Office of the Attorney General News Release Archive

Friday, May 5, 2000


Illegal pyramid schemes misrepresent Attorney General's approval

AUSTIN - Texas Attorney General John Cornyn today announced that consumers should be aware of invitations to join "gifting clubs" from friends and acquaintances. These gifting clubs usually ask participants to donate $5,000.00 with the promise of making up to $40,000.00.

Most of these gifting clubs are targeted at women with some promoting a charitable connection and are being promoted by saying that the Attorney General said that "gifting clubs are legal." Several gifting clubs which are currently being promoted in Texas use terminology for its pyramid levels like "appetizer" for the entry level where $5,000 gifts are required to be seated at the dinner party; "salad/soup" and "entree" when additional members are recruited by the participant; and "dessert" or "birthday" for the top payoff level.

"Gifting clubs" are usually illegal pyramid promotional schemes which eventually collapse with the majority of the participants losing their money. The Texas Deceptive Trade Practices Act defines an illegal pyramid promotion as a plan by which a person gives consideration (usually money) for the opportunity to receive money that is derived primarily from a person's introduction of other persons to participate in the plan rather than from the sale of a product.

A person can be found in violation of this Act not only by establishing and operating an illegal pyramid plan but also by advertising or promoting the illegal pyramid promotional scheme. Violations of this Act are classified as state jail felonies which can result in incarceration in a state jail and offenders also subject to civil penalties as well. Several local police departments, including McKinney, Amarillo and San Antonio, have begun to crack down on gifting clubs as illegal pyramids.

Cornyn warns that an immediate "red flag" should be raised regarding the legitimacy of any gifting club or business is if it is promoted with claims that the Attorney General has approved this club or has said that it is legal. The Office of the Attorney General does not provide a "stamp of approval" to any type of business or plan. Some other tips to avoid losing money is to use caution if you are invited to participate in a gifting club because it is probably illegal; remember most participants lose their money; and promoting and advertising the gifting club could result in criminal and civil penalties against you.

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Contact Mark Heckmann, Heather Browne, or Tom Kelley at (512) 463-2050