March 26, 2002                                                         Contact:Lucas Hamilton

Morrison warns consumers about pyramid scheme

      State Auditor John Morrison today cautioned Bitterroot Valley residents about a "gifting program" that has been reported in Hamilton and specifically targets women.
      Morrison, Montana's Securities Commissioner, said such programs are pyramid schemes and violations of state law. He directed 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.
      "The 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.
      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.