Pyramid scheme under new name took hold here 25 years ago

By FRANK BOYETT, Gleaner staff
May 8, 2005

The Circle of Gold was on a roll 25 years ago.

The circle was in essence a chain-letter scheme, in that its success depended on a continuing supply of fresh investors. It had apparently had gotten its start in California in the mid-1970s and by the spring of 1980 was coming on strong in western Kentucky.

But that was before L.B. "Gip" Lawton, former city attorney, wrote a letter to the editor of The Gleaner in early May of 1980, in which he let the air out of the circle and set off a storm of controversy:

"I have been deluged with calls about the 'Circle of Gold.' I believe that a technical violation of the law exists in this enterprise, but more importantly, I am convinced that it is a rip-off and that only a select few will make any money out of it.

"It is the old pyramid scheme such as we used to have in the chain letters, which were declared illegal because of the U.S. Mail" postal regulations.

The Circle of Gold attempted to circumvent postal regulations by scrupulously avoiding promoting or even mentioning the scheme through the mail. Instead, promoters held meetings in which they sold the idea.

At the meetings investors were urged to pay $50 for a list with 12 names on it. When you bought the list, you were required to also send $50 to the person at the top of the list. A new list was then drawn up with the top name dropped and the new investor's name added at the bottom. The new member was then given two copies of the list to sell for $50 each, thus theoretically recouping the initial investment.

After selling those two lists, the investor simply waited for his or her name to rise to the top -- and for the money to start rolling in. Proponents claimed they could receive more than $200,000 from a $100 investment. For people who had been laid off during the recession, it seemed tailor-made for the little guy.

Lawton said that was horse-pucky. "For every single person who makes a dollar, there is someone who loses a dollar," Lawton wrote. "This is inevitable. This is a new name for an old scheme and 10 years from now the same scheme will arise under a new name."

Lawton's letter prompted a flurry of responses from local supporters of the Circle of Gold.

"If everyone in the United States got on Circle of Gold there would be no depression or welfare, either one," wrote Mary E. Blandford.

"I'm pushing the Circle of Gold and I'll continue pushing it until it can be stated for a FACT where it is against the law in Kentucky," wrote Steve Book.

The most visible local promoter of Circle of Gold was John Lutz of Sebree. In mid-May of 1980 Lutz and other proponents met with Attorney General Steve Beshear. They came away from the meeting claiming Beshear had concluded it was legal. But Assistant Attorney General Richard Masters said that was far from the case.

"On the contrary, they are still breaking the law," he told The Gleaner, "and the way they represent it bothers me as much as the Circle itself."

Lutz, however, said Beshear was courting a political backlash. "There are close to 200,000 people in Kentucky who are members of the Circle of Gold," he said, "and that's a large voting bloc."

In mid-June Lutz held a rally on Sunset Lane -- after the city of Henderson had withdrawn permission to use the Teen Center in Atkinson Park. At that point, Lutz said he had made more than $13,000 through the Circle of Gold. He urged members to disregard the allegations of illegality, and vowed to stay the course.

"The Circle of Gold will continue whether or not I'm in it," he said.

But the circle had pretty much run out of steam by July 1980 -- and Lawton was largely blamed by proponents -- and the following month it was officially declared dead in Kentucky.

Lutz and another Sebree man, Donald Rutledge, signed an agreement with the attorney general's office in August in which they agreed to stop promoting the controversial investment scheme. In return the state agreed not to prosecute them, Masters said in a brief statement.

"They've also agreed to cease and desist from misrepresenting that the Circle of Gold is legal or that it has been approved by the office of attorney general or any other law enforcement agency," Masters said.