Officials begin crackdown on new version of 'pyramid' parlor scams
Law enforcement officials across the country are cracking down on a new, more insidious form of the old chain letter scheme: the pyramid game. As a result, cracks have started to appear in the pyramid play in some cities. But many officials agree that the illegal games will continue to grow because they look like an easy way to make a dollar in a recession and are run by highly sophisticated white collar criminals.
Unlike chain letters, which ask participants to send $1 or $5 to the name at the head of a list of names, pyramid games are set up in hotel rooms or private residences and the initial sum a player "invests" is often the least $500 or $1, 000.
But besides being illegal in most states, "the problem is there are always going to be more losers than winners," says Timothy Gillis, a spokesman for New York State Attorney General Robert Abrams. Mr. Abrams is spearheading one of the most intensive investigations into pyramid schemes in the nation.
In New York City alone, detectives have identified nearly 100 "pyramid clubs, " which typically ask members to invest $1,000 and then recruit two new members to keep the cash pyramid growing in geometrical progression. But when the new recruits stop coming in -- as inevitably happens in all these schemes -- everybody but those at the top of the pyramid loses.
Some recent efforts to dismantle the pyramids:
* New York. Investigators in Mr. Abrams's office have infilitrated 12 pyramid schemes across the Empire State and soon a special grand jury will examine the evidence now being gathered. New York has one of the toughest pyramid game laws in the nation. Successfully soliciting 10 or more persons is punishable by up to four years in jail. At least six persons were arrested recently as a result of previous investigations.
"What we have been seeing the last few months is a rash of pyramid schemes which is totally unprecedented," Mr. Gillis says. Although Mr. Gillis cannot explain the reasons for the upsurge, Stephen Brobeck, executive director of the Consumer Federation of America, a nonprofit, Washington, D.C.-based organization , chiefly blames the recession, which has made participants -- and the games' criminal organizers -- more economically insecure.
*Ohio. The Ohio attorney general is "filing lawsuits right and left" in the wake of the escalation of pyramid schemes in that state, says Marsha Muskie, a spokesman for the Ohio attorney general's office. Ten lawsuits have been filed this year, and many more are expected, she adds. While the initial investments in the Ohio schemes seem to be considerably less than those found by New York State officials, Miss Muskie says many people who at first put in only $200 later put in the same amount two or three more times.
Ohio, unlike New York, has only civil penalties for pyramid schemes. State law does not provide for jail sentences. Thus, according to some observers, less stringent laws make Ohio more alluring for the white collar criminal.
Ohio officials, like their counterparts in California, Florida, and other states, are finding that pyramid game promoters pose as recession fighters.
Another difference that makes in-person pyramid parties more insidious than the chain letters is that while one can judge the merits of a letter in the quiet of one's home or office, the pyramid party is a raucous affair not unlike going to a gambling casino.
While some California officials report progress at tracking pyramid schemes, other officials say only the tip of the iceberg -- or pyramid, if you will -- has been uncovered.