Moneylife Events
‘Beware of deception by pyramid schemes, MLMs trying to lure people with promise of high returns’

Sucheta Dalal, trustee of Moneylife Foundation, warns investors against companies who use deceptive marketing, play on misplaced beliefs, social and personal needs, to collect huge funds, and then disappear

"Any scheme that asks you to introduce two more investors to get extraordinary returns is avoidable," warned Sucheta Dalal, trustee of Moneylife Foundation.

Ms Dalal was speaking at a workshop on "Understanding Pyramid Schemes" today, organised by Moneylife Foundation, a non-profit organisation whose principal objective is financial literacy.

Citing the examples of popular pyramid schemes such as Citi Limouzine, which duped gullible investors on the promise of exceptional returns, Ms Dalal explained how these schemes even target professionals such as lawyers, policemen, doctors, to gain legitimacy. Their modus operandi is simple-target people, pay them returns, then see their friends and relatives start investing.

Citi Limouzine, in fact, managed to dupe around 6,000 policemen, 200 income-tax and 15 Reserve Bank of India officials, as well as about 300 officials from the Mantralaya state headquarters and the defence services.

One other such scheme named Pearls, which is based in Jaipur, claims to be in the business of real estate development and promises 40% returns. It has collected a whopping Rs25,000 crore. The company is hiring top lawyers and trying to turn its fraudulent business into a legitimate one.

Ms Dalal also explained how various schemes like Time Share, Ad Review, JapanLife Mattresses and the recently-closed Nano Excel, managed to dupe investors through dubious businesses.

Pointing to Speak Asia, the ponzi scheme that has been the focus of attention recently with promises of as high as 500% returns, Ms Dalal regretted that the government and the apex bank had not taken strict action so far, despite banks reporting suspicious financial transactions to the finance ministry.

Ms Dalal explained at length the difference between pyramid schemes and multi-level marketing. "MLMs claim to be less dangerous than pyramids," she said. "Still they attract lawsuits due to high start-up costs, tiered sales and exploitation of personal relationships and cult-like sales technique."

"Pyramids are pure fraud. Their business is unsustainable-they promise payment for goods or services of dubious value. The hallmark of these schemes is the promise of sky-high returns in a short period of time, for doing nothing other than simply handing over your money to them, and getting others to do the same," Ms Dalal said. She also explained the mathematics followed by pyramid schemes.

On the subject of MLMs , Ms Dalal referred to the statement by Robert L FitzPatrick, president of Pyramid Scheme Alert and co-author of the book, False Profits: Seeking Financial and Spiritual Deliverance in Multi-level Marketing and Pyramid Schemes, that "50%-70% of 'distributors' quit in the first year and less than 1% of distributors make money."

"The MLMs economic scorecard is characterised by massive failure rates (over 99.5%) and financial losses for millions of people," Ms Dalal said. She attributed this to deceptive marketing, misplaced beliefs and social and personal needs that are used as promotional tactics by MLMs. Unemployed youth and housewives are the biggest target group of MLM companies, she said.

She pointed out that the Direct Selling Association was lobbying with the US government, saying that they are not pyramids. In India, the Indian Direct Selling Association, which has members such as Amway, Oriflame, Modicare, has tried to create a distinction between pyramids and MLMs, and is also lobbying hard with the government to get them out of the Prize Chits & Money Circulation (Banning) Act.

Ms Dalal spent some time on direct selling companies which have been in existence since a long time. Typically, companies like Amway, Gold Quest, Herbalife use film stars and have political connections, and they tie up with NGOs to gain popularity and legitimacy.

She also dwelt on the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, which curbs such illegal activities. "The problem with this law," she said, "is that police refuse to lodge complaints until there is actual loss of money, which then is too late. And the companies pretend that it is not investment but sale of product/service to escape liability."

Several countries, including the US, the UK and Singapore, where Speak Asia is registered, have banned pyramid schemes.

Ms Dalal read from the Manipur legislation which said, "MLM schemes destroy the knitted social fabric of our society." Manipur government curbed all such MLM and pyramid scheme.She also explained various Supreme Court judgements relating to ponzi and pyramid schemes.

Concluding her presentation, Ms Dalal warned that, "Extraordinary returns are nothing but a sign of desperation, and hence, one should avoid such schemes."

Moneylife Foundation has demanded a ban on pyramid schemes and that MLM schemes should be brought under the regulation of the RBI or the Securities and Exchange Board of India (SEBI). "RBI would be the best regulator, since money is transferred through banks," Ms Dalal said. The Foundation has also demanded that The Prize Chits and Money Circulation Schemes (Banning) Act, must be administered by SEBI and complaints of new schemes must be lodged with this regulator before losses."

Replying to a participant who said she was convinced as an MLM product buyer and saw no harm in investing, Ms Dalal said, "A lot of people are convinced, but will start to complain only when the company vanishes. Commonly, we trust friends and family, who introduce us to the scheme, and this is what enables MLM companies to grow."

On another question about whether foreign exchange trading was based on MLMs or pyramids, Ms Dalal said, they were neither. "Forex trading is neither a pyramid or an MLM. It is pure speculation and betting on the share market. This is equally dangerous," she said.

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COMMENTS

sunny

6 years ago

The most non understood one in India . dont know anything .

zess

6 years ago

Hello Desperate soul(SAOL),

Why u all are wasting ur valuable time at here by posting crap? Go and filed a case against ML and other media who expose SAOL.Otherwise, ur comments itself proof that you all are internally broke down but externally showing solidarity with SAOL.Tum log garibo ki paisa lootne bali hai.if u dont bliv then contact me,how the poor people hard earn money waste in this fraud company.Your Tarak mehta said that they sponsor a seminar , training to its panelist but in reality its just tactics to divert the half of poor ppl money.No one has been given training by SAOL till date in North east.You ppl lure the poor by high return of their money and enroll them forcefully.(contact me if u don't bliv me,i il give u details how an illiterate person was became a panelist).Even ppl loan from other and invest it in SAOL, now they are in very pathetic condition after stopping of payments.Who is the responsible? You, SAOL or media?

REPLY

sunny

In Reply to zess 6 years ago

off course MEDIA!!!!!!

Pacifier

In Reply to zess 6 years ago

Definitely Media!

MSN Biju

In Reply to Pacifier 6 years ago

Karunanidhi attacked media for 2G scam!!

Raju Gautum

In Reply to MSN Biju 6 years ago

one day the Indian public will attack you people for playing with their financial lives!!
hahahahaha!!

govindan

6 years ago

Who is Desh-Drohi? MLM frauds or Anti- MLm crusaders?

Read Andhra Police Pres Note and judge yourself:

It is every duty of the citizen to educate the public, as such companies (MLM/NETWORK MARKETING etc., etc.,)not only destroy the economic fabric of our country but also the fiscal system of our nation. More damaging is that MLM schemes destroy the well knitted social fabric of our Indian society and make your house as well as your neighborhood a market.

govindan

6 years ago


Is money chain Ponzi shceme a new age knowledge? Ha Ha Ha Ha Ha Ha ha

Charles Ponzi (March 3, 1882 – January 18, 1949) was born in Italy and became known as a swindler for his money scheme.

Archetype

6 years ago

HEARTLESS, SPINELESS,BONELESS, narrow minded......shallow hearted people like u finds very tough to accept new age knowledge . . . .just becoz of ppl like you, our country is not getting what it deserves to get . . . . people like you should be hanged till death for such A DESH-DROHI BEHAVIOUR . . . . .IT'S MY GAURANTEE TO ALL YOU PEOPLE DEEPLY INVOLVED IN CORRUPTION THAT YOUR TIME IS UP . . . .AND YOU PEOPLE WILL SEE YOUR WORST TIME IN YOUR LIFE BEFORE SEPTEMBER 20TH 2011 . . . .YOU WILL PAY FOR YOUR EVIL KARMAS . . . THE POT OF YOUR BAD DEEDS WILL SOON EXPLODE . . .AND AT THAT TIME NO ONE WILL BE THERE TO SAVE YOU . . .NOT EVEN GOD . . . .NEVER MESS WITH THE NATURE YOU SOLD DEVIL . . . . GOVERNMENT SPONSORED CRIMINAL YOU ARE!!!

REPLY

govindan

In Reply to Archetype 6 years ago

lol :-) Ha Ha Ha

A

6 years ago

moneylife site is waste site.......it is a scrap.......it is useless.....

govindan

6 years ago


I have closely observed many people who are involved in MLM/ Networking/ chain business. I could find only two types of people who are doing such money chain businesses.

1. Frauds

2. Persons with below average intelligence.

Persons with below average intelligence are lured into theses type of business by frauds.

REPLY

Archetype

In Reply to govindan 6 years ago

HEARTLESS, SPINELESS,BONELESS, narrow minded......shallow hearted people like u finds very tough to accept new age knowledge . . . .just becoz of ppl like you, our country is not getting what it deserves to get . . . . people like you should be hanged till death for such A DESH-DROHI BEHAVIOUR . . . . .IT'S MY GAURANTEE TO ALL YOU PEOPLE DEEPLY INVOLVED IN CORRUPTION THAT YOUR TIME IS UP . . . .AND YOU PEOPLE WILL SEE YOUR WORST TIME IN YOUR LIFE BEFORE SEPTEMBER 20TH 2011 . . . .YOU WILL PAY FOR YOUR EVIL KARMAS . . . THE POT OF YOUR BAD DEEDS WILL SOON EXPLODE . . .AND AT THAT TIME NO ONE WILL BE THERE TO SAVE YOU . . .NOT EVEN GOD . . . .NEVER MESS WITH THE NATURE YOU SOLD DEVIL . . . . GOVERNMENT SPONSORED CRIMINAL YOU ARE!!!

kschang

In Reply to Archetype 6 years ago

Archetype of stupidity, no doubt!

govindan

In Reply to Archetype 6 years ago

lol :-) Ha Ha Ha

Investor

6 years ago

Shair market is also risky, plz stop this too. Even any type of business/investment is risk, guarrantee is nowhere, so what's the point to blame mlm only?? SpeakAsia to paise de he rahi thi, media ki objection ke baad payment stop huya, still compaany is fighting legal battle here, jo company bhaag chuki hain... unka aajtak kuch pata nahi... paise milna to bahut door raha..!!! SpeakAsia is coming wid products, narrow casting & more services like air/rail ticket booking. u know many websites r earning lakhs n crores thru advertisements... coz of their veiwership... but aaj tak viewer ke sath profit share nahi kiya.... speak asia is sharing profit with us....!!!! It's nt like malm or some pyramid schemes.... now income tax department started Rs. 50 per refferal.... just check it out.... Saol is a genuine company frnds.... agar 50 fraud hain to kya 1 genuine nahi ho sakti..???

REPLY

zess

In Reply to Investor 6 years ago

Share markets is risky too but they are registered company.Your speak asia is nor registered neither PE in india.Take a sip of champagne and think trice how ur company stop after revealing of their few modus operandi by media !!! If it is genuine then why payment stop?

Kishore N

6 years ago

Enforcement Directorate not aware !!

Yesterday Director of Enforcement Directorate, Mr. Mathur told a TV journalist that he was unaware of Money chain scam of Kerala. This statement really shocked me. Why his subordinate officers in Kerala did not inform him about this?. He further told the media that he would take action if such cases are bought to his notice. Why cant he take an immediate action against these money chain fraudsters. I request Money life team to make the Enforcement Director aware of what is happening right under his nose!!

ttttt

6 years ago

Speak Asia is giving Money Back Option.

What u have to say now Ms Sucheta Dalal.

Can u give employment to 21 lac people???

Plz shut ur mouth...people r more smarter than u.

REPLY

freak asian

In Reply to ttttt 6 years ago

survey company is not giving employment to anyone. yea, you are right you are smarter than late Mr. PONZI !!!!!!

vaibhav

In Reply to ttttt 6 years ago

i am happy to listen that if it is correct.the purpose of all this is doing favoure of people who join speakasia and save their money and u should understand that.be careful about what is meaning of moneyback according to speakasia.

abhi

In Reply to vaibhav 6 years ago

all bakwas

i am a speak asian. nothing is offered

freak asian

In Reply to abhi 6 years ago

Fraud to be Freak Asian!!

vaibhav

6 years ago

recently i heard that old panelists of wil not get their money,they can buy product or generate new id.whats that,at time of joining company dont tell this,and bcoz penalists have fear about their hard earned money,most of them feeling bound to buy products.what speakasia is doing?

Prashant

6 years ago

Let me educate you here . . . . speakAsia is not a pyramid scheme . . . .First try to absorb it's business model in your head then give your feedback . . .I hope you have brains enough to understand the business paradigm of SAOL. . . .if you find the business structure of speakasia too advanced to understand . . . then do onething . . . .get a time machine and deport yourself to Agrarian age!

REPLY

vaibhav

In Reply to Prashant 6 years ago

no company will say directly-we r working wid pyramid scheme.it wil try to hide.my question is-initialy speakasia said they have tie up wid some big companies and when those companies refused,they said we cant say names bcoz of agreement.then what speakasia initialy doing.

vishal

In Reply to vaibhav 6 years ago


It is true that Survey companies are money-chain companies. I support the argument that the promoters must be tried under 'The Prize Chits and Money Circulation Schemes[Banning] Act, 1978'

CoS recommends 51% FDI in multi-brand retail

The Committee of Secretaries, which met under the cabinet secretary Ajit Kumar Seth, also decided that the overseas mega retail chains will have to pump in at least half of their investment in the back-end supply chain

New Delhi: The Committee of Secretaries (CoS) on Friday recommended allowing 51% foreign direct investment (FDI) in the multi-brand retail, with a rider that the foreign investment should be at least $100 million, reports PTI.

"The Committee of Secretaries, which met under the cabinet secretary Ajit Kumar Seth, also decided that the overseas mega retail chains will have to pump in at least half of their investment in the back-end supply chain," a source said.

The politically sensitive issue will soon be taken to the Cabinet, the source added.

Several global retailers like Wal-Mart are waiting in the wings for a full-scale entry into India's multi-brand retail segment. India's retail sector estimated at about $590 billion, according to an Icrier report, is dominated by mom & pop stores.

India has already allowed FDI of up to 51% in the single brand retail and 100% in cash and carry format of the business.

"This probably the last meeting of CoS on the issue," the official added.

The CoS meeting, attended by 10 secretaries, deliberated on the issue for nearly three-hours. It is understood to have rejected a proposal that stores with FDI should be asked to sell at least 30% of their goods to small retailers.

A few secretaries favoured opening the sector for FDI up to 49% only, while the majority favoured 51%.

The CoS recommendations came after about a year of the Department of Industrial Policy and Promotion (DIPP) floating the idea of opening the sector for FDI.

While the CoS has given its recommendations, the Union Cabinet would have to vet it before FDI could be allowed into the sector.

"This was probably the last meeting of CoS on the issue.

Now it will go to the Cabinet," sources added. The DIPP would move the Cabinet note.

India has already allowed 51% FDI in single-brand retail and 100% in wholesale cash-and-carry format of the business.

Since large stores require huge space and if the same is not available, the CoS opined that the retailer should be allowed to open shop even within 10km radius of cities with population of over one million.

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Headed higher: Weekly Market Report

Nifty likely to rise to 5,700 and beyond

The market closed the week with gains, mainly on some good corporate earnings and on the resolution of the debt problem in Greece, after European leaders approved a second bailout package for the debt-stricken country on Thursday. The market closed the week with a gain of 1%.

Debt problems on both sides of the Atlantic pulled the market lower on Monday. But the global debt issues did not deter investors from pumping in funds into Indian stocks, leading to a higher close on Tuesday. Comments from finance minister Pranab Mukherjee that inflation would remain high till December and weak results from IT major Wipro led to a sharp fall on Wednesday.

Concerns that the Reserve Bank of India (RBI) may hike rates again at its policy review meeting next week and a mixed bag of corporate results, kept the indices in the red for a second consecutive day on Thursday. But the market bounced back on Friday, recovering from the losses of the previous two days.

Overall, the Sensex gained 160 points to close the week at 18,722, and the Nifty finished 53 points higher at 5,634. The market is set on a northward journey with the Nifty likely to go up to 5,700.

In the sectoral space, BSE TECk and BSE Fast Moving Consumer Goods gained 2% each, while BSE Consumer Durables and BSE Healthcare both declined 2%.

The top gainers on the Sensex were Bharti Airtel (up 5%), Infosys, Sterlite Industries, DLF and Tata Power (up 3% each). The losers were led by Tata Motors (down 4%), NTPC (down 3%), Wipro, Reliance Communications and Jaiprakash Associates (down 2% each).

The best performers on the Nifty were Bharti Airtel, GAIL India (up 5% each), Sterlite Industries, Infosys (up 4% each) and Cairn India (up 3%). The main losers were NTPC (down 4%), Tata Motors (down 3%), RCom, Wipro and Dr Reddy's Laboratories (down 2% each).

Food inflation for the week ended 9th July fell to a three-week low of 7.58% on the back of cheaper pulses. Inflation was at 8.31% in the previous week and a high 19.52% in the corresponding week of July 2010. Encouraged by moderation in food inflation, finance minister Pranab Mukherjee expressed the hope that the price situation would improve in the days ahead. Mr Mukherjee said that while the domestic situation on the price front was improving, concerns remain over international issues.

On account of a likely moderation in industrial output, the government has lowered its GDP growth projection for 2011-12 to 8.6%, from the earlier 9%. The finance ministry said there is a slowdown in corporate investment and profits have been affected due to cost escalation of inputs.

While annual indicators of real GDP growth remained positive in 2010-11, there was a 'perceptible slowdown' in terms of quarterly growth rates in the last two quarters. The economy grew by just 8.3% in the third quarter last fiscal and 7.8% in the January-March period, the lowest in five quarters. The economy is estimated to have expanded by 8.5% in the last fiscal.

Among major companies that declared their results during the week, Cadila Healthcare, HDFC Bank, Dr Reddy's, Hero Honda, Indiabulls Financial Services and Axis Bank beat market expectations. On the other hand, Ashok Leyland, Crompton Greaves, Exide Industries, Wipro, Biocon, Zee Entertainment and Jet Airways fell short of expectations.

In corporate news, the Cabinet Committee on Economic Affairs (CCEA) on Friday cleared BP Plc's purchase of a 30% stake in most of Reliance Industries' (RIL) oil and gas blocks, including the showpiece KG-D6 gas fields. The CCEA approved the stake sale for only 21 blocks, as the exploration status in the two remaining blocks is in dispute.

RIL had on 21st February agreed to sell a 30% stake in 23 out of its 29 oil & gas blocks to UK's BP Plc for $7.2 billion, and it may get an additional $1.8 billion if the two explorers find more hydrocarbons.

On the international front, European leaders on Thursday clinched a new rescue plan for Greece involving a 109 billion euro deal, while the European Financial Stability Facility (the Eurozone's bailout fund) will provide loans to Greece at a lower interest rate and for longer maturities.

However, in the US, the government's plan to avoid a debt default hit a roadblock as House Speaker John Boehner broke off negotiations on a broader deal to cut the federal deficit. With the 2nd August deadline to raise the debt ceiling approaching, president Obama has summoned Republican and Democratic congressional leaders for a new round of talks.

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