Attorney General Andrew Cuomo Shuts Down Bronx Dinner Party Pyramid Scheme
ALBANY, NY (February 27, 2007) – Attorney General Andrew M. Cuomo today announced a settlement as part of an ongoing investigation of an illegal pyramid scheme operating in the Bronx under the names “Women 4 Change,” “The Women’s Gifting Circle,” and “Women Empowering Women.”
A pyramid scheme is a fraudulent system of making money that relies on the recruitment of an ever-increasing number of participants or “investors.” The initial promoters recruit these investors, who in turn recruit more investors, and so on. The scheme is called a pyramid because many people must invest at the base of the pyramid for one person at the top to receive money.
The “Women 4 Change” scheme used a dinner party motif where every new participant paid $5,000 to occupy one of eight entry-level positions called “appetizers.” As more people joined, those in the “appetizer” positions move up through two additional levels – “soup & salad” and “entrée,” each consisting of just half the number of participants than the level below. Eventually, if participants kept joining and paying, a single person would occupy the sole “dessert” position and be entitled to receive $5,000 from each incoming “appetizer” for a total of $40,000.
In the “Women 4 Change” case many of the participants are employees of the Morris Heights Health Center in the Bronx. Commonly, pyramid schemes spread through work or church settings, where new participants are easily recruited by colleagues and fellow churchgoers.
Marie Latibeaudiere, of Spring Valley, and Robbi Olivas, of the Bronx, both employees of Morris Heights Health Center, have signed Assurances of Discontinuance with the Office of the Attorney General in which they agree not to participate in any illegal chain distributor schemes. As part of their agreements, they have also paid penalties in the amounts of $7,500 and $8,377, respectively. The Office of the Attorney General is currently investigating other possible participants and similar pyramid schemes.
“Get-rich-quick schemes like ‘Women 4 Change’ are reminders that if it seems too good to be true, it probably isn’t,” Attorney General Cuomo said. “Pyramid schemes produce far more losers than winners, and those who participate in them are committing a crime.”
Pyramid schemes are illegal in New York and many other states. Article 23A of the General Business Law of the State of New York §359-fff sets forth the criminality of initiating and participating in pyramid schemes, also known as chain distributor schemes. If prosecuted, the crime is a misdemeanor punishable by a fine of up to $500, a one-year prison sentence, or both.
Attorney General Cuomo said that illegal operations like “Women 4 Change” are easily recognized by their promise of a large cash payout in return for a relatively small up-front investment. Promoters, who give the schemes attractive names such as “investment clubs” or “gifting circles,” recruit participants with assurances that the operations are perfectly legal. Fraudulent documents claiming to be from the Internal Revenue Service, an attorney, or a CPA often lend a sense of credibility to these assurances. Many times, promoters will attempt to distinguish their program from a pyramid scheme in some way.
While the original organizers of pyramid schemes often receive large amounts of money during the early phases, all such schemes are doomed to failure because they depend on the recruitment of an ever increasing number of participants. After just a few generations of a pyramid scheme, a pool of thousands of people is required to provide the number of participants necessary for it to continue. Therefore, for the vast majority of participants, success is unlikely and a loss of funds is all but guaranteed.
Anyone who suspects the existence of a pyramid scheme in their workplace or elsewhere should contact the Attorney General’s Consumer Frauds Bureau at (212) 416-8345 or (800) 771-7755.
The “Women 4 Change” case was handled by Guy H. Mitchell, Assistant Attorney General-In-Charge of the Harlem Regional Office, with the assistance of Trevor Davis, a student legal aide.