Police Warn of Women’s Pyramid Scheme 10-11-00

PHONE: 961-2251
OCTOBER 11, 2000


Hilo Criminal Investigation Section detectives are warning residents about an illegal pyramid scheme for women.

Detectives said women are being asked to join a group known as the “Women’s Gifting Circle.”

To join the group, the prospective member is asked to invest $5,000. In return, she is promised she will eventually get back $40,000, for a $35,000 profit.

Hilo CIS detectives said the investment group is a classic pyramid scheme that violates civil and criminal law. Section 480-3.3, Hawaii Revised Statutes, prohibits endless schemes, which this scheme may qualify as being. Chapter 485, HRS, may also apply to this scheme, which has criminal penalties ranging as high as a 20-year prison term.

Even if the scheme were legal, it would be mathematically impossible for it to succeed. Only the first people to join the scheme can possibly receive the promised return on their “investment.” After a while, any pyramid scheme simply requires more investors than is possible.

In this case, for example, the first level of the investment scheme requires eight investors to put in $5,000 each for another participant at the top of the pyramid to get a $40,000 “return” on her investment. From that point, the pyramid grows exponentially and by the 17th cycle, this type of 1-2-4-8 pyramid scheme would have 983,040 investors at the bottom of the pyramid, which is far more than the adult female population in the state of Hawaii.

It’s easy to see that mathematically, no pyramid scheme can succeed, and sooner or later, it is must collapse. Because all such pyramid schemes are doomed to failure, they are illegal in most jurisdictions.

Additional information about pyramid schemes can be obtained from the State Department of Commerce and Consumer Affairs or the Federal Trade Commission.

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