Legal Definitions - gifting circle

A gifting circle (also known as a gifting club, sisterhood, or birthday club) is an illegal financial arrangement disguised as a social club or community support network. In this scheme, participants are encouraged to make a "gift" of money to an existing member, with the understanding that they will, in turn, receive "gifts" from new participants they recruit. This structure relies on a continuous influx of new members to pay off earlier ones, making it a form of pyramid or Ponzi scheme.

Organizers often present these arrangements as benevolent exchanges of gifts to evade income tax laws and other financial regulations. They may explicitly state that there is no guarantee of return, while implicitly promising significant payouts. However, gifting circles are unsustainable and illegal in many jurisdictions, as they inevitably collapse when new recruitment slows, leaving the vast majority of participants with significant financial losses.

Here are some examples of how a gifting circle might operate:

• The "Prosperity Sisterhood"
  A group of women is invited to join a "Prosperity Sisterhood" where they are asked to "gift" $5,000 to the woman currently at the "top" of their specific circle. They are told that by recruiting two new members, and those new members recruiting two more, they will eventually move up the circle's structure and receive $40,000 in "gifts" from subsequent recruits. The organizers emphasize that these are voluntary gifts among friends, not investments, to avoid legal scrutiny.

  This illustrates a gifting circle because it uses the facade of a "sisterhood" and "gifts" to mask a pyramid structure. New money ($5,000 from each new recruit) is used to pay off earlier participants, with the promise of a much larger return that depends entirely on continuous recruitment.

• The "Community Support Fund"
  Flyers appear in a local community promoting a "Community Support Fund" where residents can "contribute" $1,000 to a designated "community elder" who is currently in need. Participants are assured that once they bring in a certain number of new "contributors," they will eventually become the "elder" and receive multiple $1,000 contributions from future participants. The organizers stress that these are acts of charity and goodwill, not investments, and that no specific return is guaranteed, though everyone "usually" benefits.

  This example demonstrates a gifting circle by framing the payments as "contributions" to a "community elder" and downplaying any guarantee of return, while still operating on the core principle of new money funding earlier participants. The "community elder" position is simply the current beneficiary at the top of the scheme.

• The Online "Friendship Chain"
  An online social media group promotes a "Friendship Chain" where members "gift" $100 to the "friend of the week." Each member is then encouraged to invite their own friends to join the group and make similar "gifts," with the promise that their "week" will eventually come, and they will receive multiple $100 "gifts" from new members joining the chain. The group rules explicitly state that these are personal gifts and not a business venture.

  This scenario highlights a gifting circle operating in an online context. It uses the language of "friendship" and "gifts" to obscure the underlying pyramid structure, where the "friend of the week" is the current recipient, and future payouts depend entirely on the recruitment of new members to keep the chain going.