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Colombia Pyramid Scheme Disaster Reminds, Again,
of Costs of Government Inaction

Two people are dead, 13 towns under police curfew and the country's top banking regulator has resigned. This is part of the fallout from the collapse of a large pyramid scheme that operated openly and "legally" in Colombia. The consequences are tragic. However, the more significant story from Colombia is one that is being repeated in many other countries. The authorities let it happen, even as the signs of a massive fraud were obvious.

How obvious? The scheme was called "Easy Money Fast Cash'' and promised investors payments of 70 percent to 150 percent a month. Police reported that the scheme operated for more than a year.

In the wake of the collapse, the country's top banking regulator (the scam masqueraded as a bank) resigned but only after thousands of poor, rural people in Colombia lost $270 million.

The scam's owners, Carlos Alfredo Suarez, fled the country. Investors rioted. Police confiscated $26 million but report that most of the money is gone and Suarez' whereabouts are unknown. The president of Colombia claims the government will try to help but does not specify how.

Bailouts of pyramid scheme victims are rare.

The most common question -- overwhelmingly -- posed to Pyramid Scheme Alert is, "Why does the government allow pyramid schemes to operate? Why doesn't it enforce the law?"

Examples:

In Canada… a scheme is now recruiting all over the country that promises $5,000 commission on a $3,200 "sale." How can this be? The scheme, called Business in Motion (BIM), claims it can do this because it has a system called "perpetual motion." In fact, no one purchases the company's product (membership in a vacation discount program) other than the "sales people." To gain the "commissions" each "sales person" must also make a $3,200 "purchase." The scheme is structured in the classic "8-ball" (1,2,4,8) of a pyramid scheme, in which most of the money paid in by last eight people that join the scam is transferred to the one person at the top, three levels above. Then the structure "spits" and each side must recruit eight each for a total of 16 new people and the cycle repeats over and over again. As the scheme progresses, it must continue to double the number of recruits – 16, 32, 64, 128, etc. If it "spits" just 22 times, the last recruits will need to find 8 billion new people! Yet, Canadian authorities still have not applied either the country's anti-pyramid law or its anti-fraud law.

In England… England's government is currently trying to close down the MLM giant Amway, as a pyramid scheme. However, an English judge has slowed the process and the case is on appeal. Meanwhile, Pyramid Gifting Schemes are, again, sweeping the country. One of the latest is being promoted by a star from the UK's version of the television show, The Apprentice. The young woman was selected over 20,000 others to be in show. She was revealed in a BBC exposé as now advertising the classic "gifting" pyramid scam. (Perhaps it is not so surprising that a star of Apprentice would start up a pyramid scheme, since, after all, Donald Trump, the host and star of the USA version of the show is a pitchman for the MLM scheme, ACN.) That scheme is only one of many others. Another BBC program, X-Ray uncovered and reported that "the reputations of some of Wales' most respected charities have been used by the organisers of an illegal pyramid scheme to lend an air of legitimacy to their activities, which involve people handing over thousands of pounds in a chain-gifting syndicate." Like Canada, England has good laws to enforce against Amway and other types of pyramids, the Gambling Act 2005 and the Consumer Protection from Unfair Trading Regulations 2008. Like consumers and taxpayers in Canada and the USA, UK citizens are asking: Why doesn't the government enforce the laws?

What we have learned over and over again is that lack of law enforcement becomes a form of government endorsement of scams. Often the schemers boldly ask, "If we are illegal, how could we be advertising, holding these public meetings and recruiting so many new people?"

This page last updated on 12/2/08