Cash gifting
is a money making scheme that purports to allow participants to make money by doing very little work. In essence, though, the arrangement amounts to a multilevel marketing or pyramid scheme. However, given that no tangible product or service is offered, the distinction of this "business" as well as its effectiveness, is tenuous at best.
Function
There are many different versions of a cash gifting program. Basically, a cash gifting scheme consists of a recruiter who seeks members to pay into the program. For example, cash gifter A begins by recruiting cash gifter B. Cash gifter B pays cash gifter B "membership fees" in order to be able to join the program. Cash gifter B must then recruit a certain amount of members before he or she can become a full member.Cash gifter B then recruits cash gifter C and D, who pay cash gifter A their membership dues. Now, cash gifter B is free to recruit members on his or her own behalf, while cash gifters C and D must now raise money for cash gifter B, and so on.
Ponzi Scheme
A Ponzi scheme, named after its originator Charles Ponzi, is an arrangement where early "investors" in the program are paid by those that invest after them. This is contrasted to a typical investment, in which money is raised from the market or from the sale of a product. As more investors join the Ponzi scheme, more new investors are needed to pay off the older investors.
Eventually, the pool of new investors is exhausted, and because there is no other means of raising money, income stops. Those that invested too late in the program receive no money and the program collapses.
Is Cash Gifting a Ponzi Scheme?
Whether or not cash gifting constitutes a Ponzi scheme is a determination that you will have to decide before participating. Many cash gifting programs are structured differently with complicated promotions, metaphors and procedures. But ultimately, the most important thing to consider is whether or not the particular program realistically provides a valuable product or service to the public. If it does not, it is highly likely that it is dangerously undercapitalized.
Passive Income
Another term to consider is "passive income." Passive income is money that you make without having to put forth a great deal of effort beyond the initial setup. For example, the interest on your savings account with the bank is passive income. This is in contrast to an hourly job, where your income is directly tied to how much time you work.
Cash gifting may appear to be a passive income program. However, consider the level of involvement that recruiting new members, attending meetings and pitching family and friends and acquaintances on the benefits of the program requires. Most cash gifting programs do not allow you to exit the program or make money unless you recruit a certain amount of new members. This can actually be a great deal of work, and, in most cases, requires the same amount of expertise and diligence of a traditional sales position.
Legality
All 50 states have strict laws against Ponzi schemes, pyramid schemes and "endless chain" programs. Furthermore, many laws prohibit discussing a program using investment terms when it is not a registered security. While cash gifting programs may purport to be legal due to some loophole, in reality it is highly likely that it is either suspicious in the eyes of the IRS or outright illicit.
Marketing
Cash gifting programs are mostly marketed by word of mouth and at private parties. While some cash gifting programs do function through the Internet or by mail, laws restricting the use of certain language (such as investment terms) makes it difficult for cash gifting organizers to remain compliant while advertising through other mediums. Common ways of recruiting members is through invitation-only groups and parties, such as plasticware parties. These are sometimes described as clubs or exclusive groups.
