Morrison warns consumers about pyramid scheme
State Auditor John Morrison today cautioned Fort Benton residents about a "gifting program" that has been reported in the area. The program specifically targets women and is similar to programs operating in other parts of Montana with names such as "Women Helping Women," "Women Empowering Women," "Circle Sisters," "Dinner Party," "Gifting Program" and "Pit Stop."
Morrison, Montana's Securities Commissioner, said such programs are pyramid schemes and violations of state law. He directed Ft. Benton residents to not take part in them.
A pyramid scheme is a plan in which participants pay money to join and are promised monetary compensation provided by new recruits. The scheme may involve "giving" from $500 to $5,000 or more. It may have four or more levels and require participants to recruit one, two or as many as eight participants. If a participant reaches the top level of the pyramid, the group splits, forming two pyramids and doubling the number of people necessary to keep the pyramid alive. In one scenario, participants pay $3,000 to join and are promised $24,000 in return, within a few weeks or months.
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. Only about two percent of pyramid participants make any money.
"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."
Morrison said there are steps individuals can take to protect themselves from falling prey to pyramid promoters.
- Avoid any plan that offers commissions to recruit new members.
- Beware of plans that ask you to spend money on costly inventory.
- Be cautious of claims that you will make money by recruiting new members instead of on sales you make yourself.
- Beware of promises of high profits. There is no such thing as a low-risk, high-return investment.
- Don't pay money or sign contracts in a high-pressure situation.
- If promoters try to keep the investment opportunity a secret, they may be trying to hide it from law enforcement officials because it is illegal.
"If it sounds too good to be true, it probably is," Morrison said.
- Avoid plans that require you to pay only with cash or money orders.
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.