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'Gifting Clubs,' Pyramid Schemes Flourish on Web

Scams target cash-strapped consumers looking to earn extra income

April 24, 2009

Like most pyramid schemes of the past, cash gifting operations are targeting people with some form of an affinity — such as women’s clubs, community groups, church congregations, social clubs and special interest groups. But in keeping with the digital age, schemers have moved operations to the Internet and are now marketing their programs as easy ways to make money in a tough economy through videos on YouTube, paid ads on Google and attractive Web sites that engage victims.

According to TubeMogul, an online video analytics company, currently there are 22,974 “cash gifting” videos on YouTube, adding up to an astounding 59,192,963 views.

While the creators of the videos vary, the content is usually the same. Typically, the person in the video explains — in vague terms — that they’ve discovered a new program to help people make money through cash leveraging or cash gifting and might even open a FedEx envelope with cash inside to prove the effectiveness of the program.

“Bernie Madoff isn’t the only guy with a ponzi scheme; money-making opportunities promising big returns for little work are all over the Internet and are extremely enticing to millions of people struggling with today’s economy,” said Steve Cox, BBB spokesperson. “Anyone tempted by slick cash gifting marketing appeals should run in the opposite direction, or they run the risk of being the next person ripped off by a pyramid scheme.”

Some cash gifting schemes are touted as fundraisers for a good cause or as an empowerment program to help people help themselves. In order to take part, the participant must pay anywhere from $150-$5,000. After making the contribution, which is funneled to people farther up the pyramid, the participant must then convince more people to join in order to start making money themselves.

Recruiters may claim that the operation is legal and often allude to IRS laws regarding gifting. However, almost every state has laws prohibiting pyramid schemes and/or assesses penalties on those who participate, and the Federal Trade Commission and many State Attorneys General have issued warnings about cash gifting clubs.

BBB advises people to ask themselves three questions in order to evaluate dubious money-making opportunities:

• Do I have to make an “investment” or give money to obtain the right to recruit others into the program?

• When I recruit another person into the program, will I receive what the law calls “consideration” (that usually means money) as a result?

• Will the person I recruit have to make an “investment” or give money to obtain the right to recruit and receive “consideration” for getting other people to join?

If the answers are “yes,” BBB warns people to steer clear of the scheme, don’t give in to tempting claims online and never buckle under to high-pressure sales pitches, even when they come from the mouth of a trusted friend, co-worker, neighbor or church member.

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