PAPERCUTS: Unraveling the Mystery of the Pyramid

Fat blockers. Herbs that dissolve cholesterol. Psychics with a direct phone line to the dearly departed. And my personal favorite, pills that allow you to eat all you want and still lose weight. The minute you suspend disbelief, somebody will be there to take advantage of you.

Several years ago, I was one of the many "lucky" recipients of the infamous Nigerian letter scam, which arrived in an official looking envelope postmarked from Nigeria, promising "great riches and good fortune from a foreign land." It seems that the "Government of Nigeria" needed my personal help in processing vast amounts of money that had been "overlooked in a surplus account." In order for government officials to access the money, it had to be cleared through a foreign bank account. My bank account. All I had to do was to send them the account number, and for that trifling inconvenience, I could keep a percentage of the money. That's when the FBI, stepped in. The "Nigerian government" turned out to be a couple of hustlers in New Jersey, and those gullible individuals who actually believed the letter, had their bank accounts wiped out.

But all of these hoaxes pale beside the great pyramids. Not the ones in Egypt, but those constructed by the unwitting, the wishful thinkers, and the just plain greedy.

In 1996, 67 employees of the Sacramento Police Department, including 45 officers, were investigated for their alleged involvement in a fraudulent enterprise called the Freedom Club, which resulted in the firing of 7 officers, disciplinary action for 60 others, and the indictment of 3 on criminal misdemeanor charges. A few individuals made tens of thousands of dollars, but those poor souls at the bottom of the pyramid lost a minimum of $500 each.

The scam was presented as being perfectly legal, because it required people to sign a waiver claiming that they were making an unconditional gift to the Freedom Club. According to the IRS, however, anyone who signs a paper stating that he or she is making an unconditional gift, when the intention of the "gift" is to receive money in return, is committing a fraud.

Which brings me to the newest moneymaking scheme currently in circulation nationwide. "Changing Lives" is only available to a "select" group of deserving individuals, and requires the participants to confer "gifts" upon one another "from a detached and disinterested generosity; out of affection, respect, admiration, charity, or similar impulse" as specifically enumerated in the tax code.

This is what is known, in the Attorney General's Office, and the Better Business Bureau, as a pyramid scheme, a fraudulent system of making money which requires an endless stream of new recruits, who prime the pump with their own money, and then solicit others, in order to keep the cash stream flowing.

According to the Skeptic's Dictionary, "if a pyramid were started by a human being at the top with just 10 people beneath him, and 100 beneath them, and 1000 beneath them, and so on, the pyramid would involve everyone on earth, with one con artist at the top."

It would look like this:

1

10

100

1,000

10,000

100,000

1,000,000

10,000,000

100,000,000

1,000,000,000

10,000,000,000

In a typical pyramid scheme, a recruit is asked to give a sum of money, say $100, to the individual who solicits him. The new member then enlists 10 more recruits, to give up $100 each. Theoretically, each recruit gives up $100 in anticipation of a return of $800. ($100 from each of his 10 recruits minus the $100 to his or her own recruiter and $100 to the person at the top).

The person at the apex of the pyramid makes no investment, and simply finds 10 participants. At descending levels, each participant must not only contribute, but recruit 10 others from a rapidly dwindling pool of investors, or lose the original stake. At the bottom of the pyramid, the only way to make money is to convince people to contribute when it is impossible for them to get anything in return.