Online pyramid scheme targets valley

Some Facebook users in the Flathead Valley have unwittingly become part of a pyramid scheme circulating via the social media site and group chats on the accompanying Facebook Messenger app, and the Montana State Auditor’s office has deemed it illegal.

Over the weekend, officials from the state agency became aware of a collection of posts concerning a “Friendsgiving Network,” said Kyle Schmauch, a media specialist with the agency.

“We see pyramid schemes pop up in all different forms at different times. This is the first time we’ve seen one in this exact form,” Schmauch said. “We’ll be looking at it to see if we can figure out who started it.”

The scheme is unique in that it appears there is no small group of people siphoning off money from everyone, but rather all the money is distributed among the 15 people that have bought in to any given pyramid.

Rather than a small group of culprits scamming the public, it is a movement sustained on participants’ abilities to attract more participants in their own peer group. Many people who claim to be investors in public Facebook posts cite the fact that it appears to be more egalitarian than many pyramid schemes as a reason people should participate.

An initial buy-in of $100 gets people a spot at the bottom of the pyramid. They move up by convincing other friends to buy in, funneling the bottom layer into higher rungs and spinning off new pyramids to accommodate more participants.

Once the pyramid fills up with 15 investors and accumulates $1,500 in the pot, the person at the top gets $800 and leaves the pyramid with $700 of profit. As more people buy in, the person who assumes the top gets a payout as new pyramids are formed and the users cycle through.

The danger lies in those who invest as the scheme’s popularity stagnates, and reside in the pyramids as the tide of new investors slows to a halt. They could receive no payout, and leave their investment on the table. It is unclear what happens to the money in those pyramids as they begin to sit idle, or whether the transactions are facilitated centrally or if different accounts serve different pyramids full of different groups of people.

“We know that it involved at least dozens and dozens of people, but probably significantly more than that,” Schmauch said. “Some of the people are in the Flathead Valley; we have seen posts on Facebook that say they live in Kalispell or the surrounding area.”

THE AUDITOR’S office has instigated a social media campaign to dissuade people from participating, and has also started an investigation to determine where it began, though Schmauch noted that the agency’s jurisdiction begins and ends with the state’s borders and there are clearly many out-of-state participants.

As part of that investigation they would likely reach out to Facebook to try to gain access to information contained in those private messaging groups that are facilitating much of the activity, Schmauch said. It’s a practice the office has yet to use under current State Auditor Matt Rosendale’s tenure, and Facebook may decline access or cooperation.

The agency also is scouring public Facebook posts for information, Schmauch said. He declined to say whether participants could face charges for engaging in the scheme that is illegal under state law. He said they were focused on informing the public that it was, in fact, illegal.

“This is obviously different than a multimillion-dollar pyramid scheme, so people won’t be treated the same,” Schmauch said.

He said they haven’t identified any particular demographic that appears to be targeted more than any other, beyond folks who use Facebook and are at a point on the income spectrum where they have $100 to spare but a windfall of $700 would be meaningful enough to assume a substantial amount of risk.

INVESTORS IN the pyramid are going to great lengths to minimize the perception of risk to their friends.

In the past 24 hours, dozens of Facebook posts spanning multiple states have been made by people looking to recruit other participants. They have come from locations as different as Williston, North Dakota, Council Bluffs, Iowa, and Brighton, Michigan.

The posts are largely made up of the same copy-and-paste explanation for the scheme, but some include other comments assuring friends they are not a scam and saying they have personally received payouts or know people who have. One man posted, “If you want to get on the money train, message me!!!”

In some cases, people have publicly shared snapshots of their online banking transactions to prove to others in their social network community that they have really bought in. They have also tagged friends of theirs they believe have also invested.

After expressing interest, people are usually routed to a private Facebook group chat full of other investors where they are supplied with the PayPal account information where they can send their buy-in. They also share recruiting advice such as how to circumvent common objections and how to assure people the scheme will really lead to payouts.

The auditor’s office has identified cases of people posting about the program who say they live in or near Kalispell, Schmauch said. There are also public Facebook posts from people with profiles that say they live in the Billings area and in a press release, the state agency said it had identified likely participants in Glacier and Gallatin counties.

Pyramid schemes are deemed unlawful in Montana Code, section 30-10-325. According to the code, the law was established in 1999 and includes schemes where the profits are primarily comprised of fees paid by new entrants.

In a press release, State Auditor Matt Rosendale said, “If an opportunity to make money sounds too good to be true, it probably is.”

Peregrine Frissell can be reached at 758-4438 or pfrissell@dailyinterlake.com.