The Resurgence of Scams Amid The Pandemic — Secret Santa Exchange
SOOOOOOO in what is looking like the final installment of our “The Resurgence of Scams Amid the Pandemic” series, this last post is gonna make me sound like the Grinch.
But trust me… what you saw around the holidays absolutely was a pyramid scheme. Now onto our regularly-scheduled program.
A “pyramid scheme”, as defined by Cornell Law School’s Legal Information Institute, is “an unsustainable, illegal business model where investment returns are typically from principals [sic] of investments or membership fees instead from the underlying investment gains”. To put it simply, it’s a business model where you’re paid directly from the people who you recruit below you, rather than from a product that you sell or the value of your investment increasing.
Pyramid schemes have long been banned as an illegal practice in the US and elsewhere around the world, in part due to the losses of entrants stuck at the bottom. Various companies in the United States have been sued for operating as pyramid schemes.
These types of schemes are WAY popular, especially in the United States for a variety of reasons, but chief among them are 1) the desire to make “easy” money and/or 2) gaining financial stability.
The Specter of COVID
The pandemic, along with the response to it on both the national, state, and local levels have wrecked absolute havoc on many’s finances. With many people facing layoffs, possible foreclosure, and defaults on various debts, people have been searching for ways to make money in a weakened job market. Amidst these conditions, these types of schemes and scams have flourished.
The Secret Santa Gift Exchange
Around the holidays in 2019, if you were on Facebook, Twitter, or Instagram (it’s always social media), you might have seen a friend post about a Secret Santa gift exchange, often tied to sisterhood or female empowerment (or just spreading holiday cheer). It might have looked something like this…
It sounds really innocent, and we are reassured that this isn’t a scam, but no doubt about it, this is a pyramid scheme in its purest form. Some of you might disagree with me, but here are the reasons why.
Why It’s A Pyramid Scheme
The answer lies in this phrase within the post: “You have to buy one gift valued of at [sic] least $10 and send it to your secret santa, you will then receive a few in return (if everyone does it right)”. Of course, what isn’t stated there is that you also must spread this “opportunity” to be able to receive gifts. It’s implied.
Essentially, for the price (investment) of one gift, you are promised multiple gifts, which are given directly from the folks that you recruit.
Can we see that definition again for a pyramid scheme?
Pyramid Scheme: a business model where you’re paid directly from the people who you recruit below you, rather than from a product that you sell or the value of your investment increasing.
This Secret Santa gift exchange 100% fits the definition of a pyramid scheme. Even though money is not being exchanged, you are promised a return on investment of over 100%. And of course it’s illegal. The US Postal Inspection Service provides a little more insight here https://www.uspis.gov/news/scam-article/pyramid-schemes.
But Chuku, you ask, what about the Secret Santas at work or with family? Wouldn’t those be pyramid schemes?
NOPE!
There are three key differences at play. One, Secret Santas done with friends and family don’t rely on constant recruitment. Two, each person brings one gift and is guaranteed one gift. Three, the number of entries is typically capped by the time of the event.
None of these are true with the Secret Santa gift exchanges being pushed on social media. One, these are typically open to everyone (beginning with one’s social network). Two, you are promised more gifts than what you put in. Three, there is no cap on the number of entrants.
So, when the Holiday’s roll around again and you see these posts…. feel free to ignore (or better yet, report them).
Please let me know your thoughts!
