There was a similar scheme a couple of years ago called "Gifting Circles" in Michigan. It was running rampid in the area I live in, I knew some people that were actually participating in it, they didn't see any thing wrong with it. Several articles appeared in the local paper about it being a rip off, the gifters got mad, the scheme died out. Apparently there are groups of these people traveling around that start these up. The Attorney General in Michigan delcared it illegal and said it was nothing more than a pyramind scheme.
CASH GIFTING SCHEMES
Cash gifting schemes are presented in an endless variety of ways - including schemes targeting NASCAR fans, or "socially conscious women."
No matter how these schemes are presented, the bottom line is the same for all - cash gifting schemes are illegal in Michigan. This consumer alert will provide Michigan consumers with information on how to spot illegal cash gifting scams, and what to do if they believe one of these scams is operating in Michigan.
PYRAMID SCHEMES ARE ILLEGAL IN MICHIGAN
Section 28 of the Michigan Franchise Investment Law (MCL 445.1501 et seq.) makes pyramids illegal in Michigan. The statute reads in part:
[a] person may not offer or sell any form of participation in a pyramid or chain promotion. A pyramid or chain promotion is any plan or scheme or device by which (a) a participant gives a valuable consideration for the opportunity to receive compensation or things of value in return for inducing other persons to become participants in the program or (b) a participant is to receive compensation when a person introduced by the participant introduces one or more additional persons into participation in the plan, each of whom receives the same or similar right, privilege, license, chance, or opportunity.
Essentially, a pyramid is a scheme in which participants receive compensation for recruiting other participants.
Violations of Section 28 of the Michigan Franchise Investment Law are a felony, punishable by a fine of up to $10,000 or seven years in prison.
Multi-Level marketing plans vs. Pyramid schemes - what Is the difference?
Multi-level marketing plans typically involve a parent company that sells products to consumers through independent sales people. Generally, independent sales people do not receive a salary - rather, they are compensated based on the amount of product that they sell. Multi-level marketing plans are generally legal in Michigan.
The key difference between a legal multi-level marketing plan and an illegal pyramid scheme is that a multi-level marketing plan bases compensation almost entirely on the amount of product sold, whereas an illegal pyramid scheme is based on the amount of people recruited.
CASH GIFTING - JUST ANOTHER TYPE OF PYRAMID
Cash gifting schemes are the quintessential example of a pyramid scheme. Instead of selling products, cash gifting schemes forego the sale of products and just give people cash, but the premise is the same - like other pyramids, cash gifting schemes are based on the amount of people recruited.
Generally, these gifting "circles," "clubs," or "groups" encourage participants to pay a substantial entry fee (which can range anywhere from $500 to $5,000 or more). This entry fee will guarantee the participants a place on a chart of members. The participants will move on the chart every time they recruit more people into the "circle" or "club." And once the participant moves enough on the chart, they are "guaranteed" a large payout. Gifting schemes operate under a variety of names, as con artists that start these schemes are endlessly creative in their quest to con a lot of people out of a lot of money. But most gifting schemes follow the general pattern outlined in this alert.
Pyramid schemes, including cash gifting schemes, can become popular very quickly, because early participants often receive their payout as promised. Those participants that receive their money then relay their success stories to prospective participants, and the cycle continues. The problem is that eventually the pool of new participants runs out, and the pyramid collapses, and very few participants actually receive any money. Once a pyramid collapses, everyone, except the initial con artist that started the scam, will have limited prospect of ever getting their money back.
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Auto racing, bull fighting, and mountain climbing are the only real sports ... all others are games. - Ernest Hemingway