The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern. Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.
Search is currently unavailable. Please try again later.
The web Browser you are currently using is unsupported, and some features of this site may not work as intended. Please update to a modern browser such as Chrome, Firefox or Edge to experience all features Michigan.gov has to offer.
When people get together in a circle to give each other gifts without exchanging any money, that is called a gifting circle. When people gather in person or online because they are recruited and the recruiter receives money or gifts for each person recruited, that is a gifting scheme — which is also an illegal pyramid scheme.
Gifting schemes often start with sound-good intentions and clever names like “Women Empowering Women,” “Circle of Friends,” or “Secret Sister.” But just because it is called a gifting “circle” does not make it one.
No matter how these groups are presented, promoting or knowingly participating in a cash-gifting scheme is illegal in Michigan.
True gifting circles are good. They help people save money and waste fewer resources. They exist in many cultures and communities and help build relationships within those circles. They may be private or public. Members may or may not know each other. They all operate in a similar way: Members assist each other in achieving their goals.
For example, instead of throwing out a large crop of sweet corn when it ripens all at once, you can offer it to your gift circle friends who need fresh produce. Cash exchanges between members are not permitted.
Gifting schemes, on the other hand, are all about the payoff. Despite their attractive words about a gifting economy, they are simply a modern twist on an old-fashioned pyramid scheme. Cash-gifting schemes skip the sale of products and just give people cash. But like other pyramids, cash-gifting schemes are based on the number of people recruited. New members are lured in with the promise of a large cash payout (commonly $40,000). They must first invest a large entry fee (commonly $5,000) and recruit new members. The entry fee guarantees the participants a place on a membership chart. Participants move up the chart every time they recruit more people into the “circle.” Once the participant moves up high enough on the chart, they are “guaranteed” a large payout.
Meetings may be held in secret and may even be fun. They often refer to helping others. However, you are just giving your money to the person at the top of the pyramid as you recruit others to keep the pyramid base stable. Once the bottom is filled with new recruits, a new person at the top gets a large payout and leaves. Then the cycle continues until it falls apart.
Non-cash gifting schemes, like “Secret Sister,” involve a gift exchange among online friends who haven’t met. The scheme starts with a tempting invitation — often on social media — promising participants will receive dozens of gifts in exchange for sending one gift valued at $10. To join, you simply add your name and address — and the personal information for a few of your friends — to an existing list of “gifting sisters” whom you’ve never met. You will then invite others to send a modest gift to a stranger and share their contacts.
You’re stuck buying and shipping gifts for unknown “sisters,” hoping to receive the promised number of gifts in return. But with pyramid schemes, the cycle only continues if new members are recruited. When that stops, the gift supply stops, too. This can leave hundreds of un-gifted sisters in its wake.
Not only is such a pyramid scheme illegal in Michigan, participating in one can put you at risk of identity theft. When you join, you give some of your personal information. With that information, your secret sister (or a cyber thief) can steal your identity.
These schemes become popular quickly. The early participants who receive their payouts spread the news of their success to prospective participants, and the cycle continues. The problem is that eventually the pool of new participants runs out and the pyramid collapses, with very few participants — 12-14 percent according to the Better Business Bureau — receiving anything in return.
Pyramid schemes involve participants receiving compensation for recruiting other participants. They are illegal in Michigan. Promoting such a scheme is a felony, punishable by a fine of up to $10,000 or seven years in prison. Participating in such a plan is a misdemeanor, punishable by a fine of up to $1,000 and/or 90 days in jail.
The 2018 Michigan Pyramid Promotional Scheme Act (MCL 445.2581 et seq.) defines a “pyramid promotional scheme” and makes it illegal to promote or knowingly participate in one.
Multi-level marketing plans typically involve a parent company that sells products to consumers through independent salespeople. The independent salespeople do not receive a salary. They are compensated based on how much product they sell. Multi-level marketing plans are generally legal in Michigan.
The key difference between a legal multi-level marketing plan and an illegal pyramid scheme is that multi-level marketing plans base compensation almost entirely on the amount of product sold. An illegal pyramid scheme is based on the number of people recruited. In a cash-gifting scheme, “being gifted” is also based only on the number of new members recruited. No product or service is being sold.
If you have any concerns, contact the Michigan Department of Attorney General at 877-765-8388 or online.
If you are currently involved in a cash-gifting scheme, you should consider contacting a private attorney. For help finding a private attorney or a lawyer referral service in your area, please visit the Michigan State Bar’s website.
Finally, if you are involved in a cash-gifting scheme or have participated in a cash-gifting scheme in the past, you are required to report any earnings you received to the Internal Revenue Service. Despite any promises made to you by those operating cash-gifting schemes, earnings received from a gifting pyramid are taxable. You should also consider speaking to a professional tax advisor about your situation.
Any Michigan resident who has been asked to join a cash-gifting scheme, or who is aware of an illegal pyramid or gifting scheme operating in their area should contact the Michigan Attorney General’s Consumer Protection Team at:
Consumer Protection Team
P.O. Box 30213
Lansing, MI 48909
517-335-7599
Fax: 517-241-3771
Toll-free: 877-765-8388
Online complaint form