Court Cites Woman For Involvement In Illegal Pyramid Scheme

Attorney General Spitzer today hailed a court decision against one of the key promoters of an illegal pyramid scheme that started in the North Country and spread into other regions of the state.

A decision rendered by Justice Thomas J. Murphy of the State Supreme Court in Onondaga County requires Donna Merry of Massena to pay to the state $25,000 as restitution for her participation in the illegal scheme known as Women Empowering Women (WEW). The court decision also requires Merry to pay costs to cover the state's investigation into WEW.

"New York State law prohibits chain distributor schemes because they inevitably result in the enrichment of a few individuals who got in early at the expense of those who got in later," Spitzer said. "Pyramid schemes are bound to collapse under their own weight, and when they do, participants lose their hard-earned money."

According to Spitzer's office, Merry was instrumental in introducing her community to WEW. Participants in WEW encouraged friends, neighbors, and coworkers to join, participated in conference calls, disseminated information, and misrepresented the legality of the scheme and its tax implications. The Attorney General's investigation revealed that Merry participated in several WEW "boards" and received at least $25,000 as a result of her participation.

In issuing the decision, Justice Murphy also barred Merry from participating in pyramid schemes in the future or in any other fraudulent activity.

When WEW first appeared in New York State in early 2001, it was typically described as a means by which women could financially strengthen and empower other women. In fact, it was a classic pyramid scheme prohibited by law. Women invested $5,000 solely for the right to receive $40,000 if enough women made subsequent $5,000 investments.

The structure of WEW's pyramid used a dining motif to describe the four levels of a "board." The bottom level, known as the appetizer level, consisted of eight women who each paid $5,000 to join. The second and third levels were known, respectively, as the "soup and salad" level and the "entree" level. The fourth and highest level was known as the "dessert" level. A woman in this position received the $5,000 from each of the eight women who joined at the appetizer level. Once the woman in the dessert position collected her $40,000, the "board" split in half with each participant moving up one level. Every time a board split, eight new recruits had to be found for each board for the scheme to continue.

According to Spitzer's office, an investigation into WEW continues, with additional lawsuits possible against other participants. "Allowing participants to keep their ill-gotten gains would be tantamount to saying that crime does pay," Spitzer said.

Pyramid or "chain distributor" schemes have been illegal in New York State since the early 1970s with participants facing both civil and criminal penalties. In addition, all participants in pyramid schemes, including Women Empowering Women, may face substantial penalties, interest and possible criminal sanctions if they do not report earnings associated with their participation on their state and federal income tax returns.

Individuals with concerns about pyramid schemes or who are interested in learning about how they can be identified are encouraged to call the Attorney General's consumer help line at (800) 771-7755.

This case was handled by Assistant Attorney General Judith Malkin of the Syracuse Regional Office and James O'Rourke, Assistant Attorney General in Charge of the Watertown Regional Office. Debra Rathbun of the Watertown Regional Office assisted in the investigation.