For immediate release - Thursday, December 6, 2001.
Contact Bob Brammer - 515-281-6699.
Attorney General Suggests How to Recover Funds Paid in "Gifting" Pyramids
DES MOINES.The Attorney General's Office has advised that so-called "gifting" pyramids operating in Central Iowa are illegal under
state and federal statutes. The pyramids, known by various names, including "Seasons of Sharing" and "Women
Empowering Women," also are ill-advised because all pyramids inevitably collapse and leave a trail of people who pay
but are not paid themselves. The matter is under investigation, and pyramid participants have been subpoenaed to
provide information under oath.
What options are there for people who lost money? What should people do if they received money and are being asked to
make refunds? The Attorney General's Office suggests the following.
1. Ask for a refund. If you paid money to another participant in order to become a participant yourself, you can try to
get your money back. You may direct your request for a refund to the person who received your money, and/or the person
who recruited you to participate (the same individual may have done both, but often the person who received your money
is not the one who recruited you.) If an informal verbal request is unsuccessful, consider making your request in writing
and sending it by certified mail, so you can prove later that your request was received.
If your formal request does not result in a refund, you may need to take private legal action. There are two basic options,
2. Consider contacting a private attorney, who can pursue a refund on your behalf via letters or a lawsuit. Even if
you are going to pursue the matter in Small Claims Court without an attorney representing you (see below), you may want
to consider consulting an attorney regarding possible complications (e.g., if the person you paid your money to lives in
another county or state.)
3. Consider filing your own suit in Small Claims Court. You can file your own lawsuit in Small Claims Court, with
or without an attorney's help. Small Claims Court is designed to be used by persons who represent themselves, although
one also may use an attorney in a small claims case. Unlike lawsuits in district court, Small Claims Court suits
may not exceed $4,000 not counting interest and costs, if filed before July 1, 2002. So, for example, a person who suffered a $5,000 loss would
only be able to sue for $4,000, and probably would abandon any legal claim to the difference. Note, however, that this dollar
limit increases to $5,000 for small claims commenced on or after July 1, 2002. If a person wins a judgment
in Small Claims Court, there are procedures available for using the judgment to collect the money (garnishment, for
example.) Note: The Attorney General's Office has prepared a "friend-of-the-court" brief that may assist persons filing in Small Claims Court. To request a copy please call Steve Switzer at 515-281-8771.
A person considering a small claims suit needs to consider whom to sue. Clearly, the person to whom the money was
actually paid should be made a defendant. In addition, in some cases it might make sense to name as a defendant anyone
who recruited you into the pyramid, particularly if in doing so that person made misrepresentations (for example, "The
gifting aspect makes this legal," or, "The pay-outs are non-taxable income.")
Making Refunds if You Received Payments:
If you received money from other participants, you should do everything you can to return the money and avoid being
the target of legal action. If you no longer have money you received, contact those to whom you owe money and try to
make arrangements to pay it back in installments.
The IRS is on record indicating that income received through participation in a gifting pyramid is taxable. Such income
does NOT qualify as a true gift upon which no income tax has to be paid. After all, these payments are made with the
expectation of financial gain (in other words, as investments); they are not truly intended as gifts or charitable
contributions of any kind. Anyone who has income of this nature would be well-advised to consult a professional tax
adviser about how to proceed.
Role of the Consumer Protection Division:
The Consumer Protection Division has issued subpoenas and has an ongoing investigation of the "gifting" pyramids, but
by law it cannot provide personal legal advice and representation to individual consumers. Efforts to obtain refunds often
pit one consumer against another, a situation usually handled best by private remedies. Therefore, sorting out who-owes-what-to-whom will be determined primarily by individual contacts and private legal remedies.
This and other information is available at the Iowa Department of Justice web site: www.IowaAttorneyGeneral.org (click
on news releases.) See Pyramid Warning news release dated November 23, 2001, which includes links at the end of the
release to a legal memorandum and related documents. Citizens are encouraged to continue to monitor the web site for
additional information, especially if they pursue a legal action.
Attorney General Home | News Release Home