The Rise of Pyramid and Ponzi Schemes in the Midst of a Global Recession and Lax Law Enforcement
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 The theme of this Update is raising awareness of the extraordinary growth and spread of pyramid and Ponzi schemes as the Economic Recession deepens. Pyramid scams are everywhere now.
Yes, hard times produce desperation and make more people vulnerable to scams. But, there is one other, less obvious and perhaps more important reason. Pyramid schemes have been increasingly allowed, accepted and legalized - before the Recession took hold. This trend has been growing for 25 years, but it accelerated greatly in the last 8-year period, infamous for corporate corruption, government incompetence, and the abuses of "de-regulation."
During this latest era, the Federal Trade Commission abruptly stopped enforcing Section 5 (Unfair and Deceptive Trade Practices) against pyramid schemes. The states, without FTC support, lacked the funds to go after the larger scams. The classic fraud of the "endless chain" with its fundamental lie of "everyone can win" (when only a tiny few can, at the cost of all others) has become a prevalent device for gaining investments and inducing consumer purchases of products and services. Effectively, the pyramid scheme with its inherent fraudulence and deception has insinuated itself into the market and the community and is now so pervasive that far fewer people understand its trickery and harm.
As the Recession sets in, we now have a perfect storm for an explosion of pyramid schemes -- greater need, public conditioning to accept them as "legal", reduced public awareness and lax or corrupted law enforcement.
The disguises to cover over the frauds are absurd and transparent and yet enough to maintain a pretense of legitimacy to consumers and a pretext for some regulators to claim that proving a law is broken is "too complex." (meaning not worth the effort).
- One pyramid scheme operating openly in Canada promises a $5,000 commission on a sale of $3,200. It says it can do this because it uses the "perpetual motion" financial system.
- A pyramid "bank" in Colombia operated "legally" for a year, promising 70% interest per month.
- Several prominent schemes charge $40 for bottles of ordinary fruit juice. They have virtually no customers other than the "salespeople" who are told they must buy a case of the juice monthly and then sign up more "salespeople."
- The "gifting" schemes are all over the Internet. They are now so numerous a dedicated website has been published to debunk them. However, the website only gently explains the fraud. Gifting Schemes are just too numerous now to state plainly that they are all illegal frauds. Fewer people can now accept that straightforward truth.
- "Matrix" selling (another word for endless chain or pyramid) is advertised as if it were really a legitimate form of selling.
- The biggest pyramids have their own trade and lobbying organization disguised as "direct selling."
- American's largest pyramid selling scheme, Amway, has been banned in China (except as a retail operation or non-MLM direct selling), is being prosecuted for fraud in England, and criminally charged in one large state in India. Yet, in America it runs advertisements on CNN claiming it is a trusted household name, rather than an infamous synonym for scam.
- American celebrities Donald Trump and Deepak Chopra are now pitching MLMs. Trump's scheme charges consumers $499 for the right to recruit other "salespeople" into a phone service scheme. Chopra is hyping yet another miracle fruit juice, spread with endless chain income promises.
Rather than producing value, developing a new market or meeting a pubic need, millions of people are being induced to get money from their neighbors and relatives, who will be told to do the same. Caught in the declining economy, the Pied Pipers of pyramid schemes lure people to feed upon one another while they collect a percentage on each lie that is spread and each dollar lost by the public.
The spread of pyramid schemes, therefore, only prolongs and worsens the effects of Recession and works against other government and private efforts to produce broad-based prosperity.
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| ACN PHONE SCHEME IS FOCUS OF FOX NEWS (Los Angeles) INVESTIGATION
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The MLM scheme, ACN, was featured in a news investigation by Fox News in Los Angeles, CA. As in other similar news reports on this scheme, the story focused on the obvious - ACN looks and behaves as a blatant pyramid scheme. In particular, the story asked why ACN recruits pay the company $499 for the right to sell the product and questioned the link of this payment to rewards for recruiting other ACN "sales" agents. See the report. |
PYRAMID SCHEME IN COLOMBIA CAUSING CHAOS - A WARNING TO OTHER COUNTRIES THAT IGNORE PYRAMID SCAMS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Two people are dead, 13 towns under police curfew and the country's top banking regulator has resigned. This is part of the fallout from the collapse of a large pyramid scheme that operated openly and "legally" in Colombia. The consequences are tragic. However, the more significant story from Colombia is one that is being repeated in many other countries. The authorities let it happen, even as the signs of a massive fraud were obvious. The pattern is being repeated in other countries. |
DR. EARL MENDEL AND FREELIFE'S "GOJI JUICE" EXPOSED IN CBC MARKETPLACE INVESTIGATION
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Pyramid Scheme Alert has previously reported on the financial slaughter of consumers who become "distributors" of the MLM scheme, FreeLife International. The data on FreeLife's payout is included in the report, "The Myth of MLM Income Opportunity," along with full data on 10 other MLMs. The analysis revealed that less than 1% (those at the top) of FreeLife's "active" distributors received over 75% of the total company payout; 70% of all Free Life distributors earned no commissions at all; and the mean average payment to of the bottom 99.08% of FreeLife Distributors who remained active for one full year was $4.86 per week (before expenses and taxes are deducted).
On the product side, the well respected Canadian television news show, Marketplace, has aired a half-hour investigation of the FreeLife scheme's flagship product, Himalayan Goji Juice. The report is a devastating revelation of deception, exaggerations, false claims, fake credentials, and bogus studies promoted by FreeLife spokesman, Dr. Earl Mendel.
See the CBC Marketplace video.
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"GIFTING" PYRAMID SCHEMES SWEEPING NORTH AMERICA, UK; FOCUS OF NEW WEBSITE
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ As a sign of the economic crisis, "Cash Gifting" pyramid scams are springing up and spreading across Canada and the US. These same types of pyramid schemes were widely exposed and prosecuted more than six years ago. At that time, the largest and most popular one was aimed at women. It was called "Women Helping Women." Others have targeted Latinos, African-Americans, blue collar, and some religious communities. Most of the scams promise 800% returns on investments (called "gifts"). Some attach some form of product, and claim to be "sales" companies, but most deal in cash and maintain the pretense of "gifting."
A star from the UK's version of the TV show, "The Apprentice", was recently caught by a BBC television show running a gifting scam. Another BBC program, X-Ray uncovered and reported that "the reputations of some of Wales' most respected charities have been used by the organisers of an illegal pyramid scheme to lend an air of legitimacy to their activities, which involve people handing over thousands of pounds in a chain-gifting syndicate."
Government prosecutions are slow and in some areas non-existent. Often, members of the police, sheriffs' departments or prominent politicians or their spouses are themselves involved in the scams, stifling law enforcement. The close resemblance of these schemes to multi-level marketing causes some regulators to tread lightly, fearing being pressured to apply the laws to those types of "endless chain" scams also.
Now a dedicated website has been published focused specifically on "cash gifting." The site, called "Cash Gifting Watchdog", offers factual information on the schemes' illegality, the financial traps, the mathematical odds, and the inevitable scenario of collapse. Reflecting the fact that hundreds of thousands of otherwise honest people are joining these illegal scams, the site does not judge or even make recommendations, but only offers factual information.
Visit the Cash Gifting Watchdog site.
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