Do a quick search on Facebook for “Blessing Loom” and you will see hundreds of posts about the exchange.
Participants are promised that they will eventually receive a PayPal payment of $800 after contributing $100 and recruiting two other people.
Once the diagram is filled and the payout is achieved for the top-level, the Blessing Loom splits into two diagrams and everyone moves up a level. This ensures that the cycle will continue. Or does it?
Does this sound like an easy way to make money, or a scam? Experts at the FTC say that these types of groups are actually a form of illegal pyramid scam called a Ponzi scheme.
What are Ponzi Schemes?
In a Ponzi scheme the promoter generally has no product to sell and pays no commission to investors who recruit new "members." Instead, the promoter collects payments from a stream of people, promising them all the same high rate of return on a short-term investment.
In the typical Ponzi scheme, there is no real investment opportunity, and the promoter just uses the money from new recruits to pay obligations owed to longer-standing members of the program. In English, there is an expression that nicely summarizes this scheme: It's called "stealing from Peter to pay Paul." In fact some law enforcement officers call Ponzi schemes "Peter-Paul" scams.
The problem is that these ventures must continually recruit ever-increasing numbers of members to survive. When the clubs don’t attract enough new members, they collapse.
Most members who paid to join the clubs never receive the financial "gifts" they expected, and lose everything they paid to join the club.
Promises of quick, easy money can be a powerful lure – especially when it comes with the additional benefit of new friendships.
Red Flags of a Ponzi Scheme:
- Promises to make money with very little effort.
- Long anecdotes of how many people have made a fortune with the venture without providing concrete facts.
- Large start-up costs and substantial hidden fees to become a distributor.
- Revenue is generated from selling an opportunity not a product.
The U.S. Department of Justice, in collaboration with investigative agencies like the FBI and the U.S. Postal Inspection Service, prosecutes Ponzi schemes criminally for mail fraud, securities fraud, tax fraud, and money laundering.
To File a Complaint
If you’ve been victimized by a gifting club promoter, contact your state attorney general.