What is a Gifting Circle?

So what exactly is a Gifting Circle?

According to Wikipedia, it is a type of Pyramid scheme which was more fully described in this lecture. I will repeat the relevant portion of that content here for reference:

The "eight ball" model

The "eight-ball" model contains a total of fifteen members. Note that in an arithmetic progression 1 + 2 + 3 + 4 + 5 = 15.

The pyramid scheme in the picture in contrast is a geometric progression 1 + 2 + 4 + 8 = 15.

Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult, so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, and so on.

Prior instances of this scheme have been called the "Airplane Game" and the four tiers labelled as "captain", "co-pilot", "crew", and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labeled the tiers as "dessert", "main course", "side salad", and "appetizer". A person on the "dessert" course is the one at the top of the tree. Another variant, "Treasure Traders", variously used gemology terms such as "polishers", "stone cutters", etc.

Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted". Popular schemes such as "Women Empowering Women"[4] do exactly this.

Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme—with the Airplane Game as the example, the person at the top of this tree is the "captain", the two below are "co-pilots", the four below are "crew", and the bottom eight joiners are the "passengers".

The eight passengers must each pay (or "gift") a sum (e.g., $5,000) to join the scheme. This sum (e.g., $40,000) goes to the captain, who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they advance through the crew and co-pilot tiers and exit the scheme as a captain. Therefore, the participants in the bottom three tiers of the pyramid lose their money if the scheme collapses.

If a person is using this model as a scam, the confidence trickster would take the majority of the money. They would do this by filling in the first three tiers (with one, two, and four people) with phony names, ensuring they get the first seven payouts, at eight times the buy-in sum, without paying a single penny themselves. So if the buy-in were $5,000, they would receive $40,000, paid for by the first eight investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible to allow them to skim even more from it before it collapses.

Although the "captain" is the person at the top of the tree, having received the payment from the eight paying passengers, once they leave the scheme they are able to re-enter the pyramid as a "passenger" and hopefully recruit enough to reach captain again, thereby earning a second payout.

How it Works

The gifting circle program can take many variations of the eight ball scheme, but below is one excellent slide show presentation that does a great job at explaining the concept.

My Personal Experience Revealed

In 2018, I was personally invited to one of these "invitation only" gatherings at a private residence hosted by the "local captain" of this gifting program's chapter. I trusted the person who invited me which is why I went. However, having much experience viewing hundreds of "opportunity presentations" over my career, I was shrewd enough to ask my so-called "sponsor" some details in advance. Having investigated the likely scenario ahead of time, I was ready to record the entire event on my phone and render my opinion to save my sponsor from himself.

As discussed in the slideshow, a common thread that generally exists among the attendees is a strong need or desperation to alleviate some kind of financial burden, which is why they are there in the first place. Looking around the room of 20+ people, there was a wide variety of demographics represented, few of which I surmised had much in the way of financial literacy. Nevertheless, several "smart" people were present to balance out the crowd.

As we entered the home of the host, we were instructed to sign a guest register and turn off our phones as there was to be no recording allowed. This was the first warning sign that alerted me to a potential scheme of some kind. Generally speaking, when you pay to attend a legitimate presentation like the ones we host for The Wealth Academy, where propriety and copyrighted material is likely to be presented, the speaker may rightfully ask you not to record the seminar. However, at a private "secret meeting", you may be justified in recording the presentation as legal protection for yourself.

In this case, I was justifiably concerned because one of the opening statements the presenter made was that the information about to be disclosed is not something they wanted the Canada Revenue Agency to hear, not because they were doing anything wrong or illegal, but because the information might be misinterpreted as “income” when what they were really talking about would be allegedly only “gifts”. That statement itself set off all kinds of alarm bells for me immediately. So, from that moment on, I was guarded and did not trust the presenter and the program he was about to describe.

He started off with the meeting describing the severe need and altruistic reasons for the gifting type program and how it was changing many lives that were desperate for funds for medical or financial hardship reasons. Because they had earlier helped someone else when they joined the circle and paid it forward, they were returned the gift multiplied when the common community came together to assist them in their financial time of need.

The program was presented as an altruistic friends-helping-friends gifting opportunity that would return 8 times your original gift at some point in the future. Everybody's name was not to be used on any forms or documentation, but rather a nickname that we would all be referenced by in the gifting circle flow charts which would be maintained by a board of directors who would determine who is next in line to receive their gift.

What was really intriguing about the program, even to someone experienced like me, was how alluring and magical the whole thing sounded. None of the money was to be handled directly by the board of directors which excluded the possibility of embezzlement. Rather, each person’s initial gift to the circle would be made directly to next recipient who had been promoted out of the circle, notified by email. All the board would do is make the arrangements for the time and location where the gift exchange was to take place. For personal security reasons, this meeting was not to be disclosed to others for fear of robbery, given that large sums of cash would be exchanging hands. Meetings were to occur in a public open space like a restaurant and real names not to be exchanged, only the nicknames.

The lucky recipient would have 8 separate meetings spread out over many hours or days until they finally received their full $40,000 in cash from the 8 new recruits in the circle. At that point the recipients could either re-enter the circle with another $5,000 gift, or they could leave the program entirely. However, having just received $40,000 on their initial $5,000 “investment”, nearly everyone gets sucked into re-gifting into one, two, or even three additional circles. There is where the greed factor comes into play with any successful pyramid scheme. One round of success is usually enough to get people hooked!

So now, they gift out perhaps $15,000 of the $40,000 they just received to three new promoted recipients, and now they are part of three new gifting circles that should pay out $120,000. For the newcomers, they see an initial “gift” of $5,000 plus three reinvested gifts of $15,000 (for a total of $20,000) magically turning into $120,000 for a net gift received of $100,000, when all is said and done. Of course, none of these donations are counted as “income” as they are just free “gifts” voluntarily made by the donor to another individual whom they likely never met before. (By the way, I do agree that these gifts are not taxable sources of income as no work was done to earn them!)

This commune is a people-helping-people charity, so the story goes. And, because none of the documents trace back to real names but rather emails, and in some cases perhaps phone numbers, it is highly unlikely that the authorities could trace this transaction back to the real individuals in the event of a complaint, which explains the opening comments that were made by the host.

If this all sounds way too good to be true, that's because it is!

Money just doesn’t grow on trees and come to you for nothing, without any risk. If you haven’t smelled a pyramid scheme by this point, then you need to re-read this section from the beginning.

What I have learned over my career is that many of us fail to learn from history and listen to the wisdom of our elders when it comes to matters like these. But because so many people are vulnerable, desperate, or possibly in dire financial need, they will often look to such programs as a way out of their current predicament. Often times, such people don't have the initial $5,000 gift to make so they are encouraged to go into debt, either by a draw-down on their credit card, a line of credit, or a payday cash advance so they can come up with the initial gift. Once lured into the gifting circle, each person is then required to go out and find other people to participate in the scheme. Sometimes this can happen quickly and the person gets promoted out of the circle in a few days or weeks, and other times, they are never successful in finding the new recruit and they will lose their last $5,000 in credit, putting themselves even further behind financially.

But as stated elsewhere in this course, education is the best armor against financial scams. Learning the warning signs and how these types of schemes really work, coupled with real life examples taken from people who have previously been ripped off or from those who are knowledgeable about these types of schemes, can literally save people a financial fortune for a modest fee and a few hours of study.

If you know anyone else who could benefit from this course material, please forward them a link to it so they can get enrolled today. After all, friends should help friends by paying it forward, but by doing so in the right way. The gift of education maybe the greatest gift of all that you could give them.

If you have been presented with a program that you think might be a fraud or pyramid scheme, and you would like some advice on it or wish to have a coach look at it in more detail, please contact us through our main website at www.TheWealthCoaches.com, and we will be glad to help you assess the legitimacy of the program you are considering.

To see this presentation in full screen mode, click the double arrow icon in the bottom right corner of the black margin next to the LinkedIn logo of the slideshow below. Navigate using the left right arrows or by clicking the space bar. Hit the ESC key to exit full screen mode. If a "site can't be reached error is showing", simply refresh your browser window by hitting the F5 key.

The Problem With Gifting Circles - It isn't a Gift or a Circle from Amber Bieg

Give the Gift of Knowledge

If you really desire to pay it forward, consider donating to our scholarship fund so that your gift can be used to enroll other less fortunate students who really need the education but who cannot fully pay for the tuition. For more details on this program, see the main home page at www.TheWealthAcademy.ca. When there, scroll to the Scholarship section near the bottom of the page and read the program details. To make a donation of any amount, please email me at [email protected] and let me know who you would like to donate for, or to which course you would like to allocate your gift, or how much you wish to pledge, and under what terms we should use your gift. I will get back to you with the donation methods that work best for you. Donations can be made via e-transfer, cheque, PayPal, Stripe, or Square.

As with everything in life, proper due diligence on your part, prior to jumping into any investment opportunity presented to you, is critical to protecting your assets and your hard earned money from fraudsters, silver-tongued sweet talkers, slick promoters, and the “used car salesman” type.

As the old saying goes,

“There’s a sucker born every minute”.