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Last Updated: Monday, 16 June, 2003, 11:28 GMT 12:28 UK
Pyramids come tumbling down
Schemes can fail spectacularly leaving victims penniless

A curb on the most unscrupulous pyramid selling schemes is to be announced this week.

The schemes, which often target the most vulnerable, use a legal loophole to dupe victims into giving away thousands of pounds.

The Culture Secretary, Tessa Jowell, is set to close the loophole by making it illegal for scheme operators to brand their activity as "gifting" operations.

Hearts

It is estimated that up to a million victims may have lost money through these schemes.

The most recent scheme that swept across the UK, imported from the US was known as Hearts or Women Empowering Women.

Victims of this scheme, and others, are lured with promises of quick and easy money.

They rely on a pyramid of members that funnel money to the person at the top, who in theory will receive as much as 24,000.

Each new recruit must pay 3,000 to take part in the scheme.

They in turn must recruit more women to move them into a position for a payout.

The problem is that all of these bogus schemes need an infinite supply of new participants for everyone to make money.

And since the supply will always be finite, the pyramid must inevitably collapse leaving most participants without anything and having lost their initial investment.

Victims

Many Working Lunch viewers have written to us about joining these schemes or being pressured to do so.

Gloria Stretten from Hull was one of them.

She was the victim of a scheme and was conned out of 3,000.

Gloria says:

"If I'd thought I was going to lose my money there's no way I would have gone in."

And Gloria knows dozens of other 'investors' who've lost money.

There are many other types of schemes; some that target men, and others that operate as chain letters.

On the Isle of Wight the Hearts scheme faltered within months because the small population could not sustain it.

Stopping the schemes

The problem in clamping down on these schemes is that they fall through a legal loophole.

Trading Schemes regulations only cover schemes that involve the purchase of a product.

Investment regulations can't touch the schemes because the investments are technically gifts.

(The figure of 3,000 is no coincidence; this is the maximum amount that can be gifted to another individual before triggering a tax liability.)

The only law that could cover schemes operating as chain letters would be the Lotteries and Amusements Act of 1976.

But the law is very complex. And enforcement, which is the responsibility of the police, extremely difficult.

But this is set to change.

Strong fines and strong enforcement is what is needed to stop these schemes.
Tony Allen, Trading Standards

The Department of Culture Media and Sport (DCMS) is to announce changes in the law this week that will see the outlawing of pyramid selling schemes.

This will offer victims more protection and threaten offenders with fines and imprisonment.

According to Tony Allen of the Trading Standards Institute, the law will have to have teeth if it's to be effective.

"To clamp down on these schemes we're going to need strong fines and good enforcement to clamp down on the people running them.

"Trading Standards will need proper resources and powers to get to the people before they've moved on and set up another scheme somewhere else."

The announcement, to be made by Culture Minister, Tessa Jowell, is a result of the review of gambling law in the UK by Sir Alan Budd.

SEE ALSO:
Pyramid investors still losing cash
21 May 02  |  Working Lunch


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