5 Arrested in Pyramid Scheme

A meeting of nearly 1,000 potential participants in what authorities consider a pyramid scheme was broken up Monday when 30 police officers walked into the Hollywood Palladium and began making arrests.

Two men and three women were booked on suspicion of operating an “endless chain,” a felony, said Det. Greg Schwien of LAPD’s Financial Crimes Division.

Dolores Squires, Floretta Love, Steven McKinney, Kevin Kim and an unidentified woman were believed to be organizers of a group called Families and Friends Social Club, which invited participants to make $2,000 cash “donations” and dangled the prospect that they could earn $12,300 in a few weeks if they recruited enough others to join.

Police expect to make three more arrests in the next few days, Schwien said.

The club, members of which appeared to be mostly middle-aged and elderly African Americans and Asian Americans, denies in its promotional literature that it solicits financial investments. But authorities said the operation of the club resembles the classic pyramid scheme, which is considered illegal because of its unending need for investors. The last to invest are the least likely to get their money back.

“This thing rears its ugly head every so often,” said Capt. Donald Floyd, commanding officer of the Financial Crimes Division.

In 1996, similar sounding pyramid schemes called “Friends Helping Friends” and “Friends Helping Friends and Family” in the San Fernando Valley were broken up when police made arrests. Floyd said Monday’s raid is believed to be the largest on a pyramid scheme in several years.

According to interviews with participants and organizers over the past few weeks, Families and Friends began in the Southland with just a handful of people last December. It grew to more than 1,000 people while holding meetings at a convention center in Buena Park from January to March, according to employees of the convention center. After meeting in Glendale, the group held meetings in Hollywood and at a hotel near Los Angeles International Airport. In a telephone interview last week, one of the main organizers, who was not among those arrested Monday, said membership now numbers in the thousands.

Organizers had gone to pains to make the club--composed of mini-societies hierarchically structured like pyramids--seem legitimate. Members who made $2,000 “donations” received organizational charts of their mini-societies with the names of everyone involved, certificates with identification numbers and pamphlets proclaiming that membership was based on “honesty, integrity and trust.” Several members said the “paper trail” gave them a sense of comfort.

Two hours before the raid, the club kicked off its meeting with a prayer led by a minister and a younger man in a gray suit, who introduced himself as a financial planner.

The man explained the “donations” were for charitable purposes and that members should have no expectations of getting anything in return.

But after police entered the Palladium and people poured out--irate, confused or despondent about what happened--it was clear that many had expected to profit from the venture.

Some early joiners did make money. But new members still “waiting to move up” couldn’t “cash out” before the bust, they said.

The police presence was “nothing but harassment,” said Bertha Jacobs. “It’s a shame that every time something good for people happens, [the government] tries to destroy it.”

Wilbert Green, a retired factory worker from South Los Angeles, said with a sigh: “Maybe it was too good to be true.” He had “donated” $2,000 and was one person away from being able to walk away with more than $10,000 in profit, he said. “Everybody took a risk,” he said. “That risk put me in bad shape.”