PRESS RELEASE
Illegal Pyramid Schemes Making the Rounds
 
For Immediate Release
Tuesday, January 02, 2001 
 
Contact: Rebecca Cryer, Enforcement Attorney
  Oklahoma Department of Securities
  405-280-7700
 
 
Oklahoma City/////  Irving L. Faught, Administrator of the Oklahoma Department of Securities, has issued a warning about illegal pyramid schemes. A number of such pyramid schemes seem to be making the rounds across the United States and Oklahoma citizens could fall victim to promises of substantial earnings. Oklahomans need to be aware that such activities may violate not only the Oklahoma Securities Act but a state criminal statute, the Pyramid Promotional Scheme Act.

On December 29, 2000, the Administrator of the Department issued an Order to Cease and Desist against “Private and Confidential,” a money exchange program that operated as a pyramid scheme. Participants were initially solicited to pool cash “gifts” of $100 to join and to advance through various levels of a reverse pyramid through the recruitment of others who likewise made “gifts.” The levels of the program were described as Freshman, Sophomore, Junior and Senior.

Participants were encouraged to complete the six steps of the gifting program, that is, to complete six pyramids. The amounts required to participate in each of the six steps ranged from $100 to $4,000. After completing six pyramids, the participants made “gifts” of $7,850 in expectation of receiving “tax free” cash payments of $62,800.

In April of 2000, the Department issued a cease and desist order against "The Blessings Gift Activity," another money exchange program that operated as a pyramid scheme. The Department has also issued Permanent Orders to Cease and Desist against "People Helping People Network Program," "The Friends Network Gifting Program" and "The Support Network." In these schemes, members pooled cash "gifts" of $2,000 to join and advance through various levels of the program through the recruitment of other members who likewise made $2,000 "gifts." Participants were led to believe they would ultimately receive a $16,000 "tax free" payoff as more and more people were recruited into the program.

In Missouri, Attorney General Jay Nixon filed a lawsuit against "Women's Empowerment Network", which also operated as The Dinner Club, The Original Dinner Club and The Breakfast Club. The group called itself a "gifting tree" and was organized by four dinner-party courses. Eight persons called "appetizers" were recruited to fill the bottom row of the tree. When the appetizer slots were filled, those persons were required to pay $5,000 to the person at the top of the tree, who was the "dessert." The appetizers moved to “soup” and “salad” status, then the entree level and eventually became “dessert.” Last week, a Missouri Circuit Court judge ordered eight Kansas City area women to pay approximately $200,000 in fines and restitution for participating in the illegal pyramid scheme.

With these types of programs, more and more people must be recruited in order to keep feeding those people at the upper levels. Inevitably, these pyramids collapse when efforts to recruit new members fail, leaving a large number of participants with substantial losses. "It's like playing musical chairs. You hope the music doesn't stop on you," said Faught. "No matter what it's called, if the money is made by recruiting others to participate rather than by providing goods or services, it's a pyramid scheme."
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This press release, and related information, is available on the Securities Commission's web site at securities.ok.gov, by phone at (405) 280-7700, or in writing at:  Oklahoma Securities Commission, 204 North Robinson, Suite 400, Oklahoma City, OK 73102.