants, not on selling a product. Products that are sold are overpriced or nearly worthless.

If you are considering a product-selling investment, be cautious. If the opportunity for income is primarily derived by recruiting more investors or salespersons rather than by selling a product, the plan probably is illegal.

Pyramid schemes
Missouri Attorney General

In recent years many companies have successfully utilized so-called "multi-level marketing" practices. It is important, therefore, to address the differences between a pyramid scheme and a legitimate multi-level marketing company. Initially, it should be noted that pyramid schemes always fail, while multi-level marketing companies sometimes survive.

Pyramid Schemes
The New York State
Attorney General's Office

Pyramid schemes are among the most persistent and troublesome rip-offs facing consumers today. Also known as "multi-level marketing" ventures, they often are advertised as quick ways to get rich. Unfortunately, some of these schemes violate Washington State's Anti-pyramid Promotional Schemes Act and can prove extremely costly to those who invest in them.

Pyramid Schemes
Washington State
Office of the Attorney General

What should I know about pyramid schemes?

Firstly, they are losers. Pyramiding is based on simple mathematics: Many losers pay a few winners.

Secondly, they are fraudulent. Participants in a pyramid scheme are intentionally or unintentionally deceiving those they recruit. Few people would pay to join if the diminishing odds were explained to them.

Lastly, they are illegal. There is a real risk that any pyramid operation will be closed down by law enforcement and that the participants subject to fines and/or imprisonment. Under West Virginia Code ¶ 47-15-5, violators can be fined up to $1,000.00 and be confined in jail up to six months.

WVAG: FAQs: Consumer Protection Division:
Pyramid Promotional Schemes
State of West Virginia
Office of The Attorney General

(Image by cobrasoft from Stock.XCHNG the leading FREE stock photo site!)

Get the facts. Know the law. Avoid the scam.

Because most participants never even recover their initial investment, we do not endorse or recommend any cash gifting program. For those considering joining such a program, we recommend that you learn more about the ethical and legal problems by reading our Cash Gifting Basics series. We have also compiled a list of quality, relevant third party resources.

Cash Gifting Watchdog

As good as it sounds, here's the hitch. While the letter keeps reminding you to think in terms of ten people, look at the big picture. It will require more than one billion people to fill the tenth tier in your pyramid and those people must lose their investment because it would take 10 billion people to fill the eleventh tier and there are not that many people on the planet.

No matter how you look at it, a Pyramid Scheme is a fraud on somebody. It has to be, since the system relies upon the distribution of a valuable consideration, ongoing distribution requires a rapidly growing list of participants and nothing of value is created anywhere in the process.

That is the key to identifying a Pyramid Scheme - does the system's growth, prosperity and survival depend upon the value it creates, or is the value contributed by today's recruits distributed to pay those who were recruited yesterday?.

Participants in "chain letters" are aware of their role in the scheme. It is obvious to anyone that there is no underlying product, today's investors pay for their place on the pyramid and then solicit tomorrow's investors. Each becomes the head of their own personal pyramid, thereby exposing themselves to criminal culpability and civil penalty.

Investigation often reveals that the first ten names on the list are aliases used by the same person who controls the post office boxes or mail drops where the money is to be sent. That individual sends the list and accompanying letter to thousands of recipients. Unlike checks, a dollar bill sent to "Joe Schmoe" has cash value to whomever actually controls the box.

Pyramid Schemes
Frauds and Scams Introduction
Crimes of Persuasion - A Resource for Investigators

Multi-level marketing is a system of selling in which you sign up other people to assist you and they, in turn, recruit others to help them. Some entrepreneurs have built successful companies on this concept because the main focus of their activities is their product and product sales.

However, there are many multi-level distributorship schemes that are nothing more than sophisticated chain letters. They operate as a "pyramid," claiming participants can earn lots of money by concentrating most, if not all, of their efforts on recruiting distributors rather than selling a product.

The success of a pyramid distributorship for each and every distributor depends on continuously getting additional people to join the pyramid. However, there is a practical limit to how many distributors can be found and to how many product units they can sell or use.

Furthermore, you cannot control the efforts of the individuals under you to any significant degree. Many of them will have no real commitment to the program. They may have been high-pressured, just like you, to become a distributor.

Fraudulent pyramid schemes typically violate the Lottery Statute (Title 18, United States Code, Section 1302). They contain all three elements of a lottery: prize (expectation of monetary or other gain from participation in the pyramid); chance (the monetary return you may receive from your participation is entirely up to chance, that is, dependent on the efforts of those below you in the pyramid), and consideration (the fee you pay to become a distributor). Frequently, the entrance fee into the pyramid is very high. In many cases, the money spent for such an entrance fee can often be considered lost the moment you pay.

Ponzi and Pyramid Schemes
LooksTooGoodToBeTrue.com

Accurate information about multilevel marketing is not easy to get. Few publishers, editors, and broadcasters are willing to examine this topic in depth. Most reports reaching the public express what the companies and individual distributors would like people to believe. Nearly all MLM companies selling health-related products exaggerate their value, and the vast majority of people who become distributors do not make significant income.

MLM Watch
The Skeptical Guide to Multilevel Marketing
Operated by Stephen Barrett, MD

(Image "Computer Squid" from Lensmaster Greekgeek's Squidoo Graphics For Your Lenses! page)

If you came to this page looking to make money with Cash Gifting, Cash Leveraging, Giving Programs or any of these related systems, hopefully you've found enough to decide not to take that path.

If you are still wondering how to make real money on the Internet without doing anything illegal, Squidoo is a great place to do it. Not only can you learn how to do it, but Squidoo gives you the tools to do it right here and you get paid to use the site.

Feel free to Join Squidoo and start learning.

I joined Squidoo in July of 2008, and by December 2008 I was seeing the first serious sales related to the Lenses I had made. These were sales through affiliate links I had included on the Lenses.

Because of the agreement of the particular programs I was promoting, I did not get my commissions until February of 2009, and by then I was also making about $7 a month from Squidoo, with only about 50 Lenses. Before I finished making 100 Lenses in September 2009, I was making about $2 per Lens on average directly from Squidoo, and a bit more than that on Lenses that have my own affiliate links on them.

It's no "Get Rich Quick" scheme, but it does have the potential to be a very profitable hobby.

Original content:


What You Should Know About Cash Gifting:
Don't Get Scammed!
by CleanerLife
is licensed under a Creative Commons
Attribution-Noncommercial-No Derivative Works 3.0
United States License.