'Pyramid' -- old chain-letter scheme moves out of mails into homes
Night after night they've been gathering in private homes on Chicago's Near North Side and in the suburbs. They meet not just for sociability but to play what is called the money game, the newest variation on the old chain letter pyramid scheme.
Each person is encouraged to pay out $500 to $1,000 to assure himself a place on a changing pyramid of names which promoters insist could net him as much as a 16-fold increase on his investment. He is told that the money-passing which takes place that evening will all be perfectly legal.
Law enforcement officials say they are not surprised at the resurgence in Illinois and many other states of such "get rich quick" promotion schemes. These have a tendency to sprout, they explain, whenever times are hard and unpaid bills stack up. But, they stress, the game, by whatever name, is strictly illegal under both federal and state law -- and, for all but a very few early contributors, highly unprofitable.
Once the supply of new recruits starts to run dry, as it inevitably must, as many as half of those aboard are in for big losses. Most of the other half recoup only their initial investment, if that.
"The odds are absoulutely astronomical against making any money," insists Craig Tregillus, an attorney in the consumer protection bureau of the Federal Trade Commission (FTC). "It appears that the only ones who gain -- and they are often caught -- are those who fly from city to city starting the chains and who then blow town."
In the past most pyramid schemes were played by mail and liable to prosecution under federal mail fraud laws. The new wrinkle of passing money personally in homes, promotors argue, makes all the legal difference. Often, participation of a local lawyer or doctor is cited as proof of its respectability. PArticipants are also often told that any money received is a gift and not taxable.
In fact, the Internal Revenue Service views any such receipts as taxable income. But above and beyond such technical details, any variation of the pyramid scheme is viewed as flatly illegal, with promoters and participants alike liable for prosecution under state laws forbidding gambling or, in almost one-third of the states, specifically banning pyramid game schemes.
The Illinois attorney general's office is trying to establish a precedent in this state for including pyramid activity under the state's consumer fraud statute so that individuals can take their complaints directly to court. State's attorneys, facing limited budgets, are often too busy to follow up all cases.
The FTC's Mr. Tregillus notes that, from the federal standpoint, every phase of the game from use of the telephones to recruit people to participation in any meeting where money is passed is a potential violation of law and of the regulations of as many as four separate federal agencies. It was the FTC that cracked down hard in the early 1970s on the "Dare to be Great" pyramid scheme fostered by Glenn Turner of Koscot Inc.
What makes the newest variation on the old theme particularly "cruel" in the view of law enforcement officials is that any gains made or expected are often at the expense of good friends who are the usual recruits. Many involved have not only lost money but strained frienships and marriages in the process. And the atmosphere at game meetings is often emotionally charged as audience members , with a vested interest in more recruits, tell eleborate tales of their own wins or of wins in other groups. Clapping and cheering often accompany any contributions then made.
"It's almost the atmosphere of a revival meeting and that's what catches people up," observers Rich Cosby, first assistant attorney general for the State of Illinois. "People forget that it can't work -- if you try to figure the possibilities you go right off your calculator."
Calling it "the middle-class equivalent of the numbers games," Mr. Cosby says that the results for most involved are the sadder because participants are often sincere and, in the end, embarrassed to admit they have been gullible. "And they certainly don't want others to hear that, because they want to get their money back," he notes.
"Not taking part [in the game] in the first place is the only same approach," warns Tregillus.