California Scam

Illegal pyramid clubs flourish

As instructed, the suburban housewife parked near the toy store in Van Nuys and waited. Soon an orange van drew up. "Chart 2," she mumbled to the driver; she was invited to join the van's eight other riders. In a few minutes, the vehicle rolled up to a warehouse. More passwords were exchanged, and the van's riders then blended with the 150 or so people already gathered inside. Promptly at 8 p.m., the doors were locked, and the host rose to address the guests.

Thus began another session of what its adherents call the "business concept list," but what law-enforcement officials call the "pyramid club," an illegal and get-rich-quick variation, California-style, of the old chain-letter scam.

For $1,000 each, 32 newcomers buy slots on the bottom row of a pyramid-shaped roster. Each new player pays half of his $1,000 to the person at the pinnacle, who ends up with $16,000. The new player also pays his remaining $500 to the person directly above him on the next tier, which contains 16 people. Since each person on that tier gets paid by two of the newcomers, he ends up with $1,000, thus recouping his original investment. As more people buy in, the players move up the chart. In time, theoretically, each person reaches the top--and $16,000.

The scheme caught on as only a California hustle can. Pawnshops did a booming business, as players hocked stereos to raise the initial fee. Most players, however, were middle-class suburbanites out to fight inflation. Everyone seemed to know someone who had indeed won $16,000. There were runs on local banks for $50 and $100 bills to be used in the night's gaming. Dentists reported patients, even with mouths full of cotton, soliciting them to join the club. Games were held in unlikely hideaways, including Hollywood sound studios, chartered buses and the Grand Salon of the Queen Mary at anchorage in Long Beach.

But such an "endless" chain is illegal in California. Since the supply of investors is finite, someone is bound to get burned, sooner or later. By last week, police had arrested 256 pyramid builders, and the craze was showing signs of fading--onlyto rise again in a less expensive form. The player invests $100, the roster contains 16 names, and the payoff is a modest $800. Enough, perhaps, to pay your lawyer if the police join the game.

This file is automatically generated by a robot program, so viewer discretion is required.