KENNEWICK - Jan. 24, 2002 - Nine people named in a lawsuit filed against organizers of a "Gifting Club" pyramid scheme in the Tri-Cities area have settled with the state and agreed to pay $56,136 in civil penalties, costs and fees.
Audio message from Attorney General Christine Gregoire:
The nine were among 13 original defendants who the Attorney General's office said organized the "Renewal Celebration" gifting club, a large-scale pyramid scheme operating in the Tri-Cities area.
Three individuals previously settled with the state in separate agreements that called for monetary awards of fees and penalties that ranged from $6,250 to $13,500.
"Many people - including these defendants - were lured into a pyramid trap that promises participants more money than they contribute. The reality is that the vast majority of people lose everything they invest," said Attorney General Christine Gregoire.
Under the terms of the settlement, the nine don't admit wrongdoing, but agree not to organize or participate in gifting clubs in the future. Of the total monetary settlement, the defendants will pay $40,136 in costs and fees, and $16,000 in civil penalties.
Of the total amount paid, about $51,000 will come from money seized from a Renewal Celebration meeting in Kennewick in 1999.
Plain-clothes police officers at the meeting said as many as 1,800 people attended and as much as $2.1 million was put in circulation during the evening. The officers broke up the meeting and had a court order to seize various records and the money.
Gregoire said the 13 originally named in the lawsuit formed a committee to promote what state attorneys allege were illegal pyramid games. The games were created under the guise of "gifting" programs, often with family, church or self-help themes.
The state's lawsuit contended that the defendants invited people to attend the Renewal Celebration and participate in "boards" or "reports." In a typical board, eight individuals would be recruited to join seven existing members in a 15-member board.
Boards were registered by event organizers in a pyramid configuration, with the eight new recruits at the bottom, four members above them, two more at the next level, and a single person at the head of the board.
New recruits each paid $2,000 to the person at the head of the board. The top person then moved off the board with $16,000 cash. The board was then split in half, with the two people who were on the second tier now moving to the top of the new pyramids. Each new board required eight new recruits, so it took 16 people to pay off the two people at the top.
Although they take different guises, pyramid schemes work the same. In every case the vast majority of participants end up losing everything they invest. In a pyramid scheme, only a few people who get into it early make money.
In order for everyone to win under a pyramid scheme, the recruiting would have to go on forever. If the earth's population was 5 billion and everyone got involved in a pyramid scheme, in order for there to be 500 million winners, 4.5 billion must be losers.
Under state law, all pyramid schemes - regardless of what they're called -- are illegal.
"We hope this case serves as a warning to others that these schemes aren't worth the risk. Participants see their hard-earned money go in, but most will never see a dime come back," Gregoire said.