By Tim Eberly
Don't look a gift horse in the mouth, unless it's asking you to break the law.
On Thursday, Havre police received a phone call from the Montana state auditor's office, warning local peace officers of a potential financial scam Saturday afternoon in Havre.
A criminal investigator with the state auditor's office said the department learned that a Havre resident had planned to invite several individuals to the resident's home to pitch a pyramid scheme, a felony crime in Montana that carries a maximum penalty of 10 years in prison and a $10,000 fine.
Pyramid schemes are successful under the ruse of fast money with little effort. Nothing is purchased or sold when a person enters into the arrangement. Rather, new participants pay money to join, on the contingency that they will receive significantly larger monetary compensation in the future. New recruits are counted on to provide the compensation for the earlier investors, which means the money is filtered to the top of the pyramid. The pyramid eventually collapses because not enough new participants can be found.
"We just want the public to recognize that they are illegal, and any money exchanged will be investigated by the state auditor's office," police Capt. Mike Barthel said.
Women are the targets for the alleged scheme, or "gifting program" believed to be coming to Havre, said Wendy Raney, a spokesperson for the auditor's office.
"They go to women and pitch, You can gain some financial independence this way or you can get out under that cloud of debt,' " Raney said. "They use it as an empowerment (tool). That's how they sell it."
Organizers of the pyramids also recruit new members by touting the scheme as a legal investment in which they can avoid paying taxes, according to State Auditor John Morrison.
No arrests can be made on Saturday unless the police obtain proof of an exchange of money. But Barthel said the residence will be under surveillance and license plates of car parked nearby will be reported and investigated. "We will treat this proactively," he said.
Though pyramid schemes have been illegal in Montana for quite some time, the Legislature in 1999 passed a specific law that outlawed "gifting" programs. Previously, the pyramid schemes were prosecuted under a general securities law.
"The people organizing these programs expect to make a profit," Morrison said in a press release Thursday. "If you profit primarily through the recruitment of others into the program, you are in violation of the state law. The members also may be in violation of state laws if the revenue is not reported on their tax forms."
Fraud exists in the gifting programs because nothing of value is purchased or sold when a recruit joins the pyramid. Instead, the money is recycled to existing program participants. Since the continuation of the program depends on new recruits, the pyramid inevitably dries up and the pyramid collapses, and individuals on the lower tiers of the pyramid never get their money back.
One year ago, Havre police got word of a similar scheme coming to the Hi-Line and issued a warning statement. Barthel would not comment on whether the statement prevented the scheme going forward.
Pyramid schemes are "common in the state of Montana," Barthel said. "I think all states have a problem with pyramid schemes, but they're deemed illegal in Montana."
Anyone contacted about this or any other scheme is asked to call the state auditor's 0ffice at 800-332-6148.