Sacramento authorities probe pyramid scheme

By Jennifer Coleman The Associated Press
Wednesday October 23, 2002

SACRAMENTO — They met in beauty salons and suburban homes with the guests — all invitation only — coming for the promise of helping their community while making a huge profit for themselves. 

The “Women Helping Women” parties featured a lucky “birthday girl,” who would receive up to $40,000 in cash from the new participants, who each donated up to $5,000 to get in and eventually celebrate her own “birthday.” 

But for many women, the birthday never came, say authorities, who call “Women Helping Women” a $12 million pyramid scheme for which they have arrested four Sacramento-area women. Their investigation also revealed a candidate for district attorney in a neighboring county told partygoers the events were legal and then asked them for campaign contributions. 

The parties, authorities and experts said, were part of a pattern of pyramid schemes found in nearly every state. Beyond women, these schemes focus on other groups, such as Hispanics, blacks or members of the same church, said Robert L. FitzPatrick, author of “False Profits,” a book on pyramid schemes. 

A scheme “travels very much like a virus. It could move in any direction. There’s no mastermind behind it,” FitzPatrick said. 

Recently, officials in New Mexico indicted 20 people for allegedly running similar schemes, said Sam Thompson, spokeswoman for the New Mexico attorney general’s office. 

“It’s a cottage industry here,” Thompson said. “People get a hold of the paperwork, sometimes it’s ’The Spirit of Giving’ or ’Women Helping Women’ or ’The Dinner Party,’ and they just copy part of it and start their own pyramid.” 

The scheme has also surfaced in Texas, where two women were arrested in 2000, and in Philadelphia, where authorities said in March 2001 that a dozen women had complained of being solicited by a similar network, or of losing money in it. 

In Maine, the state attorney general’s office last year warned of a similar scheme that targeted men, sometimes using the names “NASCAR” or “Men’s Club.” 

The Federal Trade Commission warns consumers about getting involved in the schemes, which officials there classify as a Ponzi scheme, but most prosecutions are handled at local or state levels, said James Kohm, assistant director of the commission’s division of consumer protection. The FTC doesn’t track prosecutions or complaints, he said. 

In Sacramento, the four women face charges that could result in five years in prison, fines and restitution. They are Cheryl Bean, 54, former human resources officer at Pacific Bell; Anne Marie King, 47, co-owner of a Roseville Montessori school; Pamela Garibaldi, 57, a part-time English professor at a community college; and Cathy Lovely, 49, a homemaker. 

Sheriff’s detectives Mike Wright and Eric White said the enterprise bragged of distributing $12 million and having 10,000 women participate in the last two years. 

Wright and White said they’ve documented more than $7 million that has been collected, distributed or pledged in the Sacramento region. 

Despite the charges against them, Bean, King, Garibaldi and Lovely have plenty of supporters. A cheering crowd of women greeted them in the courtroom for a recent hearing. 

“They’re genuinely good people,” said Wayne Ordos, Lovely and King’s attorney. “They’re taxpayers, they’re den mothers. This is very difficult for them.” 

None has entered a plea yet, but the four will return to court Wednesday. 

Sacramento authorities placed undercover officers in five meetings, starting in July, after similar parties had already been detected in neighboring El Dorado County. There, District Attorney Gary Lacy warned his employees against participating in them as early as April 2001. 

But one El Dorado County party had another attendee — Deputy District Attorney Eric Schlueter, Lacy’s opponent in next month’s election. Schlueter reportedly told party participants there were legal loopholes that allowed such schemes, and then he solicited campaign contributions. 

Schlueter told The Sacramento Bee newspaper that he didn’t advocate “gifting,” but didn’t believe it was prosecutable under California law. 

“It may be a pyramid scheme,” he told The Bee. “But whether it’s illegal is another matter.” 

FitzPatrick said he’s never found a legal opinion calling the parties anything other than an “endless chain” operation. 

“The first lie is that it’s legal,” FitzPatrick said. “They’ll tell you it’s not a pyramid, it can work and everyone can win.” 

But no pyramid can survive its unsustainable mathematics, FitzPatrick said. Each woman must recruit eight others to get her $40,000. Then each of those eight women must get another eight. Eventually, that pace can’t be sustained, and the pyramid collapses, leaving about 90 percent of the participants out their investment. 

“Women Helping Women” and other groups appeal to patriotism, religious faith or the desire to help others, FitzPatrick said, and use “the idea that women are helping women, supporting each other.” 

The group’s very name angers Harriet Barron, executive director of the National Council of Jewish Women in Los Angeles, who runs a program called “Women Helping Women Services.” 

Barron’s program offers support groups and counseling for domestic violence, single parenting and other issues, she said. The similarity between her group’s name and the Sacramento organization has her concerned contributors might confuse the two, she said. 

Women Helping Women organizers told their recruits they gave 1 percent of their birthday awards to charities, but investigators said they haven’t seen evidence of such charitable activity in the Sacramento area. 

Although pyramid deals gone bad often get attention, the early victims rarely come forward, FitzPatrick said, making it difficult to steer potential victims away. 

But Katherine Guardipee, a 54-year-old health care worker in Browning, Mont., is speaking out. She said she invested $1,500 in February with the promise of receiving $12,000 in a deal to which her cousin steered her.