Isle of Wight's get-rich fiasco

The collapse of pyramid schemes in Albania led to riots

By BBC News Online's Orla Ryan

Several hundred people from the Isle of Wight are thought to have lost thousands of pounds through pyramid schemes that have spread in the island in the past six months.

Pyramid schemes are a notorious get-rich-quick ruse, where investors should in theory make money by signing up new recruits.

They agree to pay a fixed sum of money to one of the members of scheme, but hope to receive even larger payments in return by recruiting others.

Four years ago the Albanian government was brought down when pyramid schemes collapsed, in which most of the population had invested their money.

It was a case of wishful thinking really taking over from critical analysis

Richard Stone, Trading Standards inspector

But far from being confined to developing or former communist countries, pyramid schemes have a long history in the UK as well - and fears exist that the scheme from the Isle of Wight could have spread onto the mainland.

"We are getting enquiries from other parts of the UK... particularly areas in the Midlands," a DTI official told BBC News Online.

Island woes

The "Women Empowering Women" (WEW) scheme began in October on the Isle of Wight, but only really took off in March, Trading Standards officials say.

The WEW literature - thought to have originated from the US - promises a new economic experience.

"Trust the system and remember this feminine process works best through sharing with others, the opportunity we have been given," the brochure said.

It worked on a classical pyramid system, whereby eight people each put in £3000 as entry into the scheme. Those who worked their way through the pyramid by recruiting further people could walk away with £24,000.

Pyramid schemes and sales

Pyramid schemes offer a high return for low outlay

Members hope to increase their money eightfold by recruiting new members

Ultimately pyramid collapses as the supply of new members dries up

Probably illegal under lotteries regulation

Pyramid trading or selling schemes involve the sale of a product

These schemes are governed by trading laws

"At the very beginning, there was massive euphoria, it wouldn't be exaggerating to say you could walk down the high street of Newport and see groups of people talking about it. You could go into virtually any pub and hear people talking about it," Trading Standards area inspector Richard Stone said.

The "success" of the first scheme spawned the birth of others including "Friends empowering friends" and "Islanders empowering islanders". These schemes allowed people to take part for much less money, broadening the net.

Thousands took part

The local Trading Standards office estimates thousands of people took part, with the office having taken over a hundred calls, mostly from people who claimed to be friends or relatives of those who had got involved.

"I had a great deal of difficulty explaining to people why eventually this doesn't work. It is a case of wishful thinking really taking over from critical analysis. When they started up, there were payouts, there were people receiving £24,000. If you are gullible, that is proof to you that the schemes work," Stone said.

One week the NatWest had so many withdrawals of £3,000 that it was concerned its branches would run out of money.

But, like all pyramid schemes, it was doomed to fail ultimately, because - very quickly - you run out of people to get new money from.

Legal minefield

It is unclear what action can be taken as the scheme doing the rounds on the Isle of Wight means it is classified as a pyramid scheme or chain letter, rather than pyramid selling.

The latter involves sale of a product and is governed by trading regulations. The Isle of Wight scheme falls outside of the trading regulations as there is no product sale involved.

However, chain letters inviting participants to send money are probably illegal under the Lotteries and Amusements Act of 1974.

"They may be illegal lotteries. They very often rely on gaining money by a form of chance... The other issue that may of course arise is if there is some sort of fraud inherent in it," the DTI official said.

A Home Office official said they had received enquiries and were looking at whether these schemes were illegal.

Island trauma

In any case, the resultant publicity has dealt a blow to the Isle of Wight scheme and Trading Standard offices' phones are now quiet.

MP Peter Brand warns of the effect on a close knit community

But the repercussions will be felt on the island for some time yet.

Local MP Peter Brand (Liberal Democrat) said: "It is always awful when you get a close knit community caught up in the hysteria of handing over money which people can't afford. We are not a wealthy place, we've got high unemployment, we've got low wages, people with insecure jobs and they were putting out money that they could ill afford."

Some fear that the scheme could have moved to the mainland, given that the "continual quest" for new people is essential to the way that pyramid schemes work.

But one reason the phone calls to the Trading Standards office has stopped is quite simply embarrassment.

There are "an awful lot of embarrassed people, who wouldn't really want to admit they have lost their money," Mr Stone pointed out.