Just desserts?

Huddled in a cozy Chico living room over a potluck dinner, the women practically glow with excitement. Visions of graduate school, a long-postponed honeymoon and trips to Hawaii dance in their heads as they share what they’d do with a sudden gift of $40,000.

For almost a year, dozens of women from Chico and neighboring communities have been meeting in private homes and via conference calls as part of a “dinner circle” that claims to empower women by creating a monetary and emotional support system that deftly operates outside of male- and media-dominated mainstream financial society.

Having secured an invitation to one such get-together, I listen as the women talk about how their lives have changed since they joined the circle.

“It’s not about money. It’s so much more,” says one woman, speaking with the intensity of a Baptist preacher at a revival. “We’re holding on to each other’s dreams.”

At the meeting, they are told those dreams can come true if women come together to subvert the dominant paradigm—to the tune of a $5,000 “gift.” As women recruit others—like me, they hope—into the secret sisterhood, they move up through the ranks of a pyramid that’s couched in a dining analogy, from appetizer to soup-and-salad level to entree and finally “dessert.” At that time, they will begin amassing $40,000 in $5,000 increments.

To sustain itself, the pyramid, which has eight people at the entry level, has to progress indefinitely. Since the number of new people buying in must grow exponentially and double each time someone at the top gets paid, in about 15 cycles it would exhaust Butte County’s population of 204,000 men, women and children—that is, if men and children were allowed to join.

In communities nationwide and overseas, women have similarly sought to have their dreams fulfilled through “gifting circles” only to watch their money disappear when the circle breaks apart.

The pyramid collapses when the supply of new members is exhausted, or someone runs to law enforcement or the media. In several states, criminal charges have been filed against those involved.

In Chico, the group is called The Women’s Circle, or Women Empowering Women. Its name and structure are to the letter the same as those that faced law enforcement scrutiny, and even felony convictions, in other areas.

“It sounds like a pyramid scheme,” said Butte County District Attorney Mike Ramsey, when told of the gifting circle in Chico. “Mathematically, after a while it becomes impossible. The founders of this usually get something, and the other people get stiffed.”

In California, he said, people who conduct an “endless chain” can be prosecuted for a misdemeanor or felony under Section 327 of the Penal Code, or Section 484, “your general theft statute.”

Hallye Jordan, press secretary for the California Attorney General’s Office, confirmed that while her office has gotten only a handful of complaints about gifting circles in California, they are illegal.

“They always sound good, but there’s no way they’re not going to collapse,” she said.

Believers counter that it’s not an endless chain for several reasons: because it’s not an investment and the women give the money with no promise of any returns; the exchange is between a giver and recipient (not the group); the IRS allows people to give away money; and there’s no product involved. Plus, there’s no fixed hierarchy. If you get your $40,000 (actually $35,000 net), you’re off the top, but you can choose to pay and re-enter at the appetizer level.

Lynda Lyles, a Texas mother who led an unsuccessful effort to get gifting circles validated by that state’s Legislature, said if people want to give money away, that’s their business, and the government should stay out of it.

“There are a lot of people who go to Las Vegas and spend an awful lot of money,” she said. “What’s the difference? You’re taking money that you’ve earned and playing with it the way you want to. People have to be adults and make adult decisions all their life.”

She said her family and friends saw nothing but good come out of their circle. “There are people that had heart transplants, went for cancer treatments that they would never have had the opportunity to do,” Lyles said. “I certainly believe that it can work.”

Robert Fitzpatrick, author of a book called False Profits and president of the consumer advocacy group Pyramid Scheme Alert, said gifting circles are about nothing but broken promises.

In a telephone interview from Charlotte, N.C., Fitzpatrick said the pyramids are new only to the communities that haven’t yet been through them, and the smaller the town the worse the fallout.

“This scheme has been around for years,” he said. The dinner circle hops from community to community until “it either implodes or is [taken down] by the authorities. … Somebody starts complaining, [and] the whistleblowers come in.”

At that point, or even sooner, nearly nine-tenths of participants are out their money, he said. No matter how pure the intentions of the women who join, “it is based on somebody beyond you getting hurt.”

“It corrupts and distorts some really honest and good motives and ideals,” Fitzpatrick said. “It turns it into the opposite of what was intended. It’s so sad.”

The Web sites of many state attorneys general and county district attorneys list warnings about the illegality of gifting circles, mentioning Women Empowering Women specifically. [“Circle game”]

“We’ve had a lot of them. … They really take on a life of their own,” said Sam Thompson, public information officer for the New Mexico Attorney General’s Office. Besides the Women Empowering Women setup, which resulted in four grand jury criminal indictments, there was a scheme centering in the Latino community in which a male organizer last month pleaded guilty to two felony counts of violating that state’s Pyramid and Promotional Schemes Act—similar to California’s PC 327.

Thompson said law enforcement entities usually don’t learn about the gifting circles until they’ve been around for several months or more. “It takes a while for people to realize that they’re not going to get their money back,” she said. “Somebody’s going to get hurt. It just takes time.”

She said the pyramids know no social, economic or ethnic boundaries. “This cuts across all levels,” she said. “It seems like any woman could have gotten involved with this.”

More than 400 people who bought into the New Mexico scheme have applied to get at least some of their money back through a restitution program that may let those who profited avoid prison time.

The women at the Chico meeting— the dinners are held about twice a month—seemed to have no doubt that the circle was their ticket to financial security.

That Tuesday, the dinner guests included supermarket workers, a government employee, bodywork specialists, students and artists. One woman, who looked to be in her late teens or early 20s, brought along her mother, who wanted reassurance that her daughter was not getting in over her head.

The women spent much of their time together talking about what they would do with the money once they finally received it. One woman spoke eagerly of her desire to have a stash of cash that her husband wouldn’t have any call on. Others fantasized about paying off debt or helping out elderly relatives.

Besides being seen as one another’s benefactors, the members also form their own support system. They talk about their life goals and how to get more “women of integrity” involved. For further support, they engage in frequent conference calls with an out-of-town mentor named Jacqueline.

Women Empowering Women was said to have started in Hawaii, when a group of women got together to help battered women. Thus inspired, Chico members started talking about how, when they were gifted, they’d pledge some to cancer research, or schools, or other charities.

One woman, whose dream was to pay off her student loans, called the circle a way to “get yourself out of that black hole of debt” and realize a greater calling.

Buzzwords like “synchronicity” and “paradigm” surfaced repeatedly. “It’s something we really need to experience—living in a different way,” one said. She encouraged people to discard their “inner skepticism” and give up being a control freak.

“It may sound too good to be true,” she said, but it’s not.

With the local circle’s founder, Jean Louise Green, running late, another woman took a pen to a Dry-Erase board to explain its structure. “It’s really simple,” she started, drawing eight circles in a row. She paused a few seconds later, confused, and another member took over.

The image she drew would have been a pyramid were it not structured with the point facing down. Alone at the top, you get “yummy dessert"—$40,000, tax-free.

The woman volunteered that it takes 24 people before the person in the dessert position gets paid, at which point the table “splits” and the entrees become desserts at the heads of two new tables. The women figured their members have about six tables going in Chico, and they’ve heard of similar circles run by others in town, including one following a garden analogy. It seems the only person who has been “fully gifted” in Chico is Green, who is a massage therapist and in 2000 was featured in a Chico News & Review article about a technique called Rolfing. A few others have apparently gotten $5,000, the amount they originally put in.

“Some people are afraid that this is possibly a pyramid scam or something like that,” one woman said. The circle is noncompetitive (it’s hoped that each member will get at least two more people to join) and, because people cycle out at the top, no one person is continually raking in the dough. “It’s not a hierarchy; it’s a circle.”

But more than money, the women agreed, the circle is about finding an innovative way for women to help other women: “We’re jumping out of that box and breaking the paradigm.”

“It’s pretty neat to watch each other grow and see the changes,” said another. Sometimes near tears, members and those struggling to gather the money to join spoke of how the circle has helped them overcome shyness and think positively about their futures.

One woman who wanted to join mentioned how she was having a hard time finding a credit card that would hold $5,000 worth of debt.

No problem, said one member who is in the dessert position. They’d be glad to refer people to a Web site that lists lower-interest, high-balance credit cards. Plus, she added, there’s always some risk to any investment—you just have to trust and believe that your peers will come through; that other women will keep the circle going.

When you think about it, said another longtime member, what’s an 18-percent credit card debt when within a year you’ll be getting a 750-percent return?

An informational packet, which this reporter later was made to return, told about how Women Empowering Women can “relieve the burden of isolation that women suffer” as members “learn to give, to trust and to receive from other women.”

Title 26 of the U.S. Tax Code allows private gifts, the literature stated, and the “circle” has “structured itself to meet federal laws.”

Typically, the circle is passed on through “oral tradition” rather than written materials, and members must be careful to invite only women they trust who won’t exploit it. “We hold this dear to our hearts,” one said.

The News & Review has decided not to name or further identify the lower-level participants in the circle, in part because they were unaware this writer was there in a reporting role. Someone who had attended a meeting arranged for me to be invited. I used my real name and, having been immediately recognized upon my arrival, confirmed that I wrote for the News & Review but didn’t volunteer that I was considering an article.

It wasn’t until the end of the two-hour-long meeting that Green and another woman, whose name was Zena, escorted me to a room off the dining area and asked if I was planning a story.

I wasn’t invited as a reporter, they said, and I had no right to recount what had happened that evening or write anything about the circles at all. They said they never would have consented to an interview, confirming the News & Review’s earlier conviction that the only way to get the story out to the community was to attend the meeting. They tried to take the notes I’d jotted down and threatened to get my editors to call off the story and “ruin” me. If the circle failed it would be due to my bad “energy” and malicious intent, they charged.

As I took off out of the house, I breezed past two women chatting on the porch. “Thanks for coming,” they called out, oblivious to the confrontation in the back room. “Do you think you’ll be joining us?”

Although in the weeks after the meeting, “gifted” members did not respond to my phone calls seeking comment, one did drop off information printed from Internet sites stating that gifting circles may very well be legal.

Included was a somewhat official-looking document signed by a David R. Myrland assuring that gifting circles are perfectly fine because the money is not an investment and there’s no expectation of a return. But in 2000, Myrland was sued by four states for practicing law without a license. A Kirkland, Wash., paralegal, he had been selling his opinions for $50 to $75 apiece. He’s out of business.

One of the states suing Myrland was Montana, a state frequently cited by supporters as one where gifting circles are legal. According to the Web site of the state Department of Justice, however, they are defined as pyramid schemes.

The state Auditor’s Office served a cease-and-desist order against a woman from Helena who had allegedly netted at least $6,000 after recruiting people into Women Empowering Women and other fraudulent gifting circles.

Myrland, reached at his home, said he’d abandoned the business of selling opinions to gifting circles because there was no way he could get a fair shake the way the government, law enforcement and legal systems were set up—to ignore the law and jerk around taxpayers. “Because I wrote down my opinion, I was sued,” he said. “It’s legal to talk about the law.”

He consulted with groups in 33 states and in every case suggested that they go to the federal government and defend their constitutional rights to give of their own money and property. “A gift is not a payment,” he said, standing by the documents he sold the groups, complete with a disclaimer that it was not a legal opinion. Myrland said it was he who wrote the legislation that was under consideration in Texas.

Lyles is the former president of the Texas Gifting Coalition, which spent $60,000 to hire a lobbyist and get House Bill 1305 before the Legislature.

“We felt there was a gray area because we don’t feel they’re pyramid schemes,” she said in a telephone interview.

The bill would have allowed gifting circles to exist as long as those joining signed a document stating that the money was “intended as a gift and not as an investment, given out of detached and disinterested generosity.”

They figured that if multi-level-marketing setups like Amway are legal, it should certainly be OK for citizens to give away their own money if they so choose. But their political power wasn’t as strong as that of the MLM groups, and Rep. Gary Elkins, R-Houston, dropped his support for the bill he was carrying. Lyles said someone might try again with the 2003 session.

“People should have the right to do what they want to do,” she said. “There are just as many people who believe about it as don’t. … It should be a conscious decision like anything else.”

She said that critics overlook the fact that some people choose to re-enter the circle at the bottom and even “sponsor” people in need by paying their way in. “It’s not as diluted as it appears to be,” she said. “By the time it went around, how many kids have been born? It’s an entire new generation.”

Lyles said there was never any pressure to join the group she was in. In fact, she never invited her neighbors or any of the hundreds of people she worked with but rather only family and close friends. “If it were a scam, do you think people would do that?” she said. “It’s almost like a sorority, and you end up with so many good friends.”

She said it’s no different from when ethnic groups would immigrate to the United States and the community would get together to help get a family onto its feet. “Each person giving a little to one,” she said. “It’s the same principle. I don’t know why people can’t handle it.”

Even so, Lyles has pulled out of the circle she was in because she was too busy for the social element. She never did become “gifted.”

But she said the women were still going strong and communicating via the Internet and conference calls. “[The government] just came in and scared a lot of people,” she said. “It’s all gone underground.”

Lyles is frustrated that more people don’t understand the benefits of the gifting circles. “It’s like trying to argue that something is gray or black or white,” she said. “The worst thing that happens is when the media get involved because everyone starts jumping ship.”

Patricia Lindsey attended one of the Chico dinner circle meetings at the request of a friend who was intrigued after being invited but wanted help doing the math.

Lindsey is an economist who teaches at Chico State University. But she didn’t have to use her Ph.D. to realize she was wasting her time that evening. “It started giving me the creeps pretty quickly,” Lindsey said. “Too happy, too intense, selling too hard how wonderful it was. … ‘Dessert’ was said like it was the most wonderful thing in the world.”

The women’s goals all sounded worthy: For example, one new mother wanted time off work to spend with her baby.

As she listened to the women talk about a circle and then watched a pyramid being drawn, Lindsey remembers thinking, “That’s a very different shape.”

“I was trying to do the math,” she said, and it was impossible for it to come out well.

She was saddened and baffled as she observed what she called “a willing suspension of disbelief.” And, she added, “a lot of these women are really educated women.”

The woman who invited Lindsey and her friend, she said, sounded “desperate” to get more people to put money in.

The worst part, for Lindsey, was when someone asked for a show of hands from anyone who could spare $5,000 and only one shot up. “It just broke my heart.”

The circle also raised the eyebrows of Virginia Mabry, a Chico woman who is an expert in cult behavior, having once been a member of the Moonies. The dinner circle she kept hearing about, but ultimately decided not to attend, sounded very familiar.

Elements of the structure struck her as cult like, such as the closed-circle secrecy that builds a “false sense of intimacy,” and the way that the person everyone looks up to as the originator of the group arrives after the ideas have been talked up. Ultimately, Mabry said, “they are using these women to harm other women.”

Mabry said the member who invited her gave $5,000 to someone from another state she didn’t even know—and she knows it’s not money her friend could spare.

Another Chico woman, who was invited to participate in the dinner circle—she’d also heard about the garden one—but declined, said it was “obvious” to her that it wouldn’t work.

“I just went, ‘Oh, no. It’s a pyramid,’ “ she said. “It’s going to take so many women to get one woman to get her $40,000. I didn’t want to be a part of something that was a loser for anybody.”

It also bothered her that the women used new-age ideals and terminology as a recruiting tool. “The ideas are wonderful,” she said. “I think that the women who are going into it aren’t trying to scam anybody.”

Fitzpatrick, the author and expert on pyramid schemes, said people would be surprised to learn who’s involved in their own towns.

“It isn’t run by shysters. It’s run by ordinary women,” he said. “It is a grass-roots thing.” He’s seen gifting circles in all segments of society, from lower to upper incomes, but typically it stays centered within one social group—until members get desperate and start asking anyone and everyone to join.

“It can strike any group because it resonates with all of them,” Fitzpatrick said.

It’s not just greed that makes them join up, he said, but rather “an honest lack of awareness.” And they can’t do exponential math.

“It takes eight to pay one,” he explained, which means that eight out of nine people have to go home empty-handed, even if the cycle progresses to infinity. “It is true at the moment it begins that 88 percent can’t be paid.”

“That’s why it’s illegal,” he continued. “The lie is just so huge that people can’t even put their arms around it. It transfers the money from 88 percent and gives it to 12 percent, and it’s nothing more than that.”

In about 30 cycles, the population of the Earth would be exhausted. If, as members point out, everyone who is fully gifted buys back in at the bottom, “that slows it down a tiny, tiny bit,” Fitzpatrick said.

Then, with the participants having relinquished critical judgment, denial sets in, Fitzpatrick said. “Those who buy into it are having a hard time facing up to it. Then they get electrified to the prospect of the promise. … It’s like every other flim-flam that’s ever been perpetrated.”

Fitzpatrick, without having been anywhere near the Chico meeting, can quote it almost verbatim. “You have to build a story around it—an exotic story that allows people to fall into the story: ‘It’s for a greater good'; ‘it’s a new paradigm, a new reality using women’s innate intuition to create good things for women.’

“It’s the magic act with the pretty girl on the side to get the audience to look at her and not the man who is doing the sleight-of-hand,” he said. “It isn’t helping sisters because 88 percent of the sisters are getting screwed.

“This is not about victimization because everyone involved becomes both a victim and a perpetrator.” But, Fitzpatrick added, “this isn’t the anonymous investor. This is friends and family.” That’s why the denial runs so deep. When the “horrible truth” is revealed, that sisters will get financially ruined, he said, “that is very, very hard for people to face up to.

“We’re steeped in a culture that causes many people to believe that they should be wealthy,” he continued, and if you’re not, “you go around feeling deprived and defeated.”

Still, he said, if people buy into the circles, almost always “they’re doomed to lose.”

Lyles doesn’t see it that way, however. She doesn’t begrudge anyone the thousands she put in. "The money I gave at the time had to help somebody more than I needed it."