Md. AG Warns of Pyramid Schemes

ANNAPOLIS - Maryland Attorney General J. Joseph Curran, Jr., is warning Maryland residents to be extremely cautious about pyramid schemes that may be actively soliciting people in Maryland. Pyramid schemes are not only illegal in every state, they cause financial harm to most people who participate in them.

Pyramid schemes promise a return on an investment of money primarily from recruiting new people into the program. Usually, participants must pay a set amount of money to join the pyramid with the promise of big profits. Participants may have to recruit new people, or they may leave the recruitment to others.

Curran notes that pyramid schemes can take different forms, but all are illegal. Classic pyramid schemes include "gifting clubs" that are structured to pay off early investors with money coming in from later investors. Gifting clubs spread when individuals invite friends and family, co-workers, and even fellow church goers, to participate. The program may suggest that the money required to participate is a "gift," but members expect to receive a return of their investment.

Some gifting club programs spread because they appeal to notions of charity and benevolence. Promoters may go to great lengths to disguise the true nature of the program. Some may quote scripture to encourage participation. But Attorney General Curran warns Maryland residents to be wary of gifting clubs that promise big money. They are illegal, and someone always loses.

Curran notes that his office also has received an increase in calls about multilevel marketing plans that appear to be thinly disguised pyramid schemes. Multilevel marketing plans are a way of selling products or services through distributors who earn commissions on the sale of products and on sales made by distributors’ recruits.

But Curran warns, "Just because a plan is called a multilevel marketing plan does not make it legal." The plan is an illegal pyramid scheme if participants earn money primarily from the recruitment of others in the plan rather than from the sale of products or services. Curran noted that some pyramid schemes may offer a product or service to disguise their true nature, but the product or service may be overpriced or of dubious value, like exotic vitamins, health tonics, and even gemstones of uncertain origin.

As with all pyramid schemes, because money comes primarily from new investors to pay those who invested before them, the pool of potential new investors quickly dries up before most investors can recoup their money. Consequently, pyramid schemes generally result in a windfall of money for a few people at the top of the pyramid, and losses for the vast majority of participants. Establishing, operating, advertising or promoting a pyramid scheme is a crime in Maryland punishable by a fine or imprisonment or both.

Curran’s office has published a new investor education brochure with tips about how to determine in advance whether something calling itself a multilevel marketing plan is in reality an unlawful pyramid scheme. That publication is available by contacting the Securities Division of Curran’s office, or by visiting .

According to Curran "If you are approached to invest in something you suspect may be a pyramid scheme, please check with my office. Many people promote pyramid schemes out of ignorance and do not realize they are engaging in illegal and harmful behavior. In many cases, a call to my office can stop these very harmful schemes from growing before too many people lose their hard earned money."

Curran noted that it is always a good idea to check with his office first, before investing any money in any investment opportunity. Anyone can check out these opportunities, and check out securities, stockbrokers, and investment advisers, by calling the Securities Division at 410-576-6360, or visiting .

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