Conmen who set up pyramid "gifting" schemes could be sentenced to up to six months in jail or be heavily fined under a government Bill to be published this week.
Tessa Jowell, the Secretary of State for Culture, Media and Sport - whose department has responsibility for trading standards - will move to outlaw the practice, which is estimated to have duped more than one million people, many of them women, into parting with their money. Confidence tricksters are circumventing existing legislation against pyramid selling by describing their activities as "gifting".
One of the American-style schemes invited women to "give" £3,000 with the promise of a payout of £24,000 if they could persuade more of their friends to sign up. In the overwhelming majority of cases, the money never materialises.
Under the plan, women buy one of eight "hearts" on the bottom level of a pyramid. As new "gifters" join, original members move up the pyramid until they get the top payout.
In a typical pyramid scheme, the conman takes a hefty cut of each new joining fee. The scheme collapses when, inevitably, the number of new investors dries up, leaving thousands at the lower rung of the ladder out of pocket.
The television presenter Cilla Black pulled out of promotions for a "hearts" scheme that promised quick riches in return for an initial "gift" when she realised its nature.
Another scheme, called Women Empowering Women, saw some of its members facing the anger of their recruits who were upset at losing their money. Many victims borrowed from loan sharks to fund their initial outlay and faced high interest, legal action or even violence when their jackpots failed to materialise.
A scheme based in the Isle of Wight lured in more than 500,000 investors before crashing. Helen Liddell, Scottish Secretary until last week, described it as a "cruel con" after it claimed victims in Glasgow.
Not everyone has lost on the schemes, though, and among the minority who emerged winners was Lady Anson, a cousin of the Queen.
Lady Anson, 62, revealed earlier this year that she made £48,000 from a pyramid scheme called Circles after persuading her well-heeled society friends to part with their money. She and her friends are among a new breed of well-connected women being seduced by the schemes, which have traditionally been directed at hard-up housewives trying to escape the poverty trap.
the richer members of Circles, many of whom spend much of their spare time trying to recruit new members, meet regularly in some of London's top restaurants.
Trading standards officials estimate that about £3bn has changed hands through pyramid selling schemes in the past two years.
"These schemes are an absolute menace," Ms Jowell said yesterday. "The new laws will do more to truly empower women than these pyramid cons have ever done."Reuse content