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Attorney General Warns Alaskans That PIPS Is An Illegal Ponzi Scheme


April 27, 2005

Alaska Attorney General David Márquez issued a consumer alert Wednesday warning Alaskans against investing in an illegal Ponzi scheme that has surfaced in Alaska, called the People In Profit System (PIPS).

PIPS has been reported in Ketchikan, the Matanuska Valley, and may be in other parts of the state according to the Attorney General. Under this scheme investors are asked to 'loan' $450 to the company. From this payment, $25 is kept as an account set-up fee, with the remaining $425 characterized as a 'loan' to the company for 180 days. PIPS agrees to repay the investor with interest under a schedule depending on the type of plan the investor chooses. The interest payments on the loan can be as high as 5000%, with a $450 loan returning about $8,800 in 24 months.

"Everyone should be aware of these Ponzi schemes because they are essentially investment fraud," said Márquez. "If it sounds too good to be true, it usually is."

According to information provided by the Attorney General's office, because of their deceptive nature Ponzi schemes violate the Alaska's consumer protection act. If a scheme appears to constitute a fraudulent securities offering it will be reviewed as a possible violation of Alaska's banking and security laws. In that case the state Division of Commerce, Community and Economic Development's Division of Banking Securities and Corporations could issue a cease and desist order, according to the Alaska Attorney General's office.

In a typical Ponzi scheme, the operator promises high financial returns or dividends that are not available through traditional investments. Instead of investing victims' funds, the operator pays dividends to initial investors using the principle amounts 'invested' by subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds, or when a sufficient number of new investors cannot be found to allow the continued payment of dividends.

Initial investors who paid into the PIPS system may in fact receive high returns. This is not an indication that the investment is legitimate. Ponzi schemes rely on the "success" of early investors in hopes that these people will advertise the scheme to others so the base of new investors will grow. Sooner or later, the scheme must fail because it is statistically impossible to continue the scheme.

So far, there have been no arrests in the scheme. But the Attorney General's office says that all Ponzi schemes are illegal and anyone who knowingly participates can be charged with a crime.

If you have any information on PIPS, contact Assistant Attorney General Ed Sniffen with the Department of Law's consumer protection section at (907) 269-5200.


On the Web:

Additional background information about Ponzi schemes is also available online at the State of Alaska, Division of Commerce, Community and Economic Development securities section "Schemes and Scams".

Source of News:

Alaska Attorney General's Office
Web Site


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