Pyramid scam surfaces again in 1990s guise

August 18, 1994|By Sheridan Lyons | Sheridan Lyons,Sun Staff Writer

It's all dressed up for the New Age, but the "Friends Network" now appearing in the Baltimore area is the same old pyramid scheme underneath, according to federal, state and local authorities.

A flurry of inquiries to authorities the past few weeks signaled the first resurfacing of the popular scam since the mid-1980s, they said.

"We're receiving an average of 12 calls a day," Maryland Attorney General J. Joseph Curran Jr. said yesterday, "and we only get the tip of the iceberg."

He planned to issue an advisory against the scheme today, and the Howard County state's attorney's office also is considering a warning.

After reviewing a copy of an unsigned nine-page prospectus obtained by The Sun last week, Robert N. McDonald, an assistant attorney general and securities commissioner, said "Friends Network" is in violation of Maryland law.

According to the prospectus, each "player" gives an unconditional "gift" of $1,500 -- nonrefundable. The money goes to a so-called chairman, who sits in the pyramid above two presidents, four executive vice presidents and eight vice presidents.

Once the chair collects $12,000, the two presidents move up and each becomes the chairman of a new pyramid. Everyone who joins must bring in at least one other person who contributes another $1,500.

"No matter how it's dressed up, any scheme where you have to pay money and recruit others in order to ultimately receive money is going to violate the pyramid statute," Mr. McDonald said.

The Friends Network invitation includes a "convenient layout" shaped like a pyramid -- but says repeatedly that it isn't a pyramid and isn't illegal.

"A pyramid by any other name is still a pyramid," said Michael D. Rexroad, assistant state's attorney for Howard County. "That does tell you something, doesn't it?"

'Natural abundance'

The Friends Network prospectus said it's "a new way of looking at money . . . based on the law of natural abundance. Money is life energy that we exchange and use as a result of the service we provide to the universe. And in order to keep it coming to us, we must keep it circulating."

People enticed by the scheme gather in private homes, but the prospectus suggests avoiding inviting law enforcement officials who may not share their "playful" spirit.

Mr. Curran said callers to his office ask, "Is this legal? Should I do it?"

He said the answer is no.

"There's no get-rich-quick scheme that is to my knowledge legal," he said. "Unfortunately, the whole thing is based on, to put it bluntly, greed. People see an easy way without working to make money. Initially, the ground-floor people can make some money, but the people on the second and third floor get nothing. Usually the people who set up these things get their money and get out. Afterward, people are reluctant to talk to us because they're so embarrassed.

"So it's easier to give an announcement than to come in after they've been scammed and try to find the people who set it up."

The Friends Network, or variations including the word "friends," traveled up from Virginia, he said, where authorities issued an advisory that apparently pushed it into Anne Arundel and Howard counties, where people are calling friends in Baltimore and Baltimore County.

The game is in its early stages if rumors of $12,000 payouts are true, officials said.

Criminal prosecution -- when the operators can be found -- is handled by the local state's attorneys, Mr. McDonald said.

The Friends package includes a form letter, to be signed and dated, that says: "It gives me great pleasure to present you with this unconditional gift. I expect nothing in return and happily give this gift to you of my own free will. I hope only that if the opportunity presents itself that you will spread sunshine and let it bless someone else's life as I hope this has done for you."

Claim untrue, IRS says

The letter cites Internal Revenue Service regulations on gifts, indicating the $12,000 is tax-exempt.

Not true, the IRS said.

"We consider it no more than gambling," said Samuel Serio, an IRS spokesman. "We tax legal and illegal income. We've heard some things about gifts, but it's not. It's gambling.

"Some people make money and a lot of people at the bottom of the pyramid don't, because the money, the people aren't there."

Mr. Curran said, "There are just so many 'friends' who can put up $1,000 or so. When you run out of friends, you run out of money."

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