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Consumer alert regarding gifting circles

Alert.

As the holiday season approaches, the Financial and Consumer Services Commission (FCNB) is warning consumers about gifting circles.

Gifting circles, even those marketed as charitable ventures, are pyramid schemes.  Participating in a pyramid scheme is illegal, regardless of whether or not a person makes money. 

Gifting circles are comprised of 15 people divided into four levels: one at the top, two on the second level, four on the third, and eight on the bottom. The majority of gifting circles target women.

Members in the top three levels of a gifting circle do not have to pay to join. Funding comes from members at the bottom level who must pay a membership fee or “give a gift” to join. Once the bottom level has been filled, the woman at the top is “celebrated.” She collects funds paid by the bottom level and, in exchange, gives them each a small gift, usually a gift card. There is typically a huge difference between the values of the small gift and the one received by the person at the top.

After the top level member leaves, the group splits in two and the members at the second level move to the top. Eight new members must then be recruited to each group for the new top members to get their payout. This cycle continues until there are no more recruits to bring into the group, and it eventually falls apart.

Recruits are told that they will be helping other women with their contribution, and that they are joining a group that will help them when their turn comes. The chance of making it to the top of the pyramid and getting a payout are slim at best; you are more likely to lose all of the money you contributed. Consumers are encouraged to be on the lookout for the warning signs of a pyramid scheme:

  • Earnings are based on how many people you can recruit, rather than through the sale of products or services.
  • Pyramid schemes promise to make you rich or return your payout with little effort or risk.   
  • You are asked to contribute large quantities of money or purchase large quantities of products upfront to get the circle “started.”
  • The training and promotional material focuses on convincing you that the opportunity is not a scam.

New Brunswickers are encouraged to consider these warning signs and do their own research, no matter where the opportunity comes from. Pyramid schemes often have an element of affinity fraud. They rely on the trust you put in your friends and family with the hope that you will hand over your money before taking the time to ask questions or think critically about the opportunity.

New Brunswickers are also encouraged to seek out reputable charitable avenues if they wish to help women in their community. Before donating time or money to a charity, check the Canada Revenue Agency’s Charities Listing to be sure the charity is registered. And if an investment opportunity comes your way, make sure the person you are working with is registered with FCNB.

New Brunswickers who are uncertain about the legitimacy of an opportunity, or wish to report a pyramid scheme, can contact FCNB online, by email or by phone at 1-866-933-2222.