Women's 'gifting' scams operating in Hawai'i
By Timothy Hurley
Advertiser Maui County Bureau
Those who promote it describe a life-changing celebration of sisterhood, a powerful healing force and a way to create more sustainable lifestyles.
State regulators say it's nothing more than a scam, a new twist on the old pyramid scheme.
With the promise of financial empowerment and making dreams come true, women's "gifting" clubs have swept the nation in recent years, arriving on the Big Island in 2000 or earlier, and likely operating now on O'ahu and Maui.
The state Department of Commerce and Consumer Affairs is in the process of trying to shut down at least one promoter on the Big Island.
Marlene Vintero of Hilo faces a fine of $90,000 in connection with complaints filed by 20 women who say they lost thousands of dollars investing in gifting circles operating as "Women Empowering Women,'' "Women's Gifting Circle,'' "Table Gifting Circle'' and "The Gifting Circle.''
The state issued a cease-and-desist order against Vintero and four gifting circles last July. An administrative hearing on the order originally scheduled for Dec. 18 was postponed until at least summer because of reasons associated with Vintero's pregnancy.
Repeated attempts to contact Vintero by phone and at her home and business in Hilo were unsuccessful. Her attorney, Shawn Luiz, also did not return phone calls seeking comment.
According to the state's cease-and-desist order against Vintero, prospective members in her gifting circles are asked to invest up to $5,000 with the promise of receiving up to $40,000.
Members are told that to realize their return, they have to bring in more women to complete the "table." Members also are required to sign a "gifting statement'' stating that the initial investment is a gift and they expect nothing in return.
Working way up table
Members start out at the "appetizer'' level, according to the document, and move up in the program to the "soup-and-salad'' level, then "entree'' and finally receive money when they reach the "dessert'' level. Eight appetizers are needed to move up to the soup-and-salad level. Four soup-and-salads are needed to advance to the entree level, and two entrees are needed to reach the dessert level.
The rules are consistent with gifting clubs that have been operating across the country and abroad. In almost every case, the operation is aimed only at women and is promoted using terms such as "empowerment'' and "women helping women.''
"The whole scheme is shibai,'' said Ryan Ushijima, Hawai'i's commissioner of securities. "They prey on people's vulnerabilities in times of economic stress, and especially in times like these.
"They talk about the nice things, like paying off debts and giving gifts — the gifting and goodness. People become blinded to it when it's couched in such emotional concepts,'' he said.
Even if the arrangement were legal, he said, it would be mathematically impossible for it to succeed. Only the first people to join can possibly receive the promised return, because to sustain the payouts, membership must grow in exponential numbers.
After a while, any pyramid scheme simply requires more investors than the population can provide.
The gifting circles are reminiscent of a pyramid scheme that swept Honolulu in 1996. The Gift Exchange Travel Club promised thousands of people they could turn $2,000 into $16,000 in tax-free cash within a few short weeks.
The scheme probably peaked one night in mid-February 1996, when more than 1,000 people plunked down a total of $2 million in cash at a meeting at the Ilikai hotel. Regulators later targeted 19 people in cease-and-desist orders.
Authorities have no idea how many people are still involved in gifting circles on the Big Island, but Vintero may have been just the tip of a phenomenon that was bustling last year.
That's when Danielle "Sunshine'' Jones was introduced to the concept by a woman waving bundles of $100 bills at a meeting in Pahoa on the Big Island.
"All the women at the gathering were going, 'Wow!' '' she said.
But the message was more than just money, according to Jones.
"They made it look like the messiah had come down and brought us a wonderful tool for sharing. It was a way to spread the wealth,'' said Jones, 37, a farmer who grew up amid the poverty of her native Haiti.
Reputable people involved
Teachers, business people and other successful community members were involved, giving it a measure of legitimacy, she said. Among those who encouraged her to join was a woman who described herself as a former police commissioner. Jones later found out that was a lie.
The Puna resident ended up recruiting dozens of friends and family members and used her husband's credit card to back her own gifting circle.
But three months later she "did the math.'' After some investigating on her own, Jones said she came to the conclusion that it was illegal and immoral. She ended up going to the police after losing more than $12,000.
"It was the biggest lesson of my life,'' she said.
"The bottom line is that people want to believe in something. It was like a religion, and even when some people knew it was wrong, they still wanted to believe.''
Rene Siracusa of Puna went to three gifting circle meetings in the fall of 2000, twice at homes and once at the Akebono Theater in Pahoa. Each time, the rooms were packed with women.
"It was so crowded people had to bring their own chairs,'' she said.
Doing the math
Siracusa said organizers claimed the program was legal because the Internal Revenue Service allows tax-free gifts of up to $10,000. She listened to the pitch, but decided against getting involved because of "the mathematics'' and the greed she saw.
"Those who received the money were definitely empowered,'' she said.
Siracusa said she especially became uncomfortable after there was talk of providing financial backing for other women and "shadowing'' them as they advance to the receiving position, then taking a percentage off the top.
On the positive side, some women were using their profits to make donations to worthy causes, she said, and the clubs were bringing together people from different backgrounds who ordinarily wouldn't socialize with one another.
"At one meeting, there was a woman who thought she was going into labor, and there were 30 other women ready to help her deliver. That was a very positive feeling.''
Siracusa ended up forming her own group, allowing women to socialize and raise money for charitable causes without the pyramid concept.
Patricia Moy, senior enforcement attorney for the Department of Commerce and Consumer Affairs' Securities and Enforcement Branch, said it may look like a clever gifting system that skirts tax rules, but in reality it's nothing more than a basic pyramid scam, which is illegal under state law.
20-year sentence possible
Civil penalties for "endless chain schemes'' call for fines from $500 to $10,000 per complaint. Criminal prosecution could result in a 20-year prison sentence.
As for the tax advantages, it turns out there are none. Proceeds from pyramid schemes that have been characterized as "gifts'' by the promoters are not defined as "gifts'' under the Internal Revenue Code, according to the IRS.
Moy said it's tough to build a case against the organizers of gifting circles because victims are unwilling to file complaints against their friends and relatives who got them involved.
In addition, she said, police have a hard time getting cases through the court system because the victims lack credibility, since they've already committed a deception in signing a statement claiming their investment was only a gift when they knew full well the purpose was to make a profit.
Moy said that in Vintero's case, new recruits came largely from the Filipino community. A secondary source included co-workers, friends, relatives and neighbors.
Vintero was the one who collected the money for the groups, and she allegedly received many payouts, Moy said.
As a result of enforcement activity and publicity, the Big Island gifting circles may have collapsed or gone underground, Moy said. But recent calls from residents on O'ahu and Maui lead authorities to suspect that such schemes may be active there.
Honolulu Police Detective Letha DeCaires said she has received calls over the past year from women wondering about the legality of such gifting clubs. The latest call came just last month.
Reach Timothy Hurley at thurley@honoluluadvertiser.com or (808) 244-4880.
