Inside the pyramid

Prosecutors call Women Helping Women a criminal enterprise. Members of the gifting club say it’s all about giving and empowerment.

Cathy Lovely explains to the judge that she cannot afford representationin the case being brought against her regarding her role in Women Helping Women. (Fellow WHW leader Cheryl Bean listens at left.)

Cathy Lovely explains to the judge that she cannot afford representationin the case being brought against her regarding her role in Women Helping Women. (Fellow WHW leader Cheryl Bean listens at left.)

Photo By Larry Dalton

Sue Harrington piloted me into her sparsely elegant Roseville home with the open-faced demeanor of the world’s most solicitous Welcome Wagon lady. Harrington knew I was there to probe the alleged criminal activity of her friends and acquaintances—participation in a so-called pyramid scheme. But nothing in the congenial atmosphere suggested any furtive footwork or defensiveness.

“Can I get you some water? Do you prefer bottled or regular?” she asked. She handed me a club brochure, the club’s monthly newsletter and the “gifting dinner chart,” as Women Helping Women call it. Then, she explained to me with the gracious patience of one’s favorite fourth-grade teacher exactly how, if I “pledged” just $625, I could make back $5,000 in about a month.

I was transfixed. “Wanna join?” she poked, half-kidding. I paused and smiled.

This is a story of the dreams and goals of most Americans, a story we can all understand. It is certainly a version of the American dream that has ensnared the imagination of Sacramentans. Like all variations of this dream, it dangles a necklace of lucky charms—the promise of prosperity, the realization of goals and ambitions and, for some, the opportunity to go from a life of struggle to one of relative ease.

It is the story of the blustery arrival of the “gifting club” Women Helping Women—critics call it a pyramid scheme—to the Sacramento area. Within a few years of touching down here, the membership of WHW has raced unchecked through the female population, with the speed of scandalmongers’ whispers, and has garnered anywhere from 10,000 to 20,000 members, depending on the source. But, instead of being the burnished, bucolic portrait of the American dream, the club has taken on the twisted, dark tones of American Gothic. So far, a dozen average women’s lives have been cracked wide open, with theatrical house raids, frozen bank accounts, a front-page perp walk, felony charges and potential prison time.

And many more women are likely to share the experience. As of last week, 12 women had been arrested, and Sacramento District Attorney Jan Scully has promised to put away all those running the WHW groups.

Political fisticuffs, spurred by election-year motives, in large part have brought this on. In fact, the behavior and emotion of this melee have reached such an operatic pitch that the story is said to have attracted movie deals and an upcoming story by People Magazine.

We might be inclined to dismiss this as tabloid tawdriness if these ladies, blinking in the pop of the flashbulbs while being arrested, had the spoiled, tarnished and willful money-grubbing immorality of, say, the Billionaire Boys Club.

But these are straight-backed citizens, voters—your friends, teachers, hair stylists and bank tellers. They are not the pitiless criminals portrayed by prosecutors in the daily mainstream media. Or, at least, it hasn’t been proven so.

So, how did these women, many of whom are smart and sophisticated, find themselves in the worst trouble of their lives? Is this a modern-day witch hunt? Perhaps what they are doing—gifting club, pyramid scheme, whatever label you slap on it—is really just another phrase for gambling. And gambling, of course, is a legal activity in which grown-ups participate, of their own free will, all the time. But sometimes they lose.

Soccer moms or criminals?
The first time I clamped eyes on Cathy Lovely, the 43-year-old mother of three grown boys, was in the now infamous “perpetrator” or “perp-walk” photo, splashed on the front page of the October 3 edition of the Sacramento Bee. She and three other middle-class, middle-aged ladies—Cheryl Bean, Anne King and Pamela Garibaldi—were the first of the 12 to be accused thus far of taking in hundreds of thousands of dollars through involvement in pyramid-scheme activity, which is illegal in California.

They also have been accused of cheating other women in the gifting club, by manipulating the charts used in the activity and reinserting themselves on them prematurely in order to collect lots of cash.

The perp-walk photo in the paper was remarkable for two reasons: First, everyone in the photo had the mien of someone’s neighbor, office manager or professor, which indeed the women were. There was nothing to suggest that they were the ruthless, callow con artists the prosecutors claimed in their charges against the women.

Even more fascinating was the body language of the women during the perp walk. It’s an event meant to shame and intimidate the accused, especially when the media has been invited, as they were for this event. And it works most of the time. We’ve all seen broadcasts of other perp walks; the accused invariably throw a coat over their heads or grimly shield their faces from the camera. Even Enron Chief Financial Officer Andrew Fastow ducked his head in shame during his nationally broadcast perp walk. With the perp walk, the prosecutors get to embarrass their targets and show them as guilty before the arrested even get to make a plea.

But, during their perp walk, the four WHW ladies strode confidently to jail with their heads erect, bemused grins spread across their faces. They knew they were facing serious punishment if found guilty, including potentially years in prison and tens of thousands of dollars in penalties. But the women were not shifty or embarrassed, and for one good reason: They truly believed that what they had been doing was legal and that it was their God-given right.

The next time I saw Lovely and the other three was at their first arraignment hearing a few days after the arrest. That time, the mood was much more grave.

The courtroom brimmed with WHW members, who broke into spontaneous cheers and applause when the “WHW Four” entered the courtroom. But the applause could not erase the grim mood of the ladies. Things had gotten rough already. After they had been booked and arrested, even though they were told they would spend only a few hours in jail, they were actually kept there overnight. And at least two of the women had suffered horrific strip searches in jail. The experience was already beyond the ken of the refined ladies, and it had only just begun. The judge intoned the felony charges: conspiracy to commit fraud, violation of the “endless chain” penal code and violation of state securities laws.

Three of the women had lawyers. Lovely did not because she didn’t trust any of the lawyers who had been presented to her. So, the arraignment was postponed. The ladies walked out as straight-backed as they had entered. But, this time, there was no cheering, no applause. Dark, wild-haired Lovely, who, from a distance, has the petite profile and youthful style of a college student, wore the wrung-out look of a woman on the verge of weeping.

“I really just don’t know how all this happened!” cried Lovely almost inaudibly several days later in the living room of her orderly but modest Rocklin rental home, which was spotless, with fresh vacuum tracks on the floor.

Lovely had agreed to talk only to SN&R. She hadn’t yet lawyered up. Cheryl Bean’s former lawyer, Robert Portanova, said she couldn’t talk to a reporter because they were still negotiating with the Sacramento district attorney and didn’t want to “stick a needle in Jan Scully’s eye.”

Lovely sensed that I was much more interested in getting at the “why” of WHW than in conducting a criminal trial by local media, something the group felt had already happened. So, she singled me out to tell the gut-tugging story of her life. And it was easy to see the allure of gambling on the possibility of making a lot of money from a little investment, easy to see how it would sound like the life raft she had always dreamed of.

For example, there was the time many years ago, when Lovely, as a struggling single mom in Marin, was so desperate she considered putting up her toddler twins for open adoption. There were the years when she didn’t own a car and when she held down piecemeal jobs to feed her boys, who are gracious, good-looking and adoring of their mom.

In fact, when she was first approached by WHW more than a year ago, she had to say no because she did not even have the $625 to start. Then, her father died, she came into some money, and it seemed like the right time to do it.

“People were so kind to me. They knew what my plight was, and they even offered to sponsor me,” Lovely recalled in a voice flinty with emotion. The kindness drew her in, and she became an organizer. She said her total take was about $30,000, which was more than she ever, ever expected to see. Lovely has said she didn’t manipulate the charts and that she was simply operating them responsibly as a monitor. She didn’t appear to me to be a criminal who would draw others in with the intent to defraud.

And, though it’s true it is exciting to think of yourself as one of the lucky ones who invests in WHW and sees some money at the end of it, every single one of the dozens of members I talked to mentioned, with just as much excitement, the attraction of helping other struggling women.

Why else would they invite their best friends, their neighbors, their mothers-in-law, for God’s sake, if they really believed all these women were going to get burned?

And there’s the rub with this group—the irresistible allure of their overarching philosophy of helping others, which strikes me as sincere among most of the members and which certainly is fervently embraced.

Otherwise, WHW bears a lot of resemblance to what traditionally have been described as pyramid schemes.

Cheryl Bean, left, and fellow WHW leader Anne King enter the courtroom to hear the charges at their arraignment.

Photo By Larry Dalton

The ultimate birthday present
If you are not a member of WHW and have never been pitched a presentation of how it works, you probably don’t know about the mechanics of the “gifting model” (the preferred terminology of WHW) and what makes it so alluring to thousands of local women and the few men who have slipped onto the club charts.

Here’s how it works: (click for a chart) There is a “dinner party” chart with four ascending levels: appetizer, soup and salad, entrée and then dessert. New members come in at the appetizer level and agree to pledge money (WHW members prefer the term “pledge” to “invest” because they say it is a “gift”) toward part of or a whole “appetizer plate,” a sum of anywhere from $625 to $5,000. (If the chart keeps moving, and new members continue to come in, an initial pledge of $625 will result in a $5,000 return; a $5,000 pledge can get a $40,000 return.)

When the eight bottom appetizer plates are filled, with anywhere from eight to 64 women, the “birthday girl” at the dessert tier or top of the chart is “gifted” and then has to leave the chart. She can start all over again, but she does not remain at the top—a distinction some claim means this is not a true pyramid-scheme model.

Members need to keep bringing in new members to keep the charts “flowing,” but, when you contemplate the big world out there, that resource can seem endlessly renewable. Inevitably in these schemes, many participants who come in late at the bottom lose money because it can’t grow at the rate it requires to keep making the large payoffs.

Of course, the possibility of such a radically high rate of return is wildly seductive—as is the possibility of manipulation. Prosecutors say as much as $400,000 was skimmed off in a five-month period by women running the clubs.

Not surprisingly, every lady in WHW recalls her first birthday experience as vividly as her first kiss.

“It was so much fun and so powerful,” Harrington said of one group of women’s experience. “There were five birthday girls, wearing birthday hats, who sat in front of the rest of us, about 75 women. All of the women who were gifting had gotten really creative in wrapping up their money. One had rolled up the bills and stuffed [them] into coffee tins and a Starbucks mug. Another had stuffed the money into the pages of a book; the book was on how to invest your money wisely. As each woman received her gift, the chart monitors would count the money at a table to the side to make sure it was all there. In the end, you have this table stacked with a big pile of money. It was an amazing sight!” recalled Harrington, who had not yet had a birthday of her own by the time the criminal investigation started and brought club activity to a virtual halt.

The five women were then asked what they were going to do with their birthday money. Four of the women had received $5,000, and one had received $10,000, Harrington recalled. “I believe most of the women were going to pay off long-standing debt. One women was going to help pay for her child’s college education. These were not well-to-do women; they really needed the money,” she said.

Lovely, who had a part-time job, eventually decided she had the time and wherewithal to become a “chart leader,” kind of like a grown-up classroom monitor. The responsibilities included monitoring the charts and their accuracy (i.e., correct names and contact info) and sort of policing the process.

Bean, Garibaldi and King played the same role. They have been charged with, in the words of prosecutors, “committing a fraud within a fraud.” Translation: They have been accused of manipulating the charts and cheating their fellow WHW members. If that is the case, these women deserve to go down, and that is the sentiment echoed by every WHW member I talked to.

But that has yet to be tried in court. So, until then, we can only deal with the other salient issues: Is this really a pyramid scheme in the eyes of the law, and are these women doing something that is unethical? Or, is it simply a kind of a gambling game with high stakes?

At first blush, the attraction to such a gifting club may seem to be entirely predicated on money. But the majority of the dozens of WHW women interviewed for this article—many of whom had not had a birthday yet and probably never would, under the pall of the investigation—claimed that they also got a powerful sense of community, giving and camaraderie from the group as well as extra benefits of networking, which were extremely gratifying to them.

“I personally saw a lot of older women on fixed incomes whose lives were changed by a birthday,” said Harrington. “There was the case of a woman whose mother had Alzheimer’s and no medical coverage, and she was going to use her birthday money to get her mother medical treatment.”

A Sacramento WHW member, Melody Hart, witnessed the birthday of a single mother of five, who had just gotten out of an abusive marriage, was living without child support and without a car and spent all day riding with her children on buses to and from school and day care and to work and back. “She burst into tears when she got her $5,000, and immediately went out and, for the first time in her life, bought her own car,” said Hart.

Stories like that run rampant through the ranks of WHW. And members claim that, depending on the goals or agenda of the individual chart group, there is often a lot of charitable activity generated around the charts. Patty Snyder, who was in a group in Cameron Park and who has not yet had a birthday, remembered some of the ladies in her group buying a whole appetizer plate for $5,000 in the name of the American Cancer Society.

“Gifts to charity like that were always happening in my group,” Snyder said.

“I really believe that the group was doing a lot of good work and putting their money back into the community.”

This philosophy and generosity of spirit does not strike anti-pyramid-scheme crusader Robert FitzPatrick as contradictory to what he has seen before. He’s seen the same schemes throughout the country variously called Circle of Friends and Women’s Empowerment Network. But all were illegal and destined to fail.

FitzPatrick, a former member of a pervasive gifting club in the 1970s called the Airplane Club, and author of the book False Prophets about the pyramid phenomenon, said that most participants in these schemes are not consumed by “demon greed” but are, for the most part, “ethical, spiritually minded, responsible and law-abiding.”

“In the case of Women Helping Women, the group is beguiling to women because it appeals to a long-held sense of social injustice many women have, seemingly addressing issues of gender inequality, battered women and so on,” said FitzPatrick. He also said that the moral veneer of the club is just that—a veneer. The pyramids eventually need to run on cash rather than emotion.

Bay Area resident Debra (who declined the use of her last name because of the investigation) said that was bunk. “Everybody wants to support those longtime gifting-club participants,” said the ersatz WHW guru and morale booster. She said that if the concept of the gifting club were simply about money, it wouldn’t survive.

“The clubs would not be successful and would not survive if there wasn’t a true, genuine spirit of community and charity,” said Debra, who is also a member of a telephone-based, nationwide gifting club called Women’s Garden. Debra was running a counseling conference-call for WHW members when the investigation exploded, but she has since stopped because she believed investigators were secretly eavesdropping on the calls.

“Women cannot come to the group with an expectation of reciprocity because there is no guarantee they are going to get any money back,” she said. “You have to believe that you receive in many ways— by giving a gift, not just in getting back money.”

As it turns out, the pragmatic mindset isn’t just in case you don’t get any money back. It also girds the delicate matter of whether gifting clubs can be conducted legally.

Johnny Griffin III, a former prosecutor of 15 years who has been retained by some of the WHW members to advise them on how to stay out of legal trouble, said he thinks it is possible to run a gifting club legally.

The women who have been arrested so far have been charged with the violation of California penal code 327, known as the “endless chain” code. Griffin said that all elements of the code have to be met to find a defendant guilty.

The code reads as follows: “An ‘endless chain’ means any scheme for the disposal or distribution of property whereby a participant pays a valuable consideration for the chance to receive compensation for introducing one or more additional persons into participation in the scheme, or for the chance to receive compensation when a person introduced by the participant introduces a new participant.”

Griffin would not disclose the exact legal strategy or protective measures he is advising the women to take. But his strategy seems to be predicated on two documents that extra-cautious groups within WHW are requiring all old and new members to sign: a “non-solicitation” form and a “gifting statement.” The non-solicitation form, to be signed by WHW members, affirms that the signatory recognizes giving money to WHW as a “private gifting activity” that is “voluntary” and that, in giving the gift, the signatory relinquishes all legal claim to that gift in the future.

The gifting statement has the signatory declare that she has been “told not to expect any return of any nature” as a consequence of her “gift” and that she is “a fully informed and consenting adult,” who “has not been misled in any way.”

Cal Avila mesmerizes hundreds of Women Helping Women members, by offering subtle legal strategies to avoid prosecution in the case against WHW.

Photo By Larry Dalton

Presumably, these documents would make it much more difficult to prove that those who run the charts and the groups and who make the presentations have promised the women that they will make a return on their gift. The documents also may make it more difficult to prove that a participant is knowingly participating in an endless-chain scheme, by virtue of the fact that they are declaring that they expect nothing in return.

It’s about as thin a legal line as one can tread, but Griffin thinks it can be done.

“As far as the women who are arrested are concerned, if they are found guilty of the charges to manipulate the charts inappropriately, then they can be found guilty of conspiracy to commit fraud. But, if WHW groups conduct themselves carefully, I believe there are ways that this activity can be made legal,” said Griffin, who has “great familiarity” with the ins and outs of laws concerning fraud.

Griffin, who spent seven years as a deputy district attorney and eight years as an assistant U.S. attorney, was a prosecutor at the time that the Sacramento Police Department was overrun by a similar scheme in 1996. It was similar to Women Helping Women but just happened to go by a different name, People Helping People. That gifting club admitted both men and women and was considered such an in-house problem that, when the popularity of the club persisted, despite the threat of professional reprimands, the threat of criminal action was made.

Ultimately, though, none of the police department’s club members were threatened with anything more than a misdemeanor, unlike all the ladies in WHW. And only one officer had one of the misdemeanor charges stick, and that was eventually overturned.

According to Sacramento County Deputy District Attorney Albert Locker, the reason why a less-aggressive and more low-key method of curtailing the pyramid scheme was chosen then was that it was an in-house problem. And yet, all of those law-enforcement officials “should have known better,” Locker said. Their ignorance of the law wasn’t due to a lack of trying to get information, though. “Many people in the department approached officers, management, etc. to find out if there was any criminal activity involved,” said Locker. One officer who declined to be named in a local news story at the time characterized her fellow colleagues who marketed the scheme as having “no malicious intent.”

So, it seems that issues of strict legality can be skirted with the right skill and know-how, and that leaves what is perhaps the most provocative point in all of this: Why bring down the wrath of the law in the form of felony charges on these women, otherwise law-abiding citizens, at a cost of hundreds of thousands of dollars, at this very moment?

Well, there’s the matter of the recent elections, one of the most hotly contested of which was the district attorney’s election in El Dorado County. Professional politico and incumbent Gary Lacy was losing in the prelim polls, until he snatched a political hot potato being tossed around in the air: His challenger, Erik Schleuter, apparently had begun associating with local members of WHW.

To hear Schleuter tell it, there were regular enough inquiries coming through the El Dorado County district attorney’s office to warrant a little investigating on his own.

So, he attended a few meetings—three in all, he said. And he told the women gathered that, as far as he could tell, by the letter of the law, there was no criminal activity going on. But he also told them that if the district attorney’s office found the activity to be criminal, he and his office would not hesitate to prosecute.

One of the women at the first meetings, Heidi Jaeger, confirmed this. “Schleuter made it very clear that that was his intention. Of course, it was election time, and everybody was stumping for votes. But he never, never said he wouldn’t prosecute if necessary,” said Jaeger.

Other members of WHW, who declined to be named, said they had spoken to Lacy directly last year and that he told them he didn’t care what they did, “just take it out of my county.” Lacy denies having said this.

Months before the closely contested election, the issue suddenly had momentum, and Lacy decided then to run his campaign on it. He won the election by a fistful of percentage points. Lacy, who is also a political ally of Scully, the other local pol who leapt on the anti-WHW bandwagon without warning, almost certainly won the El Dorado County race on the back of the WHW controversy. And, to add insult to injury, Lacy has since fired Schleuter.

But what of the thousands of regular folk left in the lurch by the jaundiced behavior on the part of those meant to be looking out for citizens’ best interests: the citizens’ own leaders and law-enforcement agencies?

Well, this moral vacuum has sucked in a new-fangled “hero,” a kind of anti-hero, really. You can’t trust your politicians, your police officers, your neighbors? Who do you call? Well, plenty of WHW ladies have been ringing one man off the hook: Cal Avila, a sometime libertarian, all-time government critic.

“Ladies, ladies, ladies,” Avila admonished, calling a WHW crisis meeting to order. He was happy to announce in the same breath his age and impressive-seeming schedule. He quickly grabbed the attention of the 200 or so ladies seated before him, but not before a few flirty giggles floated up into the rafters.

“You, as a group, have done nothing wrong or illegal!” he shouted from his bully pulpit while staring meaningfully out onto the crowd.

“Amen!” tossed back a grandmother-type.

“You betcha!” came another chorus from a row in the back.

“As long as there is full disclosure from the beginning, between all parties, with full knowledge of what could happen in a gifting club, then you have done nothing illegal,” he said.

“Hallelujah!” said a blue-rinsed, back-combed housewife.

“The problem is, the different law-enforcement agencies want to treat us like children, to punish us when we do something they don’t like,” said Avila.

“Some of the agencies’ authority I don’t even recognize, like the IRS. Why, I haven’t paid taxes for nearly 18 years,” Avila said, pausing for effect and looking pleased with the low rumble of sighs and gee whizzes that surged through the room.

“Now, here’s how you do it,” he said and then launched into a byzantine explanation about why most laws are not truly enforceable under the U.S. Constitution, why only a contract between two people means anything, something about being honorable men and then more about honor and then even more about honor.

This went on for about two hours. Some of the ladies looked like they’d swooned. Others looked skeptical but seemed determined to be righteous again, redeemed, and so they strode expectantly up to Avila, pressing him into even more post-seminar questions.

After Lovely’s arraignment hearing, Avila was told by defense attorney Portanova, in a harsh whisper for everyone to hear, to stay away from his client, Cheryl Bean, or there’d be trouble. Avila, you see, doesn’t actually have a law degree, he just “gives legal advice.”

The ladies of WHW are desperate to get their reputations back. Money counts, for sure, but, in many cases, it was only $625 that these ladies lost. In some instances, it was even less because somebody sponsored them.

To these women, their reputations, their long-tilled sense of identities as good friends, neighbors, mothers and citizens, is priceless. The thought of the lifelong tarnishing of these identities is unbearable to them.

In America, what we think of as the standard American dream—the right to prosperous and healthy lives—is not all there is. There is also a corollary to that dream—a reputation as a thinking, law-abiding citizen rather than a schmuck or shyster. And that is more important to most of these ladies than a new Lexus or a trip to Hawaii.

These women, at the very least, were taken on a rocky ride and given some very bad advice along the way by the scheme’s promoters and by the agencies that are there to protect them and to act on their constituencies’ best interests—not their own political interests. Not only did officials not protect them, but now WHW members are being painted as stupid and criminal. They feel they have been abused by the very system they happily embraced, believed in and contributed to, for years. No wonder they have had to root around, only to find such a “hero,” as Avila.

Gifting clubs continue in clandestine fashion with new, pleasant-sounding names like Women’s Garden. In spite of the new club names, the women have lost their original goals and innocence. But, instead of stopping, the women keep going. They continue to consult lawyers and try to refashion themselves, their lives and their gifting clubs in the great American tradition.