British Columbia

'Sometimes, the lessons in life are costly': Why you can't sue for cash lost to a pyramid scheme

Two decisions from the Civil Resolution Tribunal demonstrate the importance of doing your research when offered an extraordinary but dubious investment opportunity.

2 decisions from B.C.'s Civil Resolution Tribunal refuse refunds for 'gifting' scheme participants

Gifting communities are the latest variation on the classic pyramid scheme. (Stefan Malloch/Shutterstock)

An opportunity to turn a $5,000 investment into $120,000 probably sounds too good to be true — and it should, because it is.

A B.C. woman named Nastaran Vafi claimed she didn't realize that she put her money into a so-called "gifting community," the latest iteration of the pyramid scheme.

Vafi recently filed a small claims suit against the person who brought her into the arrangement, asking for her money back.

Her case is one of two similar claims heard by B.C.'s Civil Resolution Tribunal (CRT) in recent months — and both make it clear the civil courts are not the place to turn for anyone who's lost money to a gifting scheme.

As tribunal member Julie Gibson wrote in her decision on Vafi's claim, "the apparent illegal nature of the scheme leads me to the conclusion that the applicant is not entitled to the return of her $5,000. I say this because generally a party is not entitled to recover money paid as part of a criminal enterprise."

She said Vafi should have done her due diligence on the scheme, and at the very least was "wilfully blind" to the illegality of the investment.

Follow your 'spidey sense'

Another CRT member made a similar decision last year, ruling against Nicky Bains's claim for $5,000 she'd paid in to "a pyramid sort of thing" that members called a "cloud."

The legal principle behind those decisions is known by the Latin phrase ex turpi causa non oritur actio, which essentially means that in most cases, you can't sue for damages caused by your participation in an illegal act.

That means there's not much recourse for people who've lost their money to these scams apart from calling the police, according to Ron Usher, general counsel for the Society of Notaries Public of B.C.

"Sometimes, the lessons in life are costly," he told CBC.

Ron Usher says that extraordinary claims must be backed up by extraordinary evidence. When in doubt, turn to Google. (Francois Lenoir/Reuters)

Pyramid schemes like gifting communities take advantage of the unfortunate human tendency to be duped by enticing offers.

"The tricky bit for all of us is how to step back, how to remember to do our diligence when anybody makes you an extraordinary claim," he said. "You need extraordinary evidence."

An offer to turn $5,000 into $120,000 should set off anyone's "spidey sense," and when that happens, the best thing to do is head online, according to Usher.

"You do a simple Google search, you'll immediately see what's going on. You see that people are being arrested for doing this," he said.

It also helps to take some time to talk to family or friends — or even your local barista — and get their read on the situation, Usher added. Anyone who hasn't been dazzled by the person running the scheme should be able to give a more skeptical read of the offer.

What's a gifting community?

The last few years have seen several arrests of people accused of running gifting communities, also known as "gifting circles," "clouds" or simply "people helping people."

Next month, two Maple Ridge, B.C., women accused of running a gifting circle are set to go to trial on charges of illegally running a lottery. Esther Ayshia Vandenbrink and Chrystal Lee Lyons were arrested by Coquitlam RCMP in 2017.

[All charges against Vandenbrink and Lyons were stayed on May 27 and 28, 2019.]

In these schemes, new members are asked to buy in with a "gift" of cash. They're told to recruit their friends to fill in the bottom rungs of the pyramid until they reach the top and receive a "birthday gift" or payout, worth many times the original payment.

It's hardly a new scam, as Usher pointed out.

"People keep doing it because it works," he said. "You would have thought these things would have died a natural death a long, long time ago."

Police say organizers of these scams often claim they've found some sort of legal loophole to the laws against pyramid schemes, or that the arrangement has been endorsed by law enforcement.

About the Author

Bethany Lindsay

Journalist

Bethany Lindsay has more than a decade of experience in B.C. journalism, with a focus on the courts, health and social justice issues. She has also reported on human rights and crimes against humanity in Cambodia. Questions or news tips? Get in touch at bethany.lindsay@cbc.ca or on Twitter through @bethanylindsay.

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