A gifting circle is a pyramid scheme that is gaining a strong foothold in even the most anti-MLM circles.
I was at a party last weekend where I learned about this money scam that rivals even Amway. It offers up even greater deception and insanity, providing both a smoother pitch and bigger promises. I would list mocking MLMs within the top 10 of my favorite personal finance activities, but this new one takes the cake. It’s one thing to tell people they can earn a few hundred dollars a month selling toiletries to their friends and family. It’s quite another to promise a $40,000 payout.
You read that right: $40,000
As soon as I heard that number I knew I was going to be told something ludicrous, and my friend delivered. It’s called a Gifting Circle.
A Gifting Circle is a Pyramid Scheme
A Gifting Circle is a clever way of sugar-coating the words “pyramid scheme”. It’s an elaborate, expensive scam that primarily targets women:
gifting circles induct women into the group for a specific amount of cash, usually $5,000. The groups are made up of 15 women, called a circle, but of course it’s a pyramid. Eight women on the bottom layer, then four, then two, and one at the top.
The woman at the top collects $40,000 when the bottom level is filled, which happens when each of the eight newest initiates give her a $5,000 “gift.” Once she gets her gift (they might call it her “birthday” or say her “cloud has rained”), she leaves the group, which splits in two. Remaining members move up a level, and both groups start looking for new members.
- See more: The Truth About Gifting Circles
When my friend explained this to me, I actually grabbed her shoulders and shook her forcefully yelling “Scam! It’s a SCAM!”. She looked dubious but otherwise nonplussed. She had not participated in the gifting circle herself because she, thankfully, did not have $5,000 lying around for such BS.
Another girl at the party piped up that she had gone in for a “half-step”, which is $2,500. However, she got nervous and pulled her money out. Nevertheless, both of these young women insisted over and over that the gifting circle was 1) not scam, 2) not illegal, and 3) that one of their friends made it through twice pocketing as much as $90,000.
All three of those points are untrue, especially the last one. Neither of my friends realized their gifting circle is a pyramid scheme.
If anyone is trying to lead you into an investment with the reassurance that it is “not a scam” and “not illegal”, that is a big red flag that it is definitely both.
Honest business doesn’t need to lead with that defense. People selling legitimate products and services don’t start off by telling you what their business is not. They don’t have to, they should be too busy selling you on what value they can provide. Scams work the opposite way. They try to dazzle you with too-good-to-be-true promises, while simultaneously reassuring you nothing shady is going on.
They are 100% illegal!
Gifting Circles are illegal, make no mistake about it. It’s laid out in section 206 of the Criminal Code of Canada.
My friend admitted she was aware the Gifting Circle wasn’t totally with the law, but assured me there was a loophole. There is an exchange of a gift card for the cash, which makes it a transaction instead of the gift. I don’t think paying $5,000 for a $100 gift card to Victoria’s Secret is really fooling anyone, but perhaps it is enough to dodge some legal red tape?
The target of this Gifting Circle is affluent, well-connected women
A $5,000 buy-in is cost-prohibitive to many, which means this type of scam is more likely to target a more affluent demographic. This itself is a problem, because many people with higher incomes or wealth will consider themselves “above” money scams.
There’s a stigma attached to scams that they only happen to people that are of a low socioeconomic class, and stupid or bad with money, when that really isn’t the case. Both elaborate and simple scams can and do happen to anyone regardless of their income, education, or wealth. A gifting circle is a pyramid scheme, even if it happens to rich people.
The reason scams pop up so frequently, and operate so successfully, is because we’re hardwired to believe them
The sell is incredibly persuasive, particularly for the Gifting Circle.
A group of friends joining together to pay out a big “gift” to another friend works under the guise of women helping women. The close friendships between participants create an atmosphere of trust and security, which easily overcomes most hesitations you would otherwise feel to parting with $5,000. Seeing your friends participate, or even profit, from the scheme assuages any worry that you might have that it’s not legit.
To venture even deeper into the crazy underground garage of this multi-story scheme, there is even a made-up history that Gifting Circles were established during World War II to help wives and mothers whose husbands were off to war. You can read more about the dark fairytale mythology that is Gifting Circles here. Rest assured no matter what anyone tells you, a gifting circle is a pyramid scheme.
There are so many layers of psychological swindling happening that it is downright disorienting.
These scams persist further because people will lie to keep them going. Do I think this girl my friends “know” made $90,000 through gifting circles? Fuck no — unless she is at the heart of this scam and on her way to jail. Do I think she’s telling them it’s worked for her multiple times to get more buy-ins? Of course, that’s the easiest sell: “look it worked for me, so it will definitely work for you”. My only regret is she wasn’t at the party so I could ask her directly to tell me more about how she made off with nearly six-figures by asking friends of friends to give her $5,000 each as a “gift”.
People in the middle or at the bottom of the Gifting Circle likely don’t know they’re part of a scam.
The person at the top definitely does.
The person at the top of a gifting circle is actively committing fraud. They are a con artist. They are not your friend. They are not a victim. They are conducting an elaborate scheme to steal money directly out of your pockets. Frankly, you should report them to the police and have them arrested for robbing you and your friend group. But doing so comes with the embarrassment of having to admit you fell for their ruse. A gifting circle is a pyramid scheme, and sometimes it happens to good people.
You should never feel embarrassed or stupid if you’ve lost money to a Gifting Circle.
You should feel angry that a friend deceived you.
Everyone makes mistakes with their money. Sometimes these are small mistakes, but sometimes they’re big. Chances are, the more money you have the more likely you are to make a bigger mistake. You simply brush yourself off, learn from it, and move on.
Live in Calgary? Be extra careful.
I’ve lived in Calgary for 2 years and this is the first time the gifting circle is a pyramid scheme has crossed my path. However, it’s one of the most common pyramid schemes in the city.
The main one in the city is called Prosperity, but there are others with names like “Women Empowering Women”. Mygirlfriendss said the one they had been involved in was called something with the word “cloud” in the name (in reference to your payout being “when your cloud rains”) but insisted they couldn’t remember the name. I’m guessing they just didn’t want to tell me because I was freaking out. There is a CTV news clip about gifting circles that includes an interview with the Calgary Police Department Economic Crimes Division that is also worth a watch here.
The only way to make money is to earn it. Don’t give it to assholes.