A multistate crackdown on a once-popular but now sagging pyramid scheme has escalated in Maryland as more than three dozen alleged violators were issued subpoenas by the state attorney general's office.
Attorney General J. Joseph Curran Jr. said yesterday that the civil subpoenas seek testimony or documentary evidence. Unlike NTC a criminal case, the pyramid investigation does not involve a grand jury.
"The subpoenas are the result of investigating information we have been receiving over the last several months," Mr. Curran said. "At this point we are not certain if the people we are going to interview are promoters or just players. Our aim is to stop the game because it is against the law and, secondly, it is truly a bad investment."
Mr. Curran said those subpoenaed are from Baltimore County, Annapolis, the Eastern Shore and the Washington suburbs.
Investing in or promoting the pyramid scheme is a violation of a Maryland law that prohibits ventures such as the locally popular "Friends Helping Friends" or the "Friends Network Gifting Program" operating in southern Pennsylvania.
Until several weeks ago, Marylanders thought that they could skirt the state law by attending organizational and payoff meetings in the nation's capital, where pyramids are not specifically prohibited. But District of Columbia officials eventually started their own probe and began enforcing local consumer protection statutes several weeks ago.
Maryland authorities also are attempting to pinpoint possible violations of the state Securities Act, which prohibits the sale of unregistered securities through misrepresentation or fraud. Penalties include fines of up to $5,000 for each violation.
As investigations continue, the once-popular pyramid games appear to be unraveling, according to the district's chief investigator, who has been working closely with Maryland authorities.
In the version popular with Baltimore-area residents, players invest $1,500 and hope to collect $12,000 after recruiting up to eight other players -- or "vice presidents" -- who similarly invest and climb the scaffolding of the pyramid as the process is repeated.
"The game exploded from hundreds to thousands of players in a relatively short period of time," said Mitchell Berger, an attorney with the enforcement division of the district's Department of Consumer and Regulatory Affairs.
"There are now indications of collapse. We're seeing buy-ins of $300 and $400 instead of $1,500," Mr. Berger said. "Some people who once wanted to make the game legal are now very disgruntled. There are lifelong friendships ruined; relatives not speaking to one another."
Consumer protection officials in Washington said that recently arrived African immigrants also have been victimized by hustlers promising quick turnaround on their sizable investments.
"Not everyone in this is ethical," said the department's Janet McCormick. "The African immigrant community has been particularly hard hit and they comprise 20 to 25 percent of the victims. These people are cabdrivers, students who get ripped off by promoters who disappear with their money. And who are the victims going to report to, the police?"
A spokesman for the U.S. attorney's office in Washington said yesterday that two district police sergeants agreed Friday in U.S. District Court to stop recruiting others to invest in the pyramid game.
"Our office is interested in possible fraud and tax evasion in the pyramid case," said spokesman Kevin Ohlson. "We were surprised at the large number of people involved in the district, many from Maryland."
Mr. Ohlson said his office's investigation has turned up doctors, accountants, congressional staff members and police officers who were involved in the pyramid game.
In addition to the Maryland attorney general's investigation, Baltimore County police are conducting criminal and internal probes of the pyramid scam.
The internal probe involves reports that buses filled with police officers were going to Washington to invest or collect money.
Officials from the Baltimore County Fire Department and Harford County Sheriff's Department also have warned their employees that the game is illegal in Maryland.
"We are in the process of interviewing people . . . to try to determine who the organizers of the pyramid scheme are," said Maj. Allan J. Webster, commander of the Baltimore County police criminal investigative services division.
He said yesterday that the scheme was widespread and was not limited to certain sections of the county. "It was probably occurring throughout the state," he said.
Last week in Pennsylvania, Diana L. Elk, 28, of Baltimore County agreed to refund $10,500 to players of a pyramid scheme in York after a large-scale investigation by Pennsylvania authorities implicated thousands of participants, including a small-town police chief and doctors in Philadelphia hospitals.
PYRAMID MATH
The "Friends Helping Friends" pyramid scheme sounds good, but it eventually runs out of steam because too many people are needed to sustain it, authorities say. Based on pyramids that require each participant to bring in eight friends contributing $1,500 each, here's how the number of people required to sustain the game increases. Figures courtesy of the D.C. Department of Consumer and Regulatory Affairs.
1 needs $12,000 from
8 who need $96,000 from
64 who need $768,000 from
512 who need $6,144,000 from
4,096 who need $49,152,000 from
32,768 who need $393,216,000 from
262,144 who need $3,145,628,000 from
2,097,152 who need $25,165,824,000 from
16,777,216 who need $201,326,592,000 from
134,217,728 who need $1,610,612,736,000 from
1,073,741,824 who need $12,884,901,888,000 from
G; 8,589,934,592, which is larger than Earth's population.