If it sounds too good to be true... it is
About a month ago, I was invited to a webinar to learn about the “Ujamaa Cooperative Economix Friends & Family Share Group". It was an opportunity a friend was thinking about pursuing and wanted to hear my thoughts on it. So I clicked the link and signed up for the informational session. Although it’s been a month, since then I’ve heard more and learned more about it and decided to share my thoughts in a post.
The opportunity spoke of building a community of “like-minded” people to bless others through gifting. You put in your seed gift of $500 to join, you become part of a ‘flower’ and recruit two more “like-minded” people to join. Then in the next week, those two people put in their seed gift and then each recruit two more people to join. And so on…and after four weeks, you are gifted $4,000 from the 8 people at the edge of the flower also known as being “watered”. The presentation spent a lot of time explaining in explicit detail how the ‘flower’ system worked and how you progressed from one week to the next, moving from the edges of the flower to the center. It compared this to a traditional ‘sou-sou’ (an established community savings/financing club that’s been around for generations in many cultures) but made it better, because no single person ‘holds the money’ and you can use any type of cash app that the gift receiver wanted, making it a ‘modern day sou-sou’.
But it turns out, this wasn’t ‘new’ opportunity. While doing my research, I found that there have been a lot of other very similar presentations recently with variations of ‘Friends and Family Share Group’, ‘Modern Day Sou-Sou’ or ‘Blessing Loom’ and in fact have seen two more similar presentations. While the names and ‘phases’ are different, they’re similar in that they involve four phases, where the outer phases put in some amount of money and when they get to the inner part of the diagram, they reap a big profit or gift.
The presentation tended to focus on the concepts of gifting and how we can support and empower our community of like-minded, trustworthy individuals through opportunities like this. They discussed how this gift is tax-free money that the IRS would not touch, unlike income that is taxed, and it was trustworthy because it was similar to the sou-sou.
When people asked the MOST IMPORTANT QUESTION, “What happens if I can’t recruit my two people?”, they were quickly squelched. If they had already joined the group, they were chastised for asking questions in this forum as this time was only for new people looking to join. If they hadn’t joined the group yet, they were chastised for being too negative. During the Q & A, this most important question came up again, and the presenters waved it away saying ‘It’s not hard to find two people. I mean it’s ONLY two people. And if you can’t find two, then maybe your friend who recruited you can help you. It’s also good to ask more than two just to have some backup people, since sometimes people back out”.
Meanwhile, people were on the call, putting comments in the chat about how they joined but were having trouble finding their two people…
So if you couldn’t already tell that I don’t think this is a good idea, I’ll come right out and say it - I think opportunities like this are a BAD idea. I’ll try to explain why I think this and I hope that not only will it convince you, but that you can also help convince your friends so that they don’t lose their precious money.
But before I begin, let me acknowledge a very important point:
Some people will get their $4,000. This opportunity definitely works for some people.
Some people will lose money
If I only put in $500 and get $4,000, where does the $3,500 come from? Duh - it comes from other people gifting it to me!
No one is printing new money, so the only way for you to profit $3,500 is for seven people (somewhere down the chain) to lose $500 each.
Put differently, this is like a lottery. Each ticket costs $500 and the jackpot is paid from all the ticket proceeds. Some people get to win a limited number of $4,000 jackpots. The number of jackpot winners depends on how many people join - but in order for some people to win jackpots, some people need to win nothing.
For that one person at the top who gets their expected gift, there are 14 other people underneath who lose their money.
Actually, a LOT of people will lose money
Indulge me this silly illustration: Let’s say there are only 15 people total in the world, in my new world called Jearth. And they are all interested in this opportunity. One person starts the whole thing and recruits two people and they keep recruiting two more. It would look like the diagram above.
The last people at the bottom cannot recruit any more people (there’s no one left in Jearth to recruit). Out of the 15 people in this flower, only one, the person in green, got watered. The people at the bottom put in their $500 but never got watered.
In the real world, there are more than 15 people (almost 8 billion). But the math is actually the same, just with bigger numbers and more flowers. Eventually, after a not-so-large number (8 months**) of generations of flowers, you run out of human beings to recruit. And that’s if every single human being participated! In practice, the number of interested, eligible, trustworthy adults with $500 to spare is much smaller and those generations of flowers run out more quickly.
The last 3 generations of people (the gray stars in the diagram above) who join will pay and never get watered. I used a spreadsheet to do the math starting from the diagram above and extrapolating to billions of people and I found only about 12%** of the people who join will get watered. Said differently - 88% of participants will not get watered. A majority will lose money.Are you ok knowing your gain came from someone else’s loss?
Like the lottery, there is definitely a chance that people who join will get all or some of the promised money. And you may be confident that if you join, you will be in that 12% who gets the full gift.
But do you want to be part of a scheme, with other like-minded, supportive, trustworthy folks, who are your friends and family or their friends and family, knowing that some of them had to lose money for you to gain it?It’s illegal
Because these types of opportunities, known as pyramid schemes, result in so many people losing money, states have passed laws to prohibit them. A pyramid scheme is model where:a participant must pay an upfront fee to join
enticed with large return on that fee
has to recruit more members for it to work
is not actually selling a product or service
and most importantly, the people in the above layers get money from the newer people below
According to New York State law, pyramid schemes (also known as chain distributor schemes) are illegal, and this explanation of the law explicitly talks about gifting programs as an example of such an illegal scheme. Conviction of such an offense carries a maximum of four years in jail. A quick Google search shows it’s illegal in many states as well (search your own state to find out the law).
The NY attorney general’s office also specifically mentions gifting programs as examples of pyramid schemes. Regarding the tax-free nature of the money, it goes on to say:
“The truth of the matter, however, is that by making these "gifts," everyone expects those further down on the pyramid to do the same. The intention is not to make an unconditional gift. Consequently, not only are these people involved in illegal pyramid schemes, they may also be violating tax laws.”
The Better Business Bureau even chimed in warning people about one of the opportunities pictured above. They are making a resurgence amid COVID, coinciding with the receipt of government stimulus money and increased unemployment payments.
NOT a sou-sou
Just wanted to jump in with a little fact-checking here: This setup is NOT a sou-sou or even like a sou-sou. In a sou-sou, there are a fixed number of people - no recruiting new people. And assuming no one bails, everyone gets out exactly the money they put in. You put in $5,000 and you get out $5,000. No magic-money-making. No one has to lose for you to get your money.Different name, same game
There is nothing new about this setup except the name. Ok, that’s not entirely true. They’ve come up to the 21st century telling use we can use Zelle or Venmo or Cash App to send the money. But while doing research for this post, I found that these types of opportunities date back at least over 30 years. It was originally called the “Plane Game” and instead of “Fire, Wind, Earth and Water”, you had “Passengers, Crew, Co-Pilot, Pilot”. There was also one 7 years ago in Connecticut known as “Gifting Table” with “Appetizers, Soups and Salads, Entrees and Dessert”. The program worked exactly like the flower above except participants paid $5,000 to join and reaped $40,000 when they got Dessert. The women involved with the “Gifting Table” were convicted of conspiracy, tax and wire fraud.
They have to keep changing the name, because once people hear about it and know it’s a scam, it’s harder to recruit. Try googling some of those other schemes and you’ll find a lot of videos and articles saying the same things I’ve mentioned above.
The worst part of these opportunities is that the people who start them are specifically preying on people who could really use that money. And if that is you, then you probably can’t afford to lose that money, either.
Yes - some people DO make money but it’s a gamble. And it’s also a gamble where you may owe taxes or worse get arrested.
Please be wary of quick-return, huge-profit opportunities. If you are not sure about an opportunity, run it by a trusted, wise friend. They are almost always too good to be true and potentially illegal. Building wealth is not complicated, but it’s NOT EASY and it’s not fast. And don’t let anyone trick you into thinking otherwise!
** If you’re interested in my math, drop a comment and I’ll be happy to explain… or even write a follow-up blog post
