24 Sep 08 Substantial Income Opportunity Or Cash Gifting - Avoiding The Scam

Cash gifting attempts to post as a legitimate, substantial income opportunity. It gives all of the promise of a great opportunity with little work. What they do not tell you is that all 50 states and the Federal Trade Commission have warnings out about the scheme, stating it is illegal to promote.

First, understand what legitimate cash gifting is. Cash gifting was meant for estate planning. The ideal was that an individual or family could give up to $12,000 a year to one individual tax free. That money is a deduction on their taxes.

Cash gifting companies claim that this make their practice legal and legitimate. However, the entire point of true cash gifting is giving with no expectation of return. Cash gifting schemes violate that with their promotion that the “opportunity” allows them to make a substantial income.

Another major issue with cash gifting schemes deals with pyramiding and ponzi scheme laws. A pyramid scheme is any opportunity that makes a payment to an individual for solely the act of recruiting another individual into the opportunity without the movement of a legitimate product or service. Ponzi schemes are opportunities that take money from new investors to pay off the promised money to previous investors.

Both pyramid schemes and Ponzi schemes are illegal under all 50 states’ laws and are outlawed by Federal Trade Commission guidelines. So how do cash gifting schemes fit these definitions?

When someone joins a cash gifting scheme, they give their “gift,” typically ranging form $25 to $2,500. This money is paid to previous investor or investors. In order to receive “gifts” the individual must then recruit someone (or multiple people) to make their investment, and the promised money, back. This creates an endless chain of people needing to be recruited in order to fulfill the promise of receiving money.

Current cash gifting schemes attempt to avoid the “pyramid” label by changing their structure. Some use a technique similar to chain letters. These letters instruct you to send $5 to each of 5 names on the list, replace the bottom name on the list (while shifting the rest of the names up one, dropping the first name), and send the letters to people you know requesting them to do the same.

To circumvent U.S. Postal laws, cash gifting schemes use online systems and payment processors. Others use private couriers such as Federal Express or United Parcel Service.

Others change their structure to reflect a compensation plan called the “one-up.” The concept here is that the first person the individual recruits is passed to the first qualified “upline” individual. The individual is then qualified, and beginning with the next person, they receive their “gifts” and the “gifts” of that person’s first recruit. Again, the issue here is that in order for everyone to have a chance of getting paid, an endless chain of recruits has to be found.

Cash gifting is not a substantial income opportunity nor is it a legal and viable way to make extra money. Major promoters of cash gifting schemes open themselves up to action by their state Attorney Generals and, if the scheme reaches across state boarders, action by other states and possibly the Federal government.

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