New Mexico Has Known Its Fair Share of Scams.
Back in the early 2000’s there was a buzz among professional women in Albuquerque. I became aware of it when a friend told me she was advancing $5000 from her credit card in order to participate in an investment program that was by invitation only, and open solely to women. She explained that by “donating” to “Women Helping Women” she would be placed in line for an eventual “Birthday”. The “Birthday” being the day her turn would come to receive a $40,000 cash gift. A return on her short term investment of astronomical proportions. Laughing it off as a joke, I did not think of the incident again until a few weeks later.
It was at that time, after accepting an invitation to coffee, three more women urged me to join this same organization by making an initial $5000 “investment.” Again, the fairy tale like anecdotes about the “Birthday” events were shared with me. If only I too would participate, a “Birthday” of my own would be heading my way. Worries about my student loans, rent and car payments would be a thing of the past. Most intriguing about this conversation, was who I was having it with. The women who encouraged me to participate in what would turn out to be a very large Pyramid Scheme, were well educated, successful professionals. Surely they would not be involved any anything shady… right? At the end of the coffee break, I thanked the ladies for the opportunity, but confessed the math behind what they had described simply didn’t make sense to me and I would need to pass.
Flash forward to approximately two years later. After the arrest of no less than 30 members of the “Women Helping Women” pyramid scheme in New Mexico, I spoke with two of the ladies who had encouraged me to join the scheme earlier. They were both out serious cash. ($15,000 and $35,000 to be exact.) Since the monies had been advance off credit cards, the 21% interest rate tied to those transactions were adding up quick, making the amount they were out more devastating with each passing day. They were still both adamant they were unaware “Women Helping Women” was a pyramid scheme when they talked of it originally and today were sickened with the knowledge that on top of encouraging friends and family to fork over their life savings to a swindle, they could be facing criminal charges as well. https://www.cbsnews.com/news/pyramid-scheme-scammed-women/
The disconnect for these ladies seems to have come down to not fully understanding what a Pyramid Scheme actually is. Both women were familiar with a “Ponzi” schemes. As such, they believed “Women Helping Women” was significantly different. “Women Helping Women” they insisted, was funded locally and distributed locally. What could be wrong with that?
A Ponzi Scheme takes place when individuals become seduced by a central figure, usually a Portfolio Manager or someone who seemingly has real insight and experience with investing. After being promised ridiculously high returns on investments, a pool of victims will fork over millions of dollars in order to participate over long periods of time. (In New Mexico, Doug Vaughn was the visionary behind a local Ponzi Scheme that managed to part over 600 different victims from $86 million dollars of their money in less than 10 years.) https://www.forbes.com/forbes/2010/0628/investment-guide-new-mexico-ponzi-vaughan-mini-madoff-case.html#332347364f24
A Pyramid Scheme requires the participants to actively recruit new members to to take advantage of. In the case of “Women Helping Women”, the investors were told the sure way to speed up their “Birthdays” was to find other women to contribute. Thus began the waterfall of sales pitches across the state that proclaimed “Women Helping Women” to be everything from a grass roots movement aimed at helping single mothers to a bonafide investment organization. It simply sold itself. It appealed to those who were in need, those who were greedy and even those who were philanthropic at heart. The money rolled and all the architects of this framework had to do was simply wait and skim off the top.
The punishment for participation in a pyramid scheme can ultimately be much more severe than the agonizing sting that accompanies being “sweet talked” out of your cash. Assuming you are part of the small minority that do receive a return on investment or in this case, a “Birthday”, the monies are tainted. The proceeds are made up of the “investments” of others who will never get theirs back. That means benefiting from these funds could be considered criminal. Additionally, actively recruiting others to step up and get swindled could also be be considered a criminal activity. Pyramid Schemes are different that your typical financial crime such as money laundering or insider trading in the sense that many of the people participating really don’t understand that what they are doing is wrong. In the case of these ladies, they didn’t ask anyone to do anything they hadn’t already done themselves.
Both pyramid and ponzi schemes take place everyday, all around the world. In the United States, they do not discriminate between the down and out of New Mexico or the ultra high net worth of Palm Beach. Anyone is a potential victim. So, when approached about any investment, it is important to keep a few points in mind: First, if it sounds too good to be true, it probably is. Second, if you do not understand the process fully, do not invest. Third, be suspicious of any “opportunity” that encourages you to deliver your investment in cash or by pass traditional banking services. Last, trust your instincts. If it does not feel right, contact an accountant, lawyer, banker or the FBI. They can talk you through the investment and determine if it is legitimate or not.
If you have participated in a pyramid scheme or are concerned you may be involved in one currently, its time to get out. First and foremost; call a lawyer who specializes in white collar crime. They will let you know what your options are and how best to move forward with dis-entangling yourself from a potentially criminal activity.
Concerned about a Ponzi or Pyramid Scheme you may be involved in? Do you want to speak to a Business Attorney about your concerns? Business Law Southwest can help. Contact us today.