Cash Gifting, Ponzi Schemes, and Pyramid Scams… OH MY!
There is a strong need for a very important clarification in Network Marketing.
I recently was approached by someone speaking about their marketing community that had an excellent team synergy. I congratulated them on finding such a team, it’s one of the more important factors in marketing. A strong team will keep others motivated and focused.
They continued to tell me about what their team does, which is fine with me, I like to know what other marketers are doing in the industry. As they explained, I realized we weren’t in the same industry at all.
What they were involved in was Cash Gifting. It is VERY important for all marketers to know that Cash Gifting is NOT Network Marketing.
Attention: If you are in Cash Gifting this post is going to piss you off.
Because it’s my belief that Cash Gifting gives the Network Marketing industry a bad name.
Read on if you want to know why.
Simply put it is the transfer of cash, in the form of a gift, with nothing gained in return from the person it is being gifted to. The cash moves up, so more people are needed to join in the cash gifting program to maintain the flow of cash.
Cash gifting is often called a Ponzi Scheme, named for Charles Ponzi, and promises an impossibly high investment return in a short period of time. Investments are regulated by the SEC and any found to be fraudulent can be shut down and there are criminal penalties for those who engage in these illegal investment acts. Therefore, cash gifting programs avoid using the words “investment”.
Most cash gifting programs involve a system that requires a membership on top of the cash gift to cover the costs of promoting the system. The particular “team” that I was approached with required a $20 fee for the promotion of the team. The team would help assist new “gifters” in the recruit of the gifters that they needed to bring into the program.
The team is willing to give this assistance because in a cash gifting program the money first goes to the top of the program to pay off those who entered first. Without the recruit of new gifters the entire system would collapse. With no product or service involved in the cash gifting program it falls under the terms “Ponzi Scheme”, which also has been interchangeable with the term “Pyramid Scheme”.
That is why it is important to know the difference between cash gifting and Network Marketing. There is no product involved in cash gifting and cannot be marketed to anyone on a “customer” level. A cash gifting team promotes themselves by invitation only, just as I was invited, but there is NO product involved.
Cash gifting eventually fails because of the ever growing need of people to fill up the system and send money up to those at the top. Once those at the top are paid off their promised return amount then those below them can begin receiving their cash gifts.
People at the bottom of the system wait until there are more people recruited to refill the system.
The system I was invited to required a $100 gift to be given. Then to complete the level in the system enough people would have to be recruited to finish paying the person I gifted, then recruits would be added under me until I received $400. Each of those 4 people that gave me the $400 would need 4 each. And then those 16 would each need 4.
After I reached $400 I would gift $200 to the person above me. And then my next promised gift amount I would be eligible to receive would be $800. The number of gifters required to fill this level in system get even bigger.
These systems rely on the people at the top to rejoin. Even with their return eventually the number of gifters needed becomes so ridiculous that the whole system collapses and this is why so many people cry out SCAM! Because the large number of people at the bottom never receive anything out of the program.
There is no opportunity for any commissions to be earned off of outside sales and there is no residual income available. Cash gifting relies solely on recruiting, therefore it is not to be confused with Network Marketing.
Network Marketing is LEGAL because we make our money off the sale of a product. Whether it be a retail sale of the product or the sale of product to a current rep on their autoship, or the sale of product to a new rep. It’s a sale of the product that earns our commission.
If anything claims to be able to make you money without there being any selling or without any product, you need to ask some serious questions, because more than likely it could fall into that grayish area of being possibly illegal.
Just because I think Cash Gifting is the most asinine thing in existence and that it gives Network Marketing and MLM a bad reputation does not make it illegal (all though the specific wording and how the exchange of cash needs to be agreed upon is so touchy it does kind of fall into a gray area,,, look at the bullets below about that.) You can read about taxation of Cash Gifts courtesy of the IRS by Clicking HERE
Here’s some bonus info you might want to know about cash gifting (my God I’ve typed those words so much in this post I want to vomit)
The Gifting Statement and Non-Solicitation forms signed when sending gifts are binding between two individuals and the following guidelines must be met.
- They must provide statements between the giver and the receiver that the gifts are given with no expectation of any returns.
- They must provide statements between the giver and the receiver that gifts were unsolicited and that the giver approached the receiver inquiring about the opportunity to give.
- There should be a statement between the giver and the receiver acknowledging that the giver accepts he or she is not making an investment.
- And there must be a clear understanding between the giver and receiver that the giver is not guaranteed any benefits for making a gift.
Cash Gifting is a private activity in which individuals gift each other money. There is nothing being sold, nothing being bought, there are no transactions and this is not a business. It is a private activity to which you need to be invited. If you’re looking for a home-based opportunity to generate income then cash gifting is NOT what you are looking for.
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