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'Pyramid clubs' sweep Toronto

A dollar gets you in the door, and 12 days later, you're $2,048 richer. Who could resist the promise of such easy money? In 1949, "pyramid clubs" - in which each investor recruits two more, then passes the money up the line - are springing up around Toronto. Problem is, they're illegal and not even all that lucrative for those at the top of the heap. In this CBC Radio clip, reporter Bill Beatty casts a critical eye on the "infection" that has spawned pyramid parties all over town.
• One dollar in 1949 is equivalent to $9.42 in 2009, according to the Bank of Canada's inflation calculator. • Investors in the pyramid clubs were invited to parties held for the express purpose of gathering their $1 "membership fee" in the club. They were then obligated to hold their own parties to collect money to send up the steps of the pyramid.

• On March 29, 1949, the Globe and Mail reported that Stephanie Mulock, who got the idea on a trip to New York, started the pyramid craze in Toronto. She insisted the clubs were perfectly legal, but Insp. Albert Lee from the police morality squad said: "Any pyramid club brought to our attention will be investigated and prosecuted. There will be no pyramid clubs as far as we are concerned."

• The Toronto Star estimated on April 4, 1949 that some 3,000 Torontonians had joined pyramid clubs. Nine days later, a pyramid club booster defended the $1 admission to the parties as money well spent. "This town was dead," said one Mrs. Ralph Jarvis to the Star. "There was nothing doing anywhere, particularly on Sundays. Now the whole town is humming with these clubs. They provide good fellowship, refreshments and relaxation. It is much better, and cheaper than spending your time in a beer parlour."

• In a follow-up report, CBC Radio's Bill Beatty said some clubs had admission fees of $2 or $5, and that there were rumours of one where each investor put in $100. He also reported that the clubs were collapsing due to a mathematical rule: they were running out of people to recruit. Police chiefs in Halifax, Montreal and Ottawa said the clubs had not yet reached their cities.

• A pyramid scheme is similar to a Ponzi scheme in that both systems promise unrealistic and unsustainable returns on investment. However, in a Ponzi scheme one person is the "hub" who has contact with all the investors, encouraging them to reinvest any earnings in the plan. A pyramid scheme uses a multi-level pattern in which investors must recruit new members.

• Bernard Madoff, the high-profile U.S. financier who was unmasked as a fraud in late 2008, was operating a Ponzi scheme with himself at the hub. An estimated $50 billion was involved in the scheme, in which Madoff paid off early investors with money from later recruits.

Medium: Radio
Program: CBC News Roundup
Broadcast Date: March 29, 1949
Host: Bill Reid
Reporter: Bill Beatty
Duration: 2:22
Photo: © bebop717. Image from Flickr Creative Commons.

Last updated: March 25, 2014

Page consulted on March 25, 2014

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