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BBC - Pyramid gifting - Watchdog - Blog


As the credit crunch tightens, many of us are looking for new ways to make money, but beware of pyramid gifting schemes. Watchdog uncovers one scheme which seems to be run by someone you might recognise. Lindi Mngaza was selected from 20,000 applicants to compete in one of TV's most successful business shows. The candidate in the last series of The Apprentice has a new business plan.
It isn't one Sir Alan Sugar would give his blessing to - not least, because it' illegal - but it could generate an awful lot of money. Not so much for all the people she persuades to invest, but certainly for Lindi herself.
Exclusive women's networking scheme
It appears that Watchdog has discovered her latest plan to make a fortune. An exclusive women's networking scheme which she intends to call 'Financial Freedom for women' Lindi claims it' a new scheme, but it' about to become all too familiar.
Lindi holds meetings every week, often at upmarket venues, and after a tip off, we bagged ourselves an invite to one of the first meetings just as she was trying to get the scheme off the ground. In the meeting, secretly filmed by Watchdog Lindi made clear how the scheme can prove to be a nice little earner.
"I started a meeting exactly like this about four years ago in Birmingham. I invested £1,000 into the scheme and it took me four weeks and I got back £8,000. From that I reinvested £3,000 and then I got back £24,000, then I reinvested six and got back £48,000."
The pyramid
With returns of 48 times her initial thousand-pound investment, it's no wonder she's keen to bring the same get-rich quick scheme to London. So, what kind of scheme can possibly make you so rich in such a short space of time? Lindi shows us a diagram to explain everything - 15 boxes in the shape of, what looks like, an upside-down pyramid.
Recruiting friends and family
Lindi says you can make eight times your initial investment but you'll only do that by moving through the levels on the diagram which means recruiting friends and family to join the scheme too. Each of them will put in up to £3,000 with the promise of up to £24,000 in return. The more people you introduce, the quicker you will see the return. In other words this is a classic pyramid gifting scam.
Here's why. One person sits at the top of the pyramid and the people below have to pass up their money to the person at the top - who is now rich. In theory this continues until everyone's rich. In practice though, they'll probably end up without a penny to rub together. Eventually you run out of people and the scheme collapses.
We ran a transcript of the meeting past Tony Northcott from the Trading Standards Institute. He said: "It is a pyramid, pure and simple. You have to recruit people to get more income to distribute it. There's no new money - someone is going to lose and lose a lot of money."
John Haig of University of Sussex has also done the maths and concludes that it isn't possible for everyone to become a winner, "It's completely impossible. You start off with one person who puts in £3,000. To get £24,000 then you've got to find eight other people who'll give them that money. At that stage you've got one winner and you've got eight losers. Now those eight losers can become winners but to do that they need eight people each, so you need 64 people who pay them their £3,000. So at this stage you've now got nine winners but 64 losers. In the long run about 86 per cent of the people in this scheme are going to be losers."
So it seems that the people who get in early, the people at the top of the chain could be OK, but if you're down at the bottom you have no chance.
The scheme is illegal
If it all sounds confusing, one thing is perfectly clear. Any kind of pyramid gifting scheme is now illegal under two acts of legislation. The Gambling Act 2005 and The Consumer Protection from Unfair Trading Regulations 2008. Lindi Mngaza ticks the boxes for breaching both.
Tony Northcott from the Trading Standards Institute says: "It's amazing people will do this, especially with the history of schemes in the early part of this century. People have lost thousands of pounds, I just urge them not to join and become another statistic, another somebody who has lost their life savings."
Pyramid gifting schemes first entered the UK in about 2000. They've devastated entire communities, most famously in the Isle of Wight and later Llanelli and because they rely on recruiting friends and family who inevitably lose thousands, entire families have been torn apart.
Susceptible times
But Lindi knows that in the current climate people are more susceptible, she says: "A credit crunch is an opportunity. Do you know what I mean, guys? You've got to think - there are more millionaires made in a bad economy then there are at any other time and then it's people that think oh my God I've got a credit crunch wardrobe, can I do anything?"
The truth is, there has never been a worse time to launch this sort of scheme. Few people can afford to lose thousands of pounds at the best of times, let alone when we're all feeling the pinch. Which is why Lindi's money-making plan needs to be nipped in the bud before too many people hand her their cash.
Lindi may have been in charge of her own business empire this time, but it's us that have the pleasure of saying:
"Lindi - you're fired!"
When Watchdog spoke to Lindi she insisted that she wasn't involved in a pyramid scheme and wasn't breaking the law. She said that no one is pressured into getting involved and that the groups were friends of friends who were socialising, investing and helping each other.

LOL........

I agree with her on the BBC wasting our money to broadcast this.

Nah man! That 'waste of money' statement was just a weak attempt to cover herself. They should name and shame these pyramid scam artists! i nearly got conned into one of these!

.... so... you have a deal whereas you have to sell a, ''new'' technology (lets say VoIP) to people while you make money off their calls and off of anyone paying to sign up... the idea is to be one of the, ''scammers'' and not the scammed... place adverts in mainstream newspapers (costs around £200 a pop) and streamline your responce to enquiries, if they haven't given you material make it look as professional as possible, link the address to one of those well to do sounding mail boxes in london and generally maintain a professional outfit all the way.... its all about image, so the advert itself has to be of a certain size and coloured not one of those crappy ''I'll rip you off'' 10cm x 10cm boxes you get in the star, all out nice size saturday paper if not a sunday running for at least two months, tell them its for a limited time only to quicken responces.

There you have a few hundred if not thousand people taking intrest in your plan, phone the company and talk to them about being a, ''super duper agent'' if possible main thing you want back now is the money you put in to the adverts which should be claimed back from people whos attention you've caught who will then go off and do the same and so on and so on. Might even be wise to have called the company prior to placing the adverts to see if they'll allow it, should be ok. From there its all a matter of logistics, mailing and so on, phone calls etc etc, employ a few people to help you help those members get new customers to the phone line plan and you should be pushing a nice car within a year or so.

Pyramid schemes aren't actually, ''illegal'' only the faudulent ones are... if they were illegal Tiscali would be in trouble and they're a major internet/phone line provider who run their business on the same plan;

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Donal Trump would also be in a bit of trouble as he is involved in a similar communications company who use pyramid type selling, forget the name.... American Communications Network, a Multi Level Marketing company.

Not exactly as pyramid schemes dont involve products being sold whereas multi-level marketing ones do, although i agree that both are structures which only benefit the few in at the top levels.

@ Tee, yeah its a scam but hardly anything new. Its akin to making a program about a chain letter saying if you post £1 to 10 addresses you will recieve thousands of pounds back. The entire country and theirs dogs have heard of these petty scams and the BBC are supposed to be a credible corporation. Its all a bit of an anti-climax if you sit down to watch a Watchdog type program. By all means they can make these programs but why dont they either do so at their own expense, or use material worth watching.

Linda Mnagaza may well be dishonest but i wonder had she been one of the white Apprentice contestants, would this nonsense have even been made into a program.