- Our Town
Classic 'gifting circle' pyramid scheme is back
It goes by several names, including “Gifting Circle”, “Women’s Financial Circle”, and “Women’s Wisdom Circle”, among others; but whatever it’s called, the result is a classic pyramid scheme that defrauds the women who participate in it.
The scam has been around for some time, and comes and goes, but recently the Better Business Bureau serving Mainland BC has received several reports indicating that it is doing the rounds once more. Typically, the scheme is pitched as one that empowers women, or creates abundance or spiritual healing for those involved. Another tack is to claim that the funds provided will help a woman in need, or a family in a troubled part of the world.
Participants are asked to “invest” a large sum of money—typically $5,000—in the scheme, and are told that they will eventually receive a $40,000 payout. In reality, the money goes to the person at the top of the pyramid, with new members recruiting others so that the base of the pyramid stays stable. Once enough new recruits—paying $5,000 each—have been recruited, another woman at the top gets $40,000, and the cycle continues until it cannot sustain itself and falls apart.
“The buy-in is cost prohibitive to many, so those in a more affluent demographic are often targeted,” says Evan Kelly, senior communications advisor for the BBB serving Mainland BC. “Like many effective scams, people simply believe what they are getting into is legitimate or meaningful.”
The meetings where new members are recruited are often pitched as “secret” and “fun”. “It feels like an exclusive, awesome do-good group,” says Kelly. “It’s pitched as philanthropic, but is completely bogus. It’s a classic pyramid scheme that relies on recruitment, and it never totally goes away. It comes back with different names and different philanthropic aims.”
It is usually a friend who has asked the new member to join, so the “recruit” has no idea it is a scam. The friend probably does not know either, but participants are under a good deal of pressure to recruit new members, to keep the scheme going as long as possible.
Pyramid schemes are illegal in Canada, and those who take part in them, however unwittingly, could face criminal charges. Anyone who gives money to the scheme and expects anything in return should know that it is not a gift; Revenue Canada sees it as the proceeds of crime, and it is taxable. Even signing something saying the money was a gift and you expect nothing in return could land you in prison, as the scheme is designed to provide participants with a payoff.
However, the math shows that only about 12 to 14 per cent of those who buy into pyramid schemes ever get their money back. Another negative aspect of the “Gifting Circle” scam is that participants are encouraged to see all their female friends as potential “marks”, which runs the risk of damaging friendships, says Kelly. Recruits are also told that some people won’t “get it”, and are encouraged not to talk to people who might criticize or report the scheme.
The BBB has several tips designed to avoid pyramid schemes. They include being wary of “opportunities” to invest in things where the success or failure relies on subsequent recruitment; independently verifying the legitimacy of any franchise or investment; asking how a scheme makes money, if no product or service is being offered or sold; being wary of investments that promise low risks and high returns; and not letting greed overcome good judgement.
“Other huge red flags are no written agreements or contracts, and you likely don’t know the other women involved beyond the woman who invited you,” says Kelly. “It’s all about recruitment, and that’s the only place the money comes from: no products, no services, nothing.
“The schemes usually collapse after a couple of payouts. Make no doubt about it, the person at the top knows exactly what they are doing.”