Thinking Of Joining A Gifting Circle For The Holidays? Think Again: It Could Be Illegal.


Are you thinking about joining an investment club or gifting circle because some of your friends are on board? Pause before you sign up and start telling others -- otherwise you could end up arrested for investment fraud.

These schemes get revived all the time.

One version of the scheme involving "gifting circles" is making the rounds on social media for the holiday season. People are promised 36 or more gifts, all worth $10 or more, in return for their investment of one $10 gift sent to a "secret sister." While you might be tempted to think that the worst that can happen is that you're out $10, the reality is that participating in that gift circle is actually a crime. The U.S. Post Office considers chain letters (even electronic ones) that ask for something of value to be pyramid schemes.

What is a pyramid scheme?

Pyramid schemes are scams that are often marketed as business models with "multilevel marketing" plans. That's often code for a process that really only benefits the folks higher up on the pyramid. They are also described as the more innocent sounding "gifting circles." While there are endless variations on the theme, the underlying form is usually the same:

  • Someone gets you (and others) to sign up to the "investment club" or "gifting circle" with the idea that you will contribute only a $10 (or some other figure) but recoup far more than that.
  • You are required to get others to sign up to the "club" or "circle" -- their contributions may or may not be split between you and the person above you in the pyramid.
  • Eventually, the pattern becomes unsustainable, with the people at the top getting all the benefits and subsequent members of the "club" or "circle" losing out after they can't get more people to join.

Another time-honored variation on the scheme is the chain letter - which according to historical accounts started out at least as far back as 1888, when a Methodist women's academy was looking for a creative way to get out of debt. Back then, joining the scheme only cost you a dime.

These schemes often exploit friendships.

The reason people fall into these traps is that the schemes exploit personal friendships. You hear about the opportunity from a friend, who convinces you that it is legitimate. The odds are good that your friend believes that it's legitimate. You then promote the scheme yourself to other friends, honestly believing that it's just a fun way to exchange gifts or a legitimate opportunity to make money. 

When the police finally step in, they often can't identify who was acting in good faith and who was purposefully trying to scam others, so everyone can get arrested. (The higher up the pyramid you are, the more likely you'll end up behind bars.) The penalties for promoting a pyramid scheme of this nature vary by state (and often by the number of people involved and the amount of money that's been exchanged). For example, in Texas, each offense can cost you up to 2 years in jail and a $10,000 fine.

The best thing to do is to remember that any plan that promises a huge return on a small investment is probably too good to be true. If, however, you find yourself facing charges after falling into an investment trap, contact a legal office like Alexander & Associates, P.C. today.


11 November 2015

Working With Your Attorney

Few things are more frustrating than being accused of a crime that you didn't commit. I found myself in this difficult situation a few years ago when I was with a friend who broke the law. However, I knew that I didn't do anything, which is why I hired an experienced criminal attorney to help me out. He carefully reviewed my case, talked with me about what court would be like, and helped me to wrap my head around the different punishments I might face. He helped to prove my innocence, and I decided to set up this blog to help other people to understand the importance of working with a professional.