March 14, 2005
Jefferson City, Mo. — Missouri Attorney General Jay Nixon today warned consumers to beware of gifting-type investment schemes that promise money to members who recruit others to join. Such schemes, Nixon said, are often illegal pyramids.
In a pyramid scheme, the primary — and most often, the only — way of making money is by recruiting others into the organization, rather than through the sale of goods or services. Nixon said his office is investigating reports from the Kansas City area and other parts of the state of current schemes that act as "charity" or "kindness" organizations. The reports have centered on an organization called Elite Activity, but Nixon says these "gifting networks" may use other names as well.
"These pyramids style themselves as legitimate organizations created in the spirit of people helping others," Nixon said. "This notion dissolves quickly when you realize you have to continually bring in new people — and their money — to keep it going. A lucky few will pocket ill-gotten gains, but the rest of the participants will end up that much poorer."
Members start at the ground floor of the scheme with an initial investment, often of several hundred dollars or more. They move up in the program and gain a return by recruiting new members. When recruitment slows, the marketing system collapses, leaving most participants with losses. This type of system, by Missouri law, is illegal.
Nixon said that under state law, recruiting people to participate in a scheme determined to be a pyramid is a felony, punishable by up to five years in prison and a maximum $5,000 fine. In addition to criminal penalties, pyramid operators are subject to civil liability.
"Operators often claim they are not running a pyramid and that their sole purpose is to act as a charity network for like-minded individuals. Nothing could be further from the truth," said Nixon. "Investors soon find out that they cannot recruit more members. They have little, if any chance, of recouping their money."
Nixon encourages anyone who has information or questions about pyramid schemes to call the Attorney General's Consumer Protection Hotline at 1-800-392-8222 or e-mail the Consumer Protection Division.