AOH :: PYRAMDZ.TXT|
Ripping Off your Friends with a Pyramid Scam
FIGHT BACK! BY DAVID HOROWITZ
Ripping Off Your Friends
Pyramid schemes thrive on word-of-mouth advertising. The
scheme's organizers bring in a few recruits -- then, those people
bring in their friends and relatives. Everyone is supposed to get
rich. But when the whole thing collapses, they find out the truth: The
only people who make money on pyramid schemes are those at the top.
Recently, authorities in at least 13 states from Florida to
Oregon have been cracking down on a scam called the Friends Network.
It spread like wildfire through families, churches, schools, civic
groups -- even a sheriff's department in Florida, where at least four
deputies have been questioned about their involvement in promoting the
Players were required to pay the person who recruited them
$1,500 as an "unconditional gift" and then recruit at least one other
player. As the money moved toward the top, everyone higher up in the
chain got a piece of it. Successful players then cashed out with
$12,000 in supposedly tax-free cash. (The Internal Revenue Service
disagrees on that point.)
Promoters of the Friends Network came up with some amazingly
elaborate and creative arguments to make the scheme appear legal.
Those arguments were so persuasive, people eagerly brought in their
friends and associates. These people are not stupid. They simply
outsmarted themselves. They believed they'd found a way to beat the
system, and they sold that idea with enthusiasm and conviction.
But they lost sight of a simple, basic truth. Pyramid schemes
do not produce a product or service for sale. The only money in the
pot is the money the players themselves put in. So, the only way
anyone can get more out than they put in is to take it away from
someone else. New cash must come from new recruits, the people at the
bottom of the pyramid.
As long as the pyramid continues to grow, then the money
continues to flow. But no pyramid can grow forever, and when it
finally collapses, as it inevitably must, then the people at the
bottom are left holding the bag, wondering where their money went.
Someone higher in the scheme gets back his or her initial investment,
and a few near the top make a profit -- creating a few winners and
many, many losers. That is pre- cisely why pyramid schemes are illegal.
In Oklahoma, the state's Department of Securities obtained a
court order against the Friends Network by charging promoters with
selling unregistered securities. Investigators are now going after the
recruiters, who face fines of up to $5,000 for each person they
brought into the scheme.
In Oregon, authorities have offered not to prosecute players
who cashed out winners and are willing to cooperate with investigators
and pay back those they recruited -- plus $250 to the state for its
legal expenses. If they refuse and are identified, they face fines of
$25,000 per victim plus legal fees and reimbursement.
Some victims are angry enough to come forward on their own and
name names, even at the risk of being prosecuted themselves. Most seem
to be keeping their mouths shut, hoping they will be missed in the
investigation. But the people they ripped off know who they are, and a
lot of friendships may be damaged beyond repair. That's part of the
price they pay for getting involved in a pyramid scheme in the first
If you have questions or comments, please write to David
Horowitz at 72662,1775. COPYRIGHT 1994 CREATORS SYNDICATE, INC.
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