NEWS RELEASE
ATTORNEY GENERAL DANA NESSEL
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LANSING – Michigan Attorney General Dana Nessel is urging residents to be on the lookout for illegal gifting schemes, often disguised as harmless gift exchanges or empowering social groups. While genuine gifting circles foster community and resource-sharing without monetary exchange, some gifting circles are illegal pyramid schemes that rely on recruitment and false promises of financial gain.
“Gifting schemes frequently pose as acts of kindness or community support, but in practice, they take advantage of participants’ trust and leave most of them with significant losses,” said Nessel. “Michigan residents can safeguard themselves and their wallets this holiday season by becoming familiar with the warning signs of gifting scams.”
True gifting circles encourage participants to share non-cash resources, like food or services, without monetary exchange. They are built on trust and community relationships.
Gifting schemes, however, lure participants with promises of substantial financial returns after paying an upfront fee and recruiting others. These schemes operate under names like “Women Empowering Women” or “Circle of Friends” but ultimately collapse, leaving the majority of participants empty-handed.
Common red flags of a gifting scheme include:
- An emphasis on recruiting new participants over selling goods or services.
- Promises of high returns with minimal effort.
- A focus on cash or gift exchanges without contractual agreements.
- Testimonials of success from top earners without transparency.
Under the Michigan Pyramid Promotional Scheme Act, promoting or knowingly participating in a pyramid scheme is illegal. Promoters face felony charges with penalties of up to $10,000 or seven years in prison. Participants may face misdemeanor charges, fines up to $1,000, and jail time.
Additionally, any income from a gifting scheme must be reported to the IRS as taxable income. Despite promises from organizers, failure to report earnings can lead to further legal and financial consequences.
To avoid falling prey to gifting schemes, follow these tips:
- Investigate the program thoroughly and verify its legitimacy.
- Avoid sharing personal information with strangers.
- Be skeptical about promises of low-risk, high-return investments.
- Remember, if it sounds too good to be true, it probably is.
When in doubt, consumers should report suspicious activity and consult trusted professionals. Contact the Attorney General’s Consumer Protection Team at 877-765-8388 or file complaint online.
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