"Gifting Club" Scams Sweep Midwest

August 10, 2004

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Arkansas Attorney General Mike Beebe warns that residents of his state are being defrauded by illegal pyramid schemes operating under the guise of so-called "gifting clubs." In reality, he says, these elaborate scams are designed to make money for a few at the expense of many.

"Gifting clubs" may be billed in promotional materials as private clubs with members eager to help new friends -- often from within their own neighborhood or church group, and participants are encouraged to recruit friends, family members, neighbors, business associates, workmates and relatives via word-of-mouth.

To join the club, new members are asked to give cash "gifts" to the highest-ranking members, with titles such as "captain" or "chairperson". And they're promised that if they get additional members to join the club, they, too, will rise to become "captains" and receive money - far more than they initially paid to join the club -- from newer club "friends."

"In reality, the clubs are illegal pyramid schemes," Beebe said. "The problem is that, like most pyramid schemes, the clubs collapse, and most members who paid to join the clubs never receive the financial 'gifts' they expected, and lose everything they paid to join the club."

To create an aura of respectability or benevolence the clubs may be called "investment clubs" or "giving clubs" and have attractive names such as "The Friendship Investment Club", "Freedom Club", "A Gift Network", "Season of Sharing", "The Spirit of Giving" or one that is currently going around Arkansas, "The Last Program".

Promises of quick, easy money can be a powerful lure - especially when it comes with the additional benefit of new friendships. Some past schemes have been especially manipulative of the personal-connection appeal. One group calling itself "Women Helping Women" claims to have the goal of helping businesswomen advance in their careers, when in fact the group was merely targeting women to take their money.

If you're approached about joining a club but you aren't sure if it's an illegal gifting club, Beebe suggests that you realize that a legitimate gift has no strings attached and is not an "investment". Also, don't be taken in by success stories or testimonials of tremendous payoffs. Very few members of illegal gifting clubs or pyramid schemes ever receive any money. Testimonials are often made up.

Finally, he says, don't buckle under to a high-pressure sales pitch that requires you to join immediately or risk losing out on the opportunity. Remember, solid opportunities - and solid friendships - aren't formed through nerve-wracking tactics.

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