Chain letters are sweeping the West in what law enforcement officials call the biggest revival since the Great Depression. But, unlike the letters that have popped up in the past, offering a tidy return on a small initial investment, these new operations typically are asking investors to buy in at as much as $1,000 to reap $16,000 or more.
A chain letter works in a pyramid fashion: For example, one person receives a letter with a list of five names at the bottom. The letter explains that the recipient should send say, $5 to every person on the list, then copy the letter, deleting the top name and adding his or her own name at the bottom, and send it to five friends.
If all five respond to the letter, the recipient will recoup the $25 investment. In the next step of the pyramid, the mail theoretically will bring $125; at the next step $625, and so on.
But the new chain letters, in addition to asking a far higher initial investment, aren't going away when they are exposed. So some of the investors, apparently prompted by fears about the nation's economic problems, are petitioning in California to make them legal.
"It is unprecedented in my experience that such violation of the law is taking place on such a massive scale," says William Kershaw, head of the Sacramento County district attorney fraud division.
At one time in the past few weeks, as many as 50 chain letters were circulating in metropolitan Sacramento. And Sacramento is not unique, nor is California.
Lest Easterners think this is all just another gimmick from the land of the hot tub, the chain letters are popping up from Alaska to Ohio in a rush that is luring middle-class investors by the thousands.
In Boise, Idaho, attorney Rudy Barchas is defending six Boise residents in a suit brought to stop a pyramid letter operation called the Business List Concept. He says in the state of Washington, six persons recently were prosecuted for a $100 game that advertised a $204,800 return on a 12 persons pyramid.
In Oregon, the attorney general has filed seven cases against one chain letter that promises to cash in for $32,000. In Colorado, two individuals operating a scheme requiring an investment of $100 claimed investors would collect $240,800.
It is the middle-class investors that most worry law enforcement officers the most.
"They don't want to admit they're involved in anything illegal, and they don't want to admit they're wrong," said one agent for the California Department of Justice. "They think they can beat the system. Some can. Most can't."
The hottest of the current schemes is the Business List Concept. It has been known to resemble a combination hoedown and revival meeting that attracts caravans of cars to industrial district warehouses, out-of-the-way barns and other hideaways.
The gullible are asked to plunk down $500 to buy a letter from the person who recruited them. The letter contains a certain number of names, usually five or six. The "investors" asked to add their names at the bottom. Then investors put up another $500, which goes to the name at the top of his or her list.
A complicated selling game goes on as the letter repeatedly changes hands, with the investor's name moving up the list. His progress is mapped out on a chart that shows him ultimately collecting $16,000.
Recently, 3,000 persons turned up at a state capitol rally to back Business List Concept.
Housewives selling the letters have turned up on nighttime news shows, touting the schemes as a means of bringing people together and as the Christian thing to do. One caller said there is ample precedent for the scheme in the Bible.
Business List Concept backers say that they want to put together 450,000 signatures for an initiative measure on the November ballot to legalize chain schemes. Most officials believe the scheme will collapse before then.
According to Dr. Wallace Elkerbeck, a California State University mathematics professor, at the 16th cycle anyone who buys into the list is competing against 8,190 persons, each of whom is trying to find two more investors.
By the 18th cycle, 524,288 persons would be in the game, with those on the bottom line trying to recruit 262,144 more.
In Idaho, the idea is phrased another way. At every meeting of Business List Concept there, a large notice is posted stating that "for every $16,000 winner, 16 persons overall will lose their money."
By posting that sign, the chain's operators hope they can meet the state's consumer protection laws.