Instead, within a week, things began to fall apart. DeJoy’s husband called to tell her there had been a story in the local paper — the gifting circle was in fact an illegal pyramid scheme. Frantic, DeJoy phoned the woman she had “gifted” to try to get her money back. The woman told her she didn’t have it, and the others in the group were “just as mean and cold and heartless as could be,” DeJoy recalls.
As her mother grew worse, DeJoy fell deeper into debt. A nurse was now out of the question. She had to borrow money from relatives. Her mother died, and DeJoy returned to Maine, where her husband tried to hang on to the antiques business while she took a job in a bakery — on top of teaching art, weeding gardens and cleaning houses, almost anything to catch up on her bills.
And the money DeJoy had given, supposedly to help someone in a jam? The $5,000 really was gone. The head of the circle had spent the money — received from DeJoy and seven others — on “necessities” like a new car and a Caribbean cruise.
Pyramid schemes have been around nearly forever — almost as long as there have been gullible people with money in their pockets. In the 1920s, Italian-born con man Charles Ponzi promised an eye-popping 400 percent interest on the cash that eager Boston residents “invested” with him. Before his arrest, Ponzi separated as many as 40,000 people from a total of $15 million.
Unfortunately for DeJoy and thousands of others like her, Ponzi’s spirit lives on in today’s gifting circles. First detected in the Pacific Northwest in the late 1990s, gifting circles are classic pyramid schemes, according to experts, but with a twist. They target women almost exclusively, and often draw in those who can’t afford to lose any money at all. “There are a lot of people out there who are desperate,” says Jim McKenna, an assistant attorney general in Maine. “It’s not because they’re greedy, but because they’ve fallen on hard times.”
But it’s not just the poor — or even the financially naive — who get taken. Gina DeJoy had experience running a business. Holly DeIaco, 32, a consultant who lost $2,500 to a similar scheme, has a master’s degree. “I’m successful at what I do,” she says. “How could I not see this?” The woman DeIaco gave her money to said she was writing a book — a seemingly worthy cause to support. Only later did DeIaco find that the woman lived off credit cards and the money she made from gifting circles.
Far from being isolated cases, what happened to DeJoy and DeIaco is increasingly common. Hundreds of thousands of women have been swindled, losing what may add up to hundreds of millions of dollars. In Wisconsin in 2000 and 2001, sheriffs and district attorneys reported illegal gifting circles in 61 of the state’s 72 counties. New Mexico’s attorney general called it the No. 1 scam in her state in 2002. Last fall, the Sacramento sheriff’s department broke up a network of gifting circles that involved 20,000 women and $15 million in losses.
If those numbers seem big, here’s why: By its very nature, a pyramid scheme must grow exponentially if people at the top are going to get paid. But sooner or later the bubble will burst. “There’s a finite number of people in your circle of friends and acquaintances,” says Susan Grant, director of the National Fraud Information Center/Internet Fraud Watch. “There’s no way you’re going to keep bringing in new people to fuel the circle.” Nine out of ten women are sure to lose their entire investment.