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- June 09, 1980
- Vol. 13
- No. 23
What's Got Three Sides and An Occasional Cop? the West Coast Pyramid Scam
In a typical game, a first-time player puts up $1,000 to have his name inscribed on the bottom line of a five-tier pyramid-shaped chart. Half of the money goes to the person directly above him on the fourth tier, half to the person whose name is at the top of the pyramid. As more people are brought into the game, the player moves up the pyramid, eventually to the top. This can happen in one night, but can also take weeks. At that point, he has $16,000 dollars.
The problem, obviously, is that everyone can win only if the number of recruits is infinite. For instance, if the first person brings in two others, who each sign up two more, after only 25 tiers more than 33 million recruits would be needed. That's about 13 million more than the entire population of California. As Assistant L.A. City Attorney Michael Stanley puts it: "Unlike a legitimate investment, this is guaranteed to fall apart. All that's happening is that the money is being redistributed from a large group to a small one—30 people making one person rich."
Such warnings have yet to sink in. California banks report an unprecedented run on $100 bills (the denomination ordinarily used to buy in), and the stakes are rising. There are reports of $10,000 antes, and even of one $100,000 game with a theoretical payoff of $1.6 million. Richard Kalustian, deputy DA for Los Angeles County, estimates that there are hundreds of Pyramid groups, perhaps a thousand, now operating in California alone. Though participation carries the risk of a felony conspiracy charge, most of the people arrested so far have simply been cited for a misdemeanor (maximum sentence: six months in jail and a $500 fine). Thirteen people were busted recently at a party in L.A.'s Benedict Canyon and several of them have set up a legal defense fund to thwart further prosecution of Pyramid devotees. "The issue is free choice," says Debra Olson, a 31-year-old real estate agent who was scheduled to get her $16,000 payoff just as the cops arrived. "We should be able to make our own decisions."
As public enthusiasm is dampened by stories of those who lost their money, Pyramid power will no doubt fade fast. "For every winner there are thousands of losers," says 24-year-old John Luzi, who, like his brother Anthony, learned the hard way. They paid $1,000 to get into a game near San Francisco that collapsed for lack of new recruits. "You have to keep bringing in more people all the time to keep the pyramid alive, but the more acquaintances I tried to persuade to join, the more I felt I was leading cattle to the slaughter." Two members of the Luzi brothers' game talked of suicide when the pyramid collapsed; others nearly came to blows with the man who had organized it. "It's a shame that our economy makes people desperate," says Anthony, 29. "People are finding it so hard to make ends meet." What's the answer? "Don't take a chance unless you can afford to lose your money," he advises. "Better yet, don't take the chance at all."
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