Jan. 3, 2002                                                         Contact:Lucas Hamilton

Morrison warns consumers about pyramid scheme

      State Auditor John Morrison today cautioned Montanans about an Internet pyramid scheme that has surfaced in Park and Gallatin counties.
      Morrison, Montana's Securities Commissioner, said such programs are violations of state law. He urged Montanans to not take part in them.
      A pyramid scheme is a plan in which participants pay money to join and they are promised monetary compensation provided by new recruits. No products or services are bought or sold.
      Morrison said organizers of such programs typically recruit new members by characterizing them as legal investments in which they can avoid paying taxes on profits.
      "Gifting programs are pyramid schemes, plain and simple," Morrison said. "Pyramid schemes are illegal in Montana, and we fully intend to protect consumers from becoming victims of such illegal activity."
      Persons found in violation of the law prohibiting pyramid promotional schemes could face penalties of up to $10,000 per violation and 10 years in prison.
      The pyramid scheme that is recruiting participants in Park and Gallatin counties offers participants four investment levels. At the lowest level, participants give $500 to the program and are promised a cash gift of $4,000 in 30 to 45 days if they recruit two additional members to the program. At the highest level, the program offers a $152,000 cash gift to participants who give $19,000 and recruit two new members.
      Pyramid schemes are fraudulent because nothing of value is purchased or sold when a person joins the program. Rather, the money is "recycled" to existing program participants. Continuation of the program is dependent upon new recruits. Eventually, the pool of people available for recruitment dries up and the pyramid collapses so the people on the lower pyramid tiers never get their money back, let alone make a profit.
       "The people organizing these programs expect to make a profit," Morrison said. "If you profit primarily through the recruitment of others into the program, you are in violation of state law. The members also may be in violation of state tax laws if the revenue is not reported on their tax forms."
      If you are contacted about this or any other pyramid scheme, or if you have information about it, please call the State Auditor's Office at 1-800-332-6148.