DES MOINES.The Attorney General's Office has advised that so-called "gifting" pyramids operating in Central Iowa are illegal under state and federal statutes. The pyramids, known by various names, including "Seasons of Sharing" and "Women Empowering Women," also are ill-advised because all pyramids inevitably collapse and leave a trail of people who pay but are not paid themselves. The matter is under investigation, and pyramid participants have been subpoenaed to provide information under oath.
What options are there for people who lost money? What should people do if they received money and are being asked to make refunds? The Attorney General's Office suggests the following.
1. Ask for a refund. If you paid money to another participant in order to become a participant yourself, you can try to get your money back. You may direct your request for a refund to the person who received your money, and/or the person who recruited you to participate (the same individual may have done both, but often the person who received your money is not the one who recruited you.) If an informal verbal request is unsuccessful, consider making your request in writing and sending it by certified mail, so you can prove later that your request was received.
If your formal request does not result in a refund, you may need to take private legal action. There are two basic options, as follows.
2. Consider contacting a private attorney, who can pursue a refund on your behalf via letters or a lawsuit. Even if you are going to pursue the matter in Small Claims Court without an attorney representing you (see below), you may want to consider consulting an attorney regarding possible complications (e.g., if the person you paid your money to lives in another county or state.)
3. Consider filing your own suit in Small Claims Court. You can file your own lawsuit in Small Claims Court, with or without an attorney's help. Small Claims Court is designed to be used by persons who represent themselves, although one also may use an attorney in a small claims case. Unlike lawsuits in district court, Small Claims Court suits may not exceed $4,000 not counting interest and costs, if filed before July 1, 2002. So, for example, a person who suffered a $5,000 loss would only be able to sue for $4,000, and probably would abandon any legal claim to the difference. Note, however, that this dollar limit increases to $5,000 for small claims commenced on or after July 1, 2002. If a person wins a judgment in Small Claims Court, there are procedures available for using the judgment to collect the money (garnishment, for example.) Note: The Attorney General's Office has prepared a "friend-of-the-court" brief that may assist persons filing in Small Claims Court. To request a copy please call Steve Switzer at 515-281-8771.
A person considering a small claims suit needs to consider whom to sue. Clearly, the person to whom the money was actually paid should be made a defendant. In addition, in some cases it might make sense to name as a defendant anyone who recruited you into the pyramid, particularly if in doing so that person made misrepresentations (for example, "The gifting aspect makes this legal," or, "The pay-outs are non-taxable income.")
Making Refunds if You Received Payments:
If you received money from other participants, you should do everything you can to return the money and avoid being the target of legal action. If you no longer have money you received, contact those to whom you owe money and try to make arrangements to pay it back in installments.
The IRS is on record indicating that income received through participation in a gifting pyramid is taxable. Such income does NOT qualify as a true gift upon which no income tax has to be paid. After all, these payments are made with the expectation of financial gain (in other words, as investments); they are not truly intended as gifts or charitable contributions of any kind. Anyone who has income of this nature would be well-advised to consult a professional tax adviser about how to proceed.
Role of the Consumer Protection Division:
The Consumer Protection Division has issued subpoenas and has an ongoing investigation of the "gifting" pyramids, but by law it cannot provide personal legal advice and representation to individual consumers. Efforts to obtain refunds often pit one consumer against another, a situation usually handled best by private remedies. Therefore, sorting out who-owes-what-to-whom will be determined primarily by individual contacts and private legal remedies.
This and other information is available at the Iowa Department of Justice web site: www.IowaAttorneyGeneral.org (click on news releases.) See Pyramid Warning news release dated November 23, 2001, which includes links at the end of the release to a legal memorandum and related documents. Citizens are encouraged to continue to monitor the web site for additional information, especially if they pursue a legal action.
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