5 Famous Instances of Pyramid Scheme Fraud
A pyramid scheme is an illegal business model based on getting new members embroiled in the investment. The top of the pyramid may make a quick buck, but the exponential growth of members required means pyramid schemes end pretty quickly. Unfortunately, hundreds of thousands of people can be taken in by the con game before this happens. Here’s a look at five famous instances of fraud caused by pyramid scheme companies.
1. United Sciences of America
United Sciences of America sold meal substitutes, fiber bars, and nutritional supplements; they even had celebrity acclaims (from William Shatner, among others). A starter kit for only $25 was the buy in, but each distributor had to spend $100 a month on products. Its founder, Robert M. Adler II, expected to pass $1 billion in sales by the turn of the 1980s. A year before their fall, 100,000 distributors were keeping those goals alive through the commission received from new members.
By 1987 they were bankrupt from several lawsuits in multiple states, and eventually shut down for being an illegal pyramid scheme. USA was a scam right down to the pictures they put on their brochures. They were one of the first pyramid to use video tapes and a scientific advisory board to create an air of legitimacy, but the very videos the company used to sell products brought the FDA down on them (for suggesting their products were essentially new forms of pharmaceutical drugs).
Nutrilite was one of the earliest supposed pyramid schemes, launching in 1934 and quickly realizing it was a much better bet to sell to independent distributors rather than selling their nutritional products alone. Eventually, Amway bought it up. Amway itself has never been fully charged or shut down as a pyramid scheme, although they have frequently been brought to heel under the suspicion that their multilevel marketing platform is little more than a carefully constructed product-based pyramid scheme. Nutrilite is still their largest selling product line and Amway itself is a leading global privately-owned companies.
In 1979, the Federal Trade Commission (FTC) ruled that Amway was not a pyramid scheme, provided they took steps to protect their distributors. Whether or not these rules were enforced is questionable, and multilevel marketing took off in a whole new way. Through various fines, lawsuits, and accusations the world over, Amway has persevered—never once admitting to any wrongdoing and holding firm to their MLM claims.
3. Darling Angel Pin Creations
Darling Angel Pin Creations started around 2003, led by Julie Olsen out of Florida. Through newspaper articles, she drew in women looking to make extra money from home. For the low, low price of $500, members got a craft kit, and would receive $2.50 for each angel pin crafted. The scam quickly turned bad when angel pins were rejected as the owner refused to pay. Unfortunately, 8,000 people bought in before the FTC filed a lawsuit.
4. Burn Lounge
Burn Lounge was an online music sales based multilevel marketing organization, and one of the more recent companies shut down as a pyramid scheme. The company opened in 2004 as an online business with celebrity endorsement. With illegal media downloads so much in the forefront, the FTC charged Burn Lounge with pyramid scheme accusations in 2007. The lawsuit ended badly for the company in 2012, as did the 2014 appeal. Eventually the company was shut down and forced to pay back millions to its roughly 30,000 distributors and consumers.
5. Women Empowering Women/Women’s Empowerment Circle
Periodically cropping back up around the country, women’s gifting circles are presented as a sort of gift from heaven. You pay $5,000 and find 8 more women who will do the same. You keep part, most goes up the pyramid, and the woman at the top walks away with give or take, $40,000. Depending on how much you give and how many other women you draw in, you can rise through the ranks, eventually getting a bag of cash you are strictly prohibited from depositing. The BBB issued a warning in 2016 that the Women Gifting Women scheme was out and about again. Women Helping Women hit Sacramento, CA leading to the arrest of a group of moms and grandmothers who became embroiled in a dinner-party style gifting scam.