Pyramid scheme
Does this story remind you of anything?
BOGOTA, Colombia – It was just three easy steps to the ultimate shopper's club reward:
1. Buy a prepaid card.
2. Cash it in for groceries, a flat-screen TV or a even new car.
3. Six months later, get all your cash back.
That fantastic deal enriched legions of working-class Colombians before President Alvaro Uribe shut down DMG Group Holdings, S.A. last week, calling it a pyramid scheme that laundered drug money and raked in $435 million this year alone.
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At first glance, DMG stores worked much like any other discount shopper's club. Members would buy a prepaid card for any amount after providing the names and phone numbers of three friends who might want to join.
But along with their blue debit card they recieved a matching black card, set to be activated in six months. That one held "points" as a reward for spreading the word about DMG.
The value of the points varied from day to day — anywhere from 70 percent to 300 percent of the initial investment. They could be redeemed to purchase goods at DMG stores, or simply be cashed in. Many customers took the money and immediately spent it on a new card.
"If you want to buy a motorcycle, you would just buy the motorcycle with your DMG card, and then they'd give you back the same amount of money six months later," explained DMG customer Angel Salamanca. "It's a free motorcycle."
At first, Salamanca used his card to buy beef, tomatoes, and onions for his hamburger stand. But he quickly developed a side business selling the plasma TVs he was getting from DMG for free.
As the profits grew, so did his ambitions. He sold the vacant lot on which he had planned to build a small restaurant, using the 6 million pesos in proceeds to buy more DMG cards.
Salamanca managed a wry chuckle as he pulled the cards from his pocket, his dream of becoming a restaurateur now reduced to worthless plastic.
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Some grudgingly admit they had qualms about an offer too good to resist — and ultimately too good to be true.
"I always thought that there was something dark about it all," said Bogota hairdresser Cristina Hinestrosa, 36, who doubled her original DMG investment of 5 million pesos ($2,100) in just 11 months before quiting this year on a hunch.
"You're conscious that something so good can't exist, or can't last," she said. "But since you're not involved in the deal directly, the important thing is to get a profit."