Rightfully yours

I received an email from a Jennifer and Bill (plausible names), whose web site included a verbal message from Jennifer, who with her persuasive voice told me how they had been struggling with their three kids, paycheck to paycheck and through a visit to a relative saw bundles of cash on their table.  When she asked, she was told about cash gifting.

There were a couple of things about the web site that made me suspicious in addition to the smooth talk:

1.      The web site was slick; much more polished than I would think would be put together by a formerly struggling family.

2.      The web site had several testimonials listing only initials, profession and city and state.  These of course would be hard to track down, because I wonder how many Mortgage Consultants in San Jose, CA have the initials K.S., or single moms in Charlotte, NC with the initials H.T.

3.      There was a form to fill out to enter my name, email, P.O. mail addresses, phone number, best time to reach you, and whether you want to receive $500, $1000 or $1500.  This alone smelled SCAM.

Of course, they paint a glowing picture of the riches you will receive, and how you can join by sending them a large cash gift.  They explain that by joining the network, you can satisfy your greed and make tons of money.  How they do it is pretty vague, but they are careful to explain there is no direct payoff to the gift.

The scammers pose as struggling families, groups helping minorities, and so on to the limits of imagination.

Even without Suze Orman to advise me, I would not send a large cash payment to a stranger only on a promise, but thousands of victims have and still do.

The basic method is to have people send large amounts of cash to each other via UPS, with legal-like “gifting” and “non-compete” forms supplied by the receiver. 

The scam is promoted forwarded by the victim who looks for other victims.  If any victim complains, they are told the legal forms they signed when they sent the money describe the money as a gift, with no strings or legal recourse.

Here’s how they link to reality to make the victims think this is legitimate.  The IRS under Tax Code Title 26, Sections 2501-2504 and 2511 approves cash gifting to reduce your estate size and the tax burden on your heirs.  Up to $12,000 is allowed each year to as many individuals as you like, and the money is transferred tax-free.  However, the money must be given without condition as a gift.

I guess that makes the scammer my heir.

Picture this.  The first level scammer convinces ten people to send him $1,000.  He now has $10,000 and exits this round.  The second level scammer convinces ten people to send him $1,000, but now there are 100 people that must each send $1,000.  The third level requires 1,000 people and the fourth level requires 100,000 people.  How many will succeed? 

This is a simple pyramid increasing by tenfold per level.  What if the number increased by fifty fold?  The third level alone would require 125,000 “marks.” 

Charles Ponzi’s pyramid scheme ideas live on, where later investors supply the money to initial investors until the pyramid collapses from a lack of new participants.

There are hundreds of variations on cash gifting schemes, including entering the scheme at the “appetizer” level and exiting at the “dessert” level.  Latecomers find only famine after they’ve paid to join.  Authorities estimate that only one in ten reach a level where they are paid enough to recover their initial investment.

Every state has laws, codes or statutes against pyramid schemes, making them illegal activities.

The California court has determined that those who start cash gifting clubs and those who promote them are lottery operators under the law.  Members of a gifting club Women Helping Women pled guilty and were sentenced to significant community service in lieu of jail time and fined, some as much as $150,000.

The gifting club, Elite Activity was closed down in the states of Arkansas, Mississippi, South Dakota, Tennessee and Texas, where the founder was sentenced to two years in state prison and fined $10,000.

In Iowa, the Attorney General’s Consumer Protection Division has stated that cash gifting participants can be prosecuted under the Theft by Deception law, Securities Violation code, Tax Evasion code and/or the Lottery Law, and the Iowa Supreme court has ruled that victims can sue the person who committed the crime.

The Maine State Attorney General filed suit against 31 members of A Woman’s Project for operating an illegal pyramid scheme.  The Attorney General settled with its founders and promoters and some of the money was returned to its victims.

New York Civil court has ruled that founders of a cash-gifting program will be considered guilty of fraud and victims in those programs have the right to sue the promoters.

Idaho laws forbid pyramid schemes, classified in the state as felonies.  

Once prospects join a cash gifting program, the prospect/victim may also be advised on various means of handling cash gifts so as not to alert the IRS through routine reporting by their financial institution.  If the activity were in compliance with tax laws, would such instructions be necessary?

The IRS will not pursue you for cash gifting.  The IRS does not define the legality of any income source – they just want to tax your income, no matter the source.  Other bodies – state and federal authorities, determine the legality of cash gifting programs and clubs.

Be advised however, before joining any cash-gifting program that the federal and state laws are not quite as friendly as gifting promoters may like victims to think. 

Persons considering joining a cash-gifting program should only listen to advice regarding its legality from a qualified attorney, their state’s attorney general, and the SEC.

If you’ve lost money in a cash-gifting swindle, you may not be without legal remedy.  All fifty US States, the District of Columbia, the Virgin Islands, and Puerto Rico, have consumer protection agencies that deal with complaints against the operators of cash gifting programs.

The money they returned is distributed among those who had lost their “gifts,” even if they signed a “gifting statement” giving up all rights.

Several states have restitution programs in place offering amnesty to people facing criminal charges for their participation in certain cash gifting pyramids.  

The Security Exchange Commission (SEC) and Federal Trade Commission (FTC) will seek restitution through a court-appointed receiver who will sell off the assets of the responsible party to distribute to victims, but never is everything recovered.

Victims are advised to contact Consumer Protection or Consumer Affairs or Office of the Attorney General in their state, and not to give up trying for restitution. 

The best course is not to get involved in the first place.

For an excellent multi-part article on cash gifting, see Cash Gifting Basics