12 October 2011

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Multilevel Marketing Schemes – Need to Bring Regulator, Separate Agency to stop MLM Direct Marketing Scams

Multilevel Marketing Schemes – Need to Bring Regulator, Separate Agency to stop MLM Direct Marketing Scams

In India, money circulation schemes are banned under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. Section 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 defines a money circulation scheme as, any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions.

The Act is a central legislation and the States have been empowered to govern it. The Act bestows on Police the power to
search any premises that may be suspected to be used to promote or conduct any money circulation schemes.

Regarding this law our Indian Police also needs training how to detect the bad illegal MLM schemes.

Regarding MLM in India problem is that law is not clear which scheme is legal and which scheme is illegal is very difficult.

In India one state may say xyz scheme is illegal and another state may say that the same scheme is legal.

Thus India needs a regulator or a separate agency which will only monitor and control the marketing companies unless and until India brings a regulator or a monitoring agency the scams will keep happening.

First multi-level marketing plan was introduced in 1945 by the California Vitamin Company (Nutrilite).
The plan allowed Nutrilite distributors with at least 25 regular customers to recruit new distributors and draw a 3 percent commission from their sales.
Unlike traditional direct selling, this was an ongoing payment whenever the customer re-ordered; allowing direct sellers to build a sales organization that could generate a residual-like income.

The United States Federal Trade Commission FTC issued a decision,
In re Amway Corp., in 1979 in which it indicated that multi-level marketing was not illegal per se in the United States. However, Amway was found guilty of price fixing (by effectively requiring "independent" distributors to sell at the same fixed price) and making exaggerated income claims.

What is Multilevel Marketing Scheme?

Multilevel Marketing is a method in which person earns profits for selling as well as the person earns money from the sells done by others.

In other words network marketing is a system in which a person sells goods or services and the system promises that once you join the network that particular scheme and become a member you will get commissions not only from the sales you make but also from the sales of the people you recruit and who join the scheme because of you and thus more the persons under you the more commissions you earn without doing anything.

In these schemes actually what happens is that no body does the sells everyone just goes and makes new and new members thinking that he will do the sales and I will earn money doing nothing.

But once the process of getting new members stops the scheme also stops.
The last batch who joined the MLM scheme suffers as no one pays them money.

In MLM scheme salary is not paid everyone becomes Manager earns commissions.

Such type of schemes are known as
1. MLM
2. network marketing
3. pyramid selling
4. referral marketing
5. affiliate marketing
6. home-based business franchising

What is Ponzi scheme?
Ponzi scheme is a scheme in which investor gets paid in by later investors rather than from net revenues generated by any real business.
According to FTC there is an expression that nicely summarizes this scheme, its called stealing from peter to pay Paul.

Legal MLM scheme is not Ponzi scheme but you may get cheated.
You may join Ponzi scheme thinking that you are joining a legal MLM scheme.
In Legal MLM scheme it has real product and real business.
Ponzi scheme has no real business.

In the case of RMP Infotech Private Ltd. v. Apple FMCG Marketing Private Ltd.
A Division Bench of Madras High Court opined that MLM schemes cannot be
declared outright illegal, unless the scheme in question has elements that render
it illegal.
Which elements that render a particular scheme illegal regarding this the Supreme
Court in the case of State of West Bengal v. Swapan Kumar evolved a two-pronged test that finds basis in Section 2(c) of the Act.
To hold a particular scheme illegal in law,
(a) it must be proved that the scheme is for making quick and easy money
(b) the chance or opportunity of making quick and easy money depends upon the enrolment of members into the scheme.

In India another problem is Police just keep watching and they take only action when someone goes and complaints about the scheme and how he got cheated.

In reality it’s very easy to find the Ponzi scheme in which the principal of USKI TOPI ISKE SAR PAR .

Thus India needs to clearly legalize the direct and MLM marketing scheme and agency which will monitor and control the MLM companies and which will maintain the database of such companies.

MLM examples - Speak Asia , Japan Life etc

Reality views by sm –
Wednesday, October 12, 2011

Tags- MLM Direct Marketing Speak Asia Fraud Scam


Anonymous,  October 15, 2011  

Yes I agree we need more regulations, but foremost citizens need to understand that there is no free lunch and hence no easy money. It is the greed of making fast bucks that puts them in a fix. All this MLM and ponzi scheme do not produce any thing hence cannot make any wealth or assets. The most imp issue is educating the investor that there is no easy money or more returns on investment then what RBI directs and the nationalized banks provide.

Anonymous,  October 15, 2011  

where Greedy arrives Fraudsters stay.

Kirtivasan Ganesan October 15, 2011  

AKS, namaskar.
You have raised such an important point. Investing money if has the potential to grow, then it has the potential to fall too. And some of the MLM and ponzi schemes may give you money and there is a chance that you land up in jail too.

sm October 15, 2011