States prosecute gifting circles as pyramid schemes
• The attorney general of Massachusetts devotes an entire section of the office’s Web site to explaining the appetizer-to-dessert club and why $5,000 cannot become $40,000 without most people losing out. “After only a few levels the number of required new participants is greater than the entire population of the town, city or state you live in,” the AG’s office reported. “When the club fails to attract new members it collapses and almost everyone ends up losing their money.”
• In Missouri, temporary restraining orders were filed against participants in a circle with the same four-course-dinner structure as the Chico group.
• Last December, several people in New Mexico won civil suits against those running gifting circles there. Meanwhile, that state’s Attorney General’s Office was pursuing criminal indictments that last month resulted in one felony plea. The pyramids were so prevalent—the most popular being an appetizer-to-$40,000-dessert setup—that the state set up a restitution program and a way that participants could avoid prosecution by paying back the money they’d accepted.
• Wisconsin, which is one of the states that sued paralegal David R. Myrland for charging gifting circles for legal opinions tailored to the states they were located in, has an amnesty program that will protect participants who come forward and pay back the money they received. Wisconsin code forbids what the Department of Justice calls illegal lotteries in the form of “get-rich-quick” pyramid schemes.
• Members of gifting circles point to the state of Montana as somewhere they’re legal, because the code forbidding pyramid schemes exempts any group that “provides each person joining the sales plan or operation with a written agreement containing or a written statement describing the material terms of participating in the sales plan or operation.” But in 1999, Montana’s Legislature passed a law specifically forbidding gifting circles.
• In California, the Women’s Garden Circle and Women Empowering Women have been spotted in San Diego County, where financial-crimes detectives investigated a gifting circle in which women put in $5,000 in the hopes of reaching a final payoff of $40,000.
• In 2000, the Sonoma County District Attorney’s Office sent out a consumer alert warning against “a gifting circle scheme” going by names including Women Empowering Women and adopting a dinner analogy like the one used by the group in Chico. Placer County did the same. The structure, they said, violates sections 327 and 484 of the California Penal Code.
• Last month in Telluride, Colo., police broke up a gifting circle, arresting one women who refused to return money to a woman who had put in $6,000 expecting to realize $40,000. Officials are still trying to round up other participants.