Chain e-mail pyramid fraud

By M. E. Kabay
Network World Security Newsletter, 04/23/01

As all network administrators know, there are many letters circulating around the 'Net which tout the miraculous successes of adding your name to a mailing list, sending $5 (or whatever) to four other people, and sending the letter on to everyone you know. Some of the more recent letters include the claim "As seen on TV." Many include letters from starry-eyed proponents of the scheme, claiming that their kitchen tables have been covered with money within weeks of participating in the plan; several preface their comments with assurances that they normally throw away such letters, but this one has changed their lives.

These letters are examples of pyramid frauds (also known as Ponzi Schemes); they are a method of funnelling money from later participants to earlier participants. Eventually, the fraud runs out of new victims and the last waves of participants are left with no revenue. Effectively, everyone participating in the pyramid fraud is hoping to reap unearned cash from gullible later victims.

For more information about the history of pyramid frauds, see Robert Todd Carroll's essay at:

www.dcn.davis.ca.us/~btcarrol/skeptic/pyramid.html

I sometimes report the U.S. participants in such fraud to the U.S. Postmasters in the ZIP codes involved (and no, I don't have "far too much free time" - I just get irritated by fraud). Here is the exact text of a letter sent to me on Dec. 1, 2000, by V. J. Bellinger of the Operations Support Group of the U.S. Postal Inspection Service in Newark, N.J. It has some interesting information that I hope will be helpful to readers attempting to convince employees (or family and friends) that such chain e-mail involving postal addresses is illegal.

"A chain letter or a multilevel marketing program is actionable under the Postal Lottery, False Representation, and/or Mail Fraud Statutes if it contains three elements: prize, consideration and chance. Prize is usually in the form of money, commissions, or something else of value that the solicitation claims you will receive. Consideration is the required payment to the sponsor in order to obtain the prize. Chance is determined by the activities of participants over whom the mailer has no control. These types of schemes constitute lotteries and are barred from the mails because they violate the following statutes: Title 18, U.S. Code, Sections 1302 and 1341 and Title 39, U.S. Code, Section 3005.

"In attempts to appear legal, many chain letter or multilevel marketing mailings offer, for a fee, a product or 'report.' However, since the success of the program is dependent on the number of people willing to participate, all three elements that constitute a violation continue to be present.

"The promoter of this scheme has been advised of the potential violations involved and has been requested to discontinue this type of mailing activity."