Pyramid Scheme

"When we were children, we used to think that when we were grown-up we would no longer be vulnerable. But to grow up is to accept vulnerability... To be alive is to be vulnerable."
~Madeleine L'Engle

I am feeling very vulnerable and very embarrassed. Yesterday I almost bought into a pyramid scheme. Luckily my husband helped me see reason and identify the scam. I feel so stupid. How could I, licensed attorney/Ivy League graduate/brilliant moi, fall for something like that?!? Since I think I may be smarter than the average bear and I was almost taken in, I might not be the only one. I'll share my story so that maybe I can prevent one of you from falling prey to a similar scam. At the very least you can just shake your head at my folly and enjoy my little tale.

So it all started last week. A friendly acquaintance called me and invited me to get on a call. She said that she'd joined a group a few weeks before. The group is called the Diamond. They support each other "emotionally, spiritually, and financially." She put the emphasis on financially. I asked her to explain a bit more about it. She said that it was an invitation-only group. It's very secretive. There's no website or anything. You join one of their weekly conference calls and see if you are a good fit for the group ... and they see if you are a good fit for them. Each week the group discusses a spiritual topic related to abundance and they support one another. I asked for more details about the financial support part and she just told me to get on the call to find out more. I was intrigued. The call was a half an hour later, so I said that I would get on.

I joined the conference call. There were about 8 or so women on the line. There was a leader on the call. She welcomed me and another woman who was just checking out the group. They said the topic of that call was "how the Diamond has been helpful in everyone's life." So all the members of the group started sharing about how joining had helped them. A couple of people said they'd received money before and how helpful it had been for them, but most people had joined very recently. Nevertheless they shared about how the calls were really inspiring and that now they were seeing so much potential for financial windfalls, etc. No one explained how it worked. I was told that I would find out more when I got on my phone call to see if I was "accepted" into the group.

After hearing about how much everyone has benefited from being in the group, the weekly calls on spirituality and abundance, the wonderful community of support, etc., I was still intrigued. I agreed to go on the call with the leader of the group to discuss my joining them and to finally find out how it works.

Yesterday I got on the call with the group's leader and my friend. The leader started telling me about all the spiritual and emotional support benefits, etc. and then finally got to telling me how it works. There are 4 levels. New people come in with a "gift" to the person at the top level of $3,300. New people also have to bring in two more new people to be able to rise up in the levels. Each new person brings in 2 people. Eventually you move up to the levels, and receive $26,000. There are 15 people in the pyramid. When the person at the top receives the full $26,000 (gotten through 8 new people joining and "gifting" the top of the ladder) then the pyramid splits in 2.

This seemed like a good idea to me. I thought that the idea of a $26,000 return for an investment of $3300 sounded great. And I knew at least 2 people that I would love to share this brilliant financial windfall plan with. "But," I asked "why is it so secretive? Why couldn't you just share this information up front?" The leader explained that in the group, only the person at the top of the ladder (the leader) is the one who can accept the people who join in at the bottom. So, that person is the only one allowed to explain how this works. Others would probably not be able to fully explain it and answer all the questions.

"OK, but I've got to explain this to my husband." I couldn't just take out $3300 from our funds without explaining why. The leader explained that in her case, she decided that she wanted to separate her money from her husband so she took out a credit card cash advance to join. But she understood that I would have to share the information with my husband. She told me to invite him onto a call.

It all sounded good to me. I excitedly shared the news with P. when he came home. He shook his head and told me that this is a classic pyramid scheme. A pyramid scheme often involves the exchange of money primarily for bringing other people into the scheme, often without any underlying investment or product. Some pyramid schemes are disguised as "gifting circles" where money is "donated" and where the scam's marketing materials misstate the purpose and effect of tax laws related to bona fide gifts.

In order for everyone in a pyramid scheme to profit, there would have to be a never ending supply of new participants. Often the new recruits are a participant's friends and family. In reality each new level of participants has less chance of recruiting others and a greater chance of losing money. The pyramid may collapse at any time. This places the participant in the position of victimizing his or her own friends and family. And pyramid schemes are illegal in the United States.

He showed me some internet stories about these types of scams.

Oh...

Well, I felt pretty stupid.

I had been totally ready to sign on and would probably have lost my $3300 and the money of any friends I got to join the group. Sigh. I e-mailed the friend who'd invited me and attached a link to a page about the scam (http://www.facebook.com/topic.php?uid=2209055756&topic=7829). I hope she's able to get out and get her money back.

As for me, I'm glad P. wasn't as gullible as I. And I hope that none of you will be either.