The Hacker's Encyclopedia 1998/hackers_encyclopedia.iso/etc/scams/pyramdz.txt

Text File | 2003-06-11 | 3.6 KB | 73 lines

Creators Syndicate

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
scheme.

        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
place.

        If you have questions or comments, please write to David
Horowitz at 72662,1775. COPYRIGHT 1994 CREATORS SYNDICATE, INC.