November 13, 2006
WARNS MARYLAND CONSUMERS TO AVOID ILLEGAL AND COSTLY PYRAMID
SCHEMES MASQUERADING AS "GIFTING CLUBS" AND MULTILEVEL
Maryland Attorney General J. Joseph Curran, Jr., warns Maryland
residents to be extremely cautious about pyramid schemes that may
be actively soliciting people in Maryland. Pyramid schemes are
not only illegal in every state, they cause financial harm to most
people who participate in them.
Pyramid schemes promise a return on an investment of money primarily
from recruiting new people into the program. Usually, participants
must pay a set amount of money to join the pyramid with the promise
of big profits. Participants may have to recruit new people, or
they may leave the recruitment to others.
notes that pyramid schemes can take different forms, but all
are illegal. Classic pyramid schemes include "gifting
clubs" that are structured to pay off early investors with
money coming in from later investors. Gifting clubs spread when
individuals invite friends and family, co-workers, and even fellow
church goers, to participate. The program may suggest that the
money required to participate is a "gift," but members
expect to receive a return of their investment.
Some gifting club programs spread because they appeal to notions
of charity and benevolence. Promoters may go to great lengths to
disguise the true nature of the program. Some may quote scripture
to encourage participation. But Attorney General Curran warns Maryland
residents to be wary of gifting clubs that promise big money. They
are illegal, and someone always loses.
notes that his office also has received an increase in calls
about multilevel marketing plans that appear
to be thinly
disguised pyramid schemes. Multilevel marketing plans are a way
of selling products or services through distributors who earn commissions
on the sale of products and on sales made by distributors’ recruits.
Curran warns "Just because a plan is called a multilevel
marketing plan does not make it legal." The plan is an illegal
pyramid scheme if participants earn money primarily from the recruitment
of others in the plan rather than from the sale of products or
services. Curran noted that some pyramid schemes may offer a product
or service to disguise their true nature, but the product or service
may be overpriced or of dubious value, like exotic vitamins, health
tonics, and even gemstones of uncertain origin.
As with all pyramid schemes, because money comes primarily from
new investors to pay those who invested before them, the pool of
potential new investors quickly dries up before most investors
can recoup their money. Consequently, pyramid schemes generally
result in a windfall of money for a few people at the top of the
pyramid, and losses for the vast majority of participants. Establishing,
operating, advertising or promoting a pyramid scheme is a crime
in Maryland punishable by a fine or imprisonment or both.
office has published a new investor education brochure with tips
about how to determine in advance whether something calling
itself a multilevel marketing plan is in reality an unlawful pyramid
scheme. That publication is available by contacting the Securities
Division of Curran’s office, or by visiting
to Curran "If you are approached
to invest in something you suspect may be a pyramid scheme, please
check with my office.
Many people promote pyramid schemes out of ignorance and do not
realize they are engaging in illegal and harmful behavior. In many
cases, a call to my office can stop these very harmful schemes
from growing before too many people lose their hard earned money."
noted that it is always a good idea to check with his office
first, before investing any money in any investment
Anyone can check out these opportunities, and check out securities,
stockbrokers, and investment advisers, by calling the Securities
Division at 410-576-6360, or visiting www.oag.state.md.us/securities.