Beware of pyramid schemes, 60 firms under EOW scanner
Mateen Hafeez, TNN | May 29, 2013, 12.51 AM IST

Sumber: Times of India.

The economic offences wing (EOW) of the police is planning to file a chargesheet against tainted firm SpeakAsia in connection with Maharashtra's biggest-ever multilevel marketing (MLM) scam. The move comes in the wake of the Saradha Group chit fund scam and the arrest on Monday of the CMD of the India branch of a direct-selling MNC. These developments have once again put MLM firms and their modus operandi in the spotlight. In Mumbai, at present 60 MLM firms are under the EOW's scanner for collectively duping investors of Rs3,000 crore.

An MLM firm works by promising huge returns on small investments: many of the 60 firms promised returns of up to 500%. Typically, an MLM firm floats a money-generating scheme and asks people to invest in it. These initial, or first-level, investors are repaid the original sum and given the promised returns from the money collected from the next batch of investors. The process is repeated as the levels increase. Initial investors are typically roped in to lure more people into the scheme by advertising the cheques they received from the firm. Once the firm collects a targeted amount, it shuts shop, the owners typically fleeing with the money of later-level investors.

Experts say the MLM menace will get worse in times to come. "More than 200 people in the country are involved in instigating businessmen to start pyramid schemes while operating from the background. Their number is increasing steadily," said Daniel R Pranjal, chief strategist, Strategy India. "Nowadays, such companies do not register in India or anywhere for that matter. They accept payments through routes not involving banks-online money transfer, etc. Moreover, they do not disclose their business plan properly."

Pranjal said promoters of fraudulent MLM firms do not declare the sums they collect, and open two or three companies at the same time, with each company having at least two websites. "One keeps operating if the other comes under scrutiny."

Investors in pyramid schemes come from a varied background, an EOW officer said. "Airline staff, nurses, policemen, journalists, doctors, engineers, auto drivers, film industry strugglers... you name it. Some of their stories are really, really tragic. A woman whose husband was employed in a firm abroad invested Rs40 lakh in an MLM scheme without her husband's knowledge. The company was shut and the promoters fled. When the victim's husband came to know about it, he threatened to divorce her if she did not get the money back. One should spare a thought for the man as well. It was hard-earned money... the result of 10 years' labour."

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