Pyramid inquiry continues

November 17, 1994|By Joe Nawrozki and Dan Thanh Dang | Joe Nawrozki and Dan Thanh Dang,Sun Staff Writers

Maryland Attorney General J. Joseph Curran Jr. said yesterday that his office has been "deluged" with calls from people who want to know if a wildly popular pyramid scheme that promises a $12,000 return on a $1,500 investment is legal.

It isn't, he said, and people who "invest" their money are often likely to lose it.

He said his investigators "are attempting to identify people involved to stop things before people get hurt and to identify the promoters for prosecution for what has become a very serious problem."

The Internal Revenue Service is interested, too, and a spokesman said yesterday that pyramid players who don't report their earnings could be prosecuted for income tax evasion.

Organizers of the pyramids, which surfaced last spring and have popped up throughout Maryland, Washington, D.C., and Northern Virginia, are now conducting many of their promotional and "cash-out" meetings in Washington, where there is no law prohibiting them. In Maryland and 46 other states, the games are illegal.

But Mr. Curran said that even if the payoffs are made in Washington, recruiting investors or promoting the pyramid in Maryland is against the law.

That doesn't seem to bother investors like the 48-year-old Anne Arundel County businessman who could barely contain his enthusiasm for the venture yesterday.

As he leaned over the table of a Pasadena restaurant, his eyes were like lasers. The veins in his temples pulsed. He was convinced, a convert who said the scheme had made him $10,500 richer.

"I cashed out Tuesday night," he said ecstatically.

The businessman, who agreed to be interviewed on condition of anonymity, zealously defended the scheme, arguing that it helps people adopt orphaned children, climb out of debt or pay their children's college tuition loans.

He said he received his $12,000 payoff in a Washington hotel room after "investing" $1,500 three weeks before. He said his winnings have allowed him to pay off a divorce settlement and purchase a leather jacket "which I really deserved."

"I'm going again next Tuesday," he said of an upcoming pyramid meeting at a Washington hotel. And he's not worried about the game's illegal status.

"Don't you think there are more important things in this criminal world that we need to deal with -- like murder and rape?" he asked.

"At the previous meetings, I've heard people say, 'Now I can pay off my Mastercard,' or 'Now I can pay of my Sears card, now I can send my kid off to school.' If there's a problem with that, I don't see it."

There is no question that the game has become a hot issue in Baltimore. WBAL's morning radio talk show was dominated by the topic for four hours yesterday.

Law enforcement agencies are paying increased attention to the scheme, known as "Friends Helping Friends," in which organizers recruit investors who put up $1,500 each and must recruit other players into the game in order to "cash out" with a $12,000 payoff.

Mathematically, each payoff requires investments from eight players. While early investors at the top of the pyamid may get their money, authorities say, the number of people required to sustain the game soon increases exponentially, and eventually the scheme peters out, leaving later investors high and dry.

Andrew S. Manning, spokesman for the Baltimore office of the FBI, said yesterday, "We've gotten some fairly recent complaints [about the pyramid scheme], and we have forwarded them to the Baltimore County police."

Baltimore County police are conducting two investigations -- an internal probe of its own officers believed to be involved in the game and a countywide probe of the pyramid scheme.

The chief of the Baltimore County Fire Department also has warned his members about the illegality of the venture.

"You'd be surprised how high it goes," one veteran county firefighter said yesterday.

The Baltimore office of the Internal Revenue Service is focused on "the development of the resprouting of different schemes," according to spokesman Domenic LaPonzina.

"Our interest is not criminal statutes of Maryland," said Mr. LaPonzina, but in those who "cash in" and don't report their income.

"Tax evasion is a felony which carries a possible five-year prison term and $100,000 fine, plus interest and penalties," he said. "If the ringleader of one of these schemes makes an assertion that a pyramid scheme is illegal, they could be charged with aiding and abetting."

Mr. LaPonzina would not say whether the IRS is currently investigating any of the schemes. But he said that if agents did learn the names of winners, their tax returns could be scrutinized to see if their winnings were declared as income.

"If not, they would be in violation of federal law," he said.

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