Britannia Radio

From The Times

May 3, 2009

If it looks too good to be true, then it probably is, even if it is on the internet

Mike Harvey

A rise in pyramid and Ponzi fraud schemes in Britain and the United States is being spurred by the power of the internet, consumer and business groups fear, with old-fashioned cons repackaged as marketing enterprises backed by advertisements on Google, videos on YouTube and enticing websites. It is, they say, a fraud for the digital age.

Eight women have been arrested in connection with an £18 million pyramid scheme operating in the South West and South Wales, the Office of Fair Trading (OFT) said at the weekend, warning of a resurgence in such crime as the recession deepens.

The OFT said that the scheme appeared to have been aimed at women. Thousands of people had been recruited since May last year, paying up to £3,000 each to join and each promising to recruit two more members.

Pyramid schemes, which are illegal, offer to pay high returns to people who pay a joining fee and recruit other members — but the payouts are generated from the joining fees and, when the scheme runs out of new recruits it collapses, leaving those who still belong to it out of pocket.

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The scams, sometimes called cash-gifting programmes, target social groups, including church congregations, community groups or networks of friends and relatives. Some schemes are touted as fundraisers for a good cause or as an empowerment programme to help people to help themselves.

In America, the Better Business Bureau (BBB), which runs a network of regulation and advice offices across the country, has issued a warning about the return of Ponzi schemes as fraudsters target families struggling to make ends meet. It said that according to TubeMogul, an online video analyst, there are 22,974 cash-gifting videos on YouTube, adding up to 59,192,963 views. “Bernie Madoff isn't the only guy with a Ponzi scheme,” a BBB spokesman said, referring to the disgraced New York-based fraudster who has admitted running a $65 million investor fraud, the largest on record. “Money-making opportunities promising big returns for little work are all over the internet and are extremely enticing to millions of people struggling with today's economy.

“Anyone tempted by slick cash-gifting marketing appeals should run in the opposite direction, or they run the risk of being the next person ripped off by a pyramid scheme.”

Sophisticated fraudsters are buying advertisements using Google ad-serving technology. A search for the term “cash-gifting” produces dozens of sponsored links to websites announcing get-rich-quick schemes.

Heather Clayton, senior director of consumer protection at the OFT, said: “Scammers adapt to new circumstances and are tempting people feeling the pinch with false hopes of making easy money. Sadly, responding to these pyramid schemes will only leave participants worse off.”

The OFT estimates that such frauds cost Britons £420 million a year, with 480,000 people annually falling victim to the scams.

Trading standards officers in Birmingham have warned that pyramid sellers are targeting women in the area with promises that they can make a £21,000 profit within weeks.

Chris Neville, head of Birmingham Trading Standards, said that the scam resembled a scheme named Women Empowering Women, which cheated scores of people out of up to £3,000 between 2001 and 2003. “In this sort of economic climate, the chance to make money like this seems very attractive,” Mr Neville said.

The Financial Services Authority (FSA) is investigating five other schemes and share scams that might total £170 million, Margaret Cole, its enforcement director, has said.

“In this economic environment, we might expect to continue to uncover more unauthorised business frauds. In the enforcement division we are in the process of doubling our number of unauthorised business teams and establishing a specialised unauthorised business department,” she said.