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VERIFY: 'Secret Sister' gift exchanges are illegal and not legit

The Better Business Bureau and other experts say gift exchanges like these are scams and considered illegal pyramid schemes.

WASHINGTON — QUESTION:

Are "Secret Sister" gift exchanges legitimate? 

ANSWER:

No. Authorities say gift exchanges like these are not legit and are considered illegal pyramid schemes.

SOURCES:

United States Postal Inspection Service

Better Business Bureau

Federal Trade Commission

U.S. Securities and Exchange Commission

PROCESS:
"Secret Sister” holiday gift exchange posts are once again circulating online. The post typically says, “I’m looking for 6 or more ladies interested in a holiday gift exchange. You have to buy one gift and you get 6-36 gifts in return.”

Kelsey Coleman, the Director of Communications for the Better Business Bureau in D.C., said the BBB is warning people that these types of gift exchanges are typically scams, and can turn dangerous. 

“When you share your personal information with who you think is just your friend, she may be sharing it with a much larger network of people that you don't know," Coleman said. "And you may never get a gift in return. Keep in mind that these kinds of gift exchanges are classified as pyramid schemes, and they're illegal."

Credit: WUSA9


“Secret Sister” gift exchanges have been on the U.S. Postal Inspection Service (USPIS) and the Federal Trade Commission’s (FTC) radar since at least 2015.

“These posts are just like any other chain letter that asks for money or items of value," The FTC said. "They’re against the law."

The consumer protection agency added that people should not send money or gifts to strangers, and should avoid reposting chain letters. 

When Verify researchers checked the Postal Inspection Service’s Facebook page and website, they say this type of deal is "a form of pyramid scheme.” 

USPIS said they typically violate the "Lottery Statute" of U.S. code laws because they contain all three elements of a lottery:

  1. Prize – or in this case a gift
  2. Chance – you’re relying on others to participate
  3. Consideration – the price to join in

The agency said while some at the top may get gifts, it’s "mathematically impossible to sustain.”

On its webpage, the U.S. Securities and Exchange Commission (SEC) explains in an infographic why “all pyramid schemes are destined to collapse.” 

Credit: U.S. SEC
This infographic shows how all pyramid schemes are destined to collapse.

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According to the SEC, here's how a typical pyramid scheme works: 

One person recruits six people. Each of those six participants must recruit six new people in order for everyone to get what was promised.

In this example, that would mean gifts.

At level six, the SEC says you’d need more than 46,000 participants for everyone to get six gifts.

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At the ninth level, you’d need more than 10 million participants. And at the eleventh level, the SEC says everyone in the United States would have to be participating in order for everyone to get what was promised, which is six gifts.

So, we can Verify that experts and authorities say gift exchanges like these are not legitimate and are considered illegal pyramid schemes.