Gifting clubs and pyramid schemes
Many Oregonians are being defrauded by unlawful pyramid schemes operating under
the guise of so-called "gifting clubs" such as the Dinner Club or Women's Empowerment Network.
These "clubs" are elaborate scams designed to make money for a few at the expense of many.
The promoters of the scheme claim that IRS regulations allow people to "gift"
one another up to $10,000 per year tax free. For example, persons are asked to pay $5,000 to
enter at the bottom of the pyramid or "tree" along with others. As these people encourage others
to join the club, they rise on the tree to the top position, where the total amount collected
from "gifts" is $40,000, a $35,000 profit. Often, people at the top re-invest another $5,000
and start the process anew.
Each of the eight persons just entering the tree delivers his/her $5,000 "gift"
directly to the person at the top of the pyramid. This also helps convince new players that they
will eventually receive a $35,000 return on their "gift."
These schemes are doomed to failure. Each "tree" involves 8 persons who "gift"
$5,000 each. The person at the top of the tree gets $40,000 and the other 7 people hope that
enough players come on board to push them to the top. For each person at the top, there are 8
people who are likely to lose their investment and the chance of a big "payoff." Eventually,
these schemes collapse because they run out of prospective participants.
No matter what the promoters may tell you, gifting clubs are illegal. They are
unlawful pyramid schemes. Gifting clubs and pyramids have not been approved by the Oregon Attorney
General, local district attorneys, or the Division of Finance and Corporate Securities. Operating
or participating in a pyramid scheme violates Oregon's Unlawful Trade Practices Act, which imposes
civil penalties of up to $25,000 per violation.
Gifting clubs and pyramid schemes may also violate Oregon securities laws by
virtue of being investment contracts. Oregon law requires securities to be registered and licenses
for persons engaged in transacting business in securities. A violation of the securities laws
could subject a person to civil penalties of up to $20,000 per violation, or criminal prosecution
as a class B felony.
The IRS does not recognize gifting clubs or pyramid schemes and considers all
money gained from these schemes to be reportable income. Failing to report income from pyramid
schemes on your tax return, or attempting to hide such monies may subject you to severe federal
civil and criminal penalties.
What can you do?
- Don't participate! If you have, ask for your money back.
- Warn others not to get taken in by these schemes.
- Call: Your local law enforcement agency, the Division of Finance and Corporate
Securities, or the Oregon Department of Justice Consumer Protection Hotline (877) 877-9392,
and report the promoters. The Department
of Justice has a web page which specifically addresses pyramids.
- You can e-mail questions or send information about these schemes or their
promoters to email@example.com.
Our address is:
DFCS - Enforcement Unit
350 Winter St. NE, Ste. 410
Salem, Oregon 97301-3881
(503) 378-4387 voice
(503) 947-7862 fax
(503) 378-4100 TTY