Money for Nothing

Too good to be true?

Gina DeJoy used to take people at their word. At her Maine antiques store, customers could ask for things to be put aside, on hold, no deposit necessary. These days, DeJoy would like to be paid in full first, thank you very much. After what she’s been through, it’s hard to blame her.

Three years ago, DeJoy, 43, told an acquaintance that she was in a tough spot financially. Every six weeks she was flying to Virginia — missing work each time — to get her mother through chemotherapy. Her credit cards were maxed out, but she couldn’t bear to let her mother suffer alone. DeJoy’s friend said she had a solution.

There was a local group set up to help women just like Gina. Called A Woman’s Project, it was a “gifting circle” that worked like this: Give $5,000 to another woman in need, and in a short time your gift would come back to you eightfold — $40,000.

How could money multiply so magically? Simple: by more women being inducted into the group. The groups, usually made up of 15 women, are known as “circles” but are best understood as pyramids: eight women on the bottom layer, four above that, two above them, and one at the top. The woman with the most seniority (the one at the peak of the pyramid) collects $40,000 when the bottom level is filled — that is, when each of the eight newest initiates give her a $5,000 “gift.” After the top woman collects, she leaves the group, which splits in two. At this point, all remaining members move up a level, and both groups start trolling for eight new bottom-level members.

A Woman’s Project seemed heaven-sent to DeJoy. At her first meeting — a potluck lunch held at a local hairdresser’s house — she felt as if she’d been invited to join a secret sorority. Among the 40 or so attendees, there were familiar faces, including her bank tellers and grocery-store cashier, but no one used last names, making the group feel both intimate and mysterious. The idea was that everyone had gathered for a charitable purpose — to raise money for a good cause. Many of the women had brought donations for a local food bank, and the pile of canned goods sat in the middle of the crowded living room, a symbol of A Woman’s Project’s good intentions.

“We’re women who help women,” gushed one of the promoters, an inspirational speaker who said she had participated in a successful group in Texas. “That’s what it’s all about.” Then came the pitch: The woman you help could be you. Eight of the attendees told stories about receiving $40,000. They encouraged newcomers to mortgage their homes to finance the initial gift. They mentioned money-back guarantees.

Of course, the two parts of the hook — giving to charity and making a quick buck for yourself — have nothing to do with each other. But for DeJoy, as for many other women, those two parts merged into a persuasive and tantalizing fantasy.

DeJoy talked it over with her husband and borrowed $5,000 from a bank. Then she wrapped the cash up like a present. At an afternoon tea attended by 18 Woman’s Project participants and potentials, she handed the package to her host, a woman she’d never met. Though DeJoy was “scared to death,” the others burst into applause. The next day she headed to Virginia to take care of her mother. Soon, she thought, the gifting-circle money would allow her to hire a private nurse. Instead, within a week, things began to fall apart. DeJoy’s husband called to tell her there had been a story in the local paper — the gifting circle was in fact an illegal pyramid scheme. Frantic, DeJoy phoned the woman she had “gifted” to try to get her money back. The woman told her she didn’t have it, and the others in the group were “just as mean and cold and heartless as could be,” DeJoy recalls.

As her mother grew worse, DeJoy fell deeper into debt. A nurse was now out of the question. She had to borrow money from relatives. Her mother died, and DeJoy returned to Maine, where her husband tried to hang on to the antiques business while she took a job in a bakery — on top of teaching art, weeding gardens and cleaning houses, almost anything to catch up on her bills.

And the money DeJoy had given, supposedly to help someone in a jam? The $5,000 really was gone. The head of the circle had spent the money — received from DeJoy and seven others — on “necessities” like a new car and a Caribbean cruise.

Pyramid schemes have been around nearly forever — almost as long as there have been gullible people with money in their pockets. In the 1920s, Italian-born con man Charles Ponzi promised an eye-popping 400 percent interest on the cash that eager Boston residents “invested” with him. Before his arrest, Ponzi separated as many as 40,000 people from a total of $15 million.

Unfortunately for DeJoy and thousands of others like her, Ponzi’s spirit lives on in today’s gifting circles. First detected in the Pacific Northwest in the late 1990s, gifting circles are classic pyramid schemes, according to experts, but with a twist. They target women almost exclusively, and often draw in those who can’t afford to lose any money at all. “There are a lot of people out there who are desperate,” says Jim McKenna, an assistant attorney general in Maine. “It’s not because they’re greedy, but because they’ve fallen on hard times.”

But it’s not just the poor — or even the financially naive — who get taken. Gina DeJoy had experience running a business. Holly DeIaco, 32, a consultant who lost $2,500 to a similar scheme, has a master’s degree. “I’m successful at what I do,” she says. “How could I not see this?” The woman DeIaco gave her money to said she was writing a book — a seemingly worthy cause to support. Only later did DeIaco find that the woman lived off credit cards and the money she made from gifting circles.

Far from being isolated cases, what happened to DeJoy and DeIaco is increasingly common. Hundreds of thousands of women have been swindled, losing what may add up to hundreds of millions of dollars. In Wisconsin in 2000 and 2001, sheriffs and district attorneys reported illegal gifting circles in 61 of the state’s 72 counties. New Mexico’s attorney general called it the No. 1 scam in her state in 2002. Last fall, the Sacramento sheriff’s department broke up a network of gifting circles that involved 20,000 women and $15 million in losses.

If those numbers seem big, here’s why: By its very nature, a pyramid scheme must grow exponentially if people at the top are going to get paid. But sooner or later the bubble will burst. “There’s a finite number of people in your circle of friends and acquaintances,” says Susan Grant, director of the National Fraud Information Center/Internet Fraud Watch. “There’s no way you’re going to keep bringing in new people to fuel the circle.” Nine out of ten women are sure to lose their entire investment. To deflect potential victims from that grim mathematical reality, the perpetrators of these schemes cloak their scams in touchy-feely New Age language or appeals to sisterhood. Authorities say people who originate gifting circles are almost always career con artists. But if a circle sustains itself after an initial cycle or two, subsequent “winners” might genuinely not realize they are committing a crime.

Once a woman has joined a circle by putting up cash, there’s a powerful incentive to stay — even if things begin to look odd. Gifting circle victim Heather Wolfsmith, a 31-year-old financial advisor in New York City, quickly learned to keep her questions about the legality of the circle to herself. “The prevailing feeling was ‘Don’t ask,’ ” she says. “It was like you were afraid to live your dream, and that’s why you’re having these doubts.”

Kathy Guardipee, 55, of Browning, Mont., kept quiet about her concerns for a different reason — one that had a unique female appeal. “There are a lot of women going through abusive relationships, and this is their way out,” she remembers being warned. Gina DeJoy was told the same thing.

While they may be poorer, Guardipee, Wolfsmith, DeIaco and DeJoy decided not to keep quiet. All three asked for their money back, and were refused. So they took action.

Wolfsmith has had the most success. In September 2001, she and five others in her circle, including DeIaco, filed suit in small-claims court against the women they “gifted.” Victory was sweet. Ruling that the defendants — who were involved in multiple circles — showed “malicious intent,” the judge awarded triple damages. The decision was upheld last year.

Not everyone will be so fortunate. State laws governing scams vary, and some courts may rule that merely participating in — not just profiting from — a pyramid scheme is a criminal act. Helping a gifting-circle victim get her money back would then be like helping a person recoup losses from an illegal poker game. And defendants, even if found guilty, can claim bankruptcy to avoid their debt.

There are some bright notes, though. In New York, the attorney general recently “unwound” a gifting circle, returning more than $170,000 to the proper pockets. In Wisconsin, an amnesty program got $1.2 million back to its rightful owners. Maine authorities are trying to do the same for DeJoy and her fellow victims, and have managed to settle a number of cases in their favor. But DeJoy turned down a settlement offer for one-fifth of her original investment — $1,000 — in hopes of getting all her money back.

Whatever happens, she can already claim at least a modicum of revenge. Despite the embarrassment of getting taken, she’s been heartened by the response from other women in her area. “It was nice to have people come out and say, ‘Yeah, we almost did it. You weren’t a complete nitwit.’ ”

In fact, she might be wiser than the crooks who hatched the scheme. For all the talk about building a community, A Woman’s Project fell apart the minute the chance to make money evaporated. By contrast, DeJoy and two other Maine women duped by gifting circles have begun getting together each week for lunch, and may, indeed, become friends for life.

If you’ve been suckered, contact the National Fraud Information Center/Internet Fraud Watch ( or 800-876-7060).

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Originally Published in Reader's Digest