GIFTING CIRCLES: JUST HOW ILLEGAL ARE THEY?

 Here is an idea: You give me some money. By giving me some money you will be entitled to ask others to join our group. Eventually, there is a chance you will receive money. Sound about right? No? Okay, how about I form a sister empowerment group that shares abundance. We focus on fulfilling our deepest selves through gifting love (and cash) toward the center of our lotus circle and someday, after you gather more women together, with lightness and invigorating clarity, you might blossom into the center and receive the abundance.  Sound better?

Either way you describe it, the legal term for a scheme where someone is enticed to join by paying money in exchange for the opportunity of gathering more people to pay money for the chance of receiving money is an “endless chain” and it is illegal under the Penal Code (section 327 for those of you who like to read statutes as much as I do). For those of you who hate reading code here are the cliff notes: anyone involved is guilty and may go to prison. For years. By “anyone” I mean everyone involved, not just the active players. If you even propose one of these schemes to another person you are guilty. It doesn’t matter if you ever gave or received money. Actually, it is worse, according to the statute if you even “contrive” one of these schemes you are guilty. I’m not sure how the prosecutor could establish that someone contrived the scheme unless the defendant also proposed it to someone, but there it is in the statute to cover all bases. Perhaps you could write down the idea of your scheme and get busted before you actually told anyone about it.


But wait, there’s more: under California Civil Code (section 1689.2 ) anyone who entered into a contract that was part of this type of scheme may rescind that contract. This is good news for those of you who are left dangling at the bottom of the pyramid when it falls apart. You can sue the person who you “gave” your money to and get your money back plus your attorney’s fees (if the judge pleases).


And that’s just California. The feds can go after you too. Take your pick: Federal Trade Commission, Security Exchange Commission, US Attorney General— any one of them can claim jurisdiction over endless chain schemes. Also, you may be interested in reading about these busts in Sacramento and Hawaii.


“What if,” you ask, “the intention is really to give another person money"? What if there is absolutely no expectation of ever receiving a dime back? Doesn’t that fall under gifting laws? Didn’t I hear that we currently allowed to give around $13,000.00 to anyone we want tax free?” Actually, you are allowed to give away $5.12 million gift-tax free, but that is a discussion for another post because it isn’t the issue here. Whether something is a crime is a completely different set of laws from whether something is taxable. You may not owe sales tax on your purchase of crystal meth in Oregon, but it’s still illegal to buy it.


“But wait!” you say “we’re not a pyramid scheme or a chain. We’re a group of women helping women and it’s all very ethical because we use hip terms like empowerment, sister goddess, community, abundance and freedom. We’re in the shape of a circle!” To that I answer that it really doesn’t matter what shape your group has contorted into. It could be a flower, a pentagram or a solar system— if the scheme involves paying money, introducing new people to the scheme and a resulting chance of compensation (no matter how slight) it is an illegal “chain.”


But maybe you don’t care about strict compliance with every single little law. Maybe you’re willing to break a rule or two in the name of cold hard cash. That is your prerogative of course, but in researching this post I did come across some interesting information that I would like to share with you:

• Here is an article on sacred geometry and why gifting circles don’t fit. 

• Here is a post from a Burning Man participant explaining why gifting circles are not true gifting in the Burning Man context. 

• Here is a great graph of the sheer number of people you need to join these “circles” in order for everyone to receive compensation. Here is another great post on the math that includes a break down on the classic “8-ball pyramid scheme” (where the bottom rung is eight people then four, then two, then one happy winner at the top) and other schemes. There is also a great wikipedia article on the eight ball. 

• Here is a calculator for figuring out how many people need to be recruited into your gifting circle before everyone currently in your gifting circle gets paid. Just for fun I put in some numbers. I said that I joined the scheme after it had been going for four levels. Most gifting circles have been around for a long time, but I’m pretending to be in a newer one to keep the numbers down. Also, although the drop out rates are usually much higher because most people find that they just can’t hack pulling their friends into these things, I’m going to say that my group is “strong” and our drop out rate is only 30%. With these numbers 473 friends need to be recruited before everyone who is in the pyramid currently can be paid. That may be doable, but here is the kicker: 8,320 people need to be recruited into the circle before all of those friends get paid. Now here is bit of math for you: how many friends of yours will still be your friend after they lose their money? 

• Think it makes a difference if some or even all of your gifting ladies are reinvesting their gains into another circle? It doesn’t. Check out this great spreadsheet. It shows that even if women reinvest three times (that means they reinvest $15,000 of the $40,000 they received) the numbers of new participants needed still reach thousands very quickly. 

• Here is a fabulous post on woman’s circles and why the money part of “gifting circles” aren’t beneficial to woman’s circles. Really worth a read because she also covers the reasons why the government should be protecting women from these “gifting circles.” 

DO YOU REALLY WANT TO HELP YOUR FELLOW WOMEN SUCCEED? 

Here is an idea: form a Dream Circle (or maybe we can call it a “Woman’s Empowerment Circle” or a “Glory Circle”). Each month one woman sits in the Glory Seat. When you are in the Glory Seat everyone else in the group is required to use their best non-monitory resources to help your dream come true. They call upon their networks to make contacts for you ( I know a pilot, a biologist, a published writer, and a musician— maybe one of those connections will help you). They use their skills to do things for you (make webpages, write business plans, research law, rove the internet or bookstores looking for ideas that will help you).



The group does once a week group calls and during that call they do the usual woman group grope thing but they also brainstorm together on how best to assist the Glory Seat lady (I’ll call her Glory Girl). Glory Girl “runs” the phone calls or in person meetings (potluck!) and can do cool stuff like give out free samples of her products or get everyone doing circle foot massages.



Any number of people can join and there is no requirement to bring in new people or pay any money. If you’ve been active in the group for more than two months your name is put into the hat when choosing the next Glory Girl. Imagine what you could accomplish if you had ten other ladies dedicating all of their creative energies for a month on making your dream come true!



By the way, I didn’t totally make this idea up. Barbara Sher (the self-help author) writes books on finding your dream job and I’m pretty sure she suggested something similar in one of her books. If you’re trying to figure out what to do with your life I read a couple of her books many moons ago and found them very helpful.

LEARN ABOUT MORE TYPES OF SCAMS ON MY NEW POST: DON’T GET SCAMMED! TWELVE CLASSIC CONS TO AVOID.

Good luck out there!