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New Version Of Old Pyramid Scheme

December 24, 2004

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Kentucky Attorney General Greg Stumbo says Consumer Protection Division has found that an illegal "gifting" program known as "Elite Activity" is operating in his state, specifically in Lexington and Louisville, the state's two largest cities.

Stumbo's office was alerted by several churches and consumers, questioning whether the recruitment solicitations being made by individuals for them to join and promote the activities of Elite Activity was asking them to participate in a pyramid scheme. Stumbo said an ongoing investigation verified that the program is in fact a pyramid scheme, according to Kentucky's Consumer Protection laws.

The Lexington and Louisville scheme is virtually identical to many so called "gifting clubs" making solicitations around the country. These so-called gifting clubs are not charitable in nature because each prospective participant has an expectation of return on their initial investment.

A pyramid promotional plan is defined by law as a plan or operation by which a person gives consideration (something of value like money) for the opportunity to receive compensation that is derived primarily from a person's introduction of other people to participate in the plan or operation, instead of from the sale of a product or service by the person introduced into the plan or operation.

The Elite Activity scheme works like this: Consumers are solicited to invite only friends that they know to invest $100 to get into the alleged "gifting" program. People are promised a payoff of up to $48,000 in gifting contributions to be paid by others participating in multiple gifting programs.

The scheme spreads when individuals invite friends, and in this case, fellow church members to enroll in the program. Participants are told that it is not an illegal pyramid but in fact that an attorney had researched the law and found the plan to be a legitimate gifting club under federal tax laws.

According to the Attorney General's office, these representations are not true. Under Kentucky's law, as in nearly every state, you may not promote or participate in a pyramid promotional scheme. Not only does this conduct violate the Consumer protection Act but each person involved could be convicted of a Class C felony which carries a penalty of 5 to 10 years in prison.

"The participants are required to recruit at least two people each to qualify for monetary payoffs in the program, initial consideration is paid by each participant and no product or service is sold to qualify for payout of money. Clearly, each element of proof required to demonstrate that the Elite Activity program is an illegal pyramid is present," said Stumbo.

Stumbo says this and similar programs are doomed to fail, leaving hundreds of investors no return and a loss of any money invested. The Attorney General's Office has gone to court to halt similar programs. This program and those who choose to participate in it will be treated no differently, according to the Attorney General.

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