Almost every day, get-rich-quick, pyramid, multi-level marketing and Ponzi schemes try to dazzle the gullible to loot their hard-earned money. Ms Sucheta Dalal, Founder-Trustee, Moneylife Foundation, conducted a seminar to warn people to stay away from such fraudulent proposals

“Individual lawsuits are being registered and action is being taken against multi-level marketing schemes, but there are thousands of them which are still running,” said Ms Sucheta Dalal, managing editor, Moneylife magazine. She was speaking at a seminar organised by Moneylife Foundation.

Ms Dalal said that states like Kerala, Andhra Pradesh and Tamil Nadu have been active against fraudulent pyramid and MLM schemes, but police estimate that each state has more than thousand schemes going on. According to Andhra police, there are 10,000 schemes running there. Despite legal action and some court rulings, these schemes proliferate because the regulators are silent.

“Most countries like USA, UK, Singapore and The Netherlands have banned such schemes. India has the Prize Chits and Money Circulation (Banning) Act, 1978, which is the toughest law on paper, but since many influential people are associated with these MLM schemes, they get away with cheating people,” she said.

The 1978 Act is a Central legislation but is administered by states. However, in most cases, policemen and regulators are ensnared by the Ponzi schemes and hence, no action is taken. Moreover, very few complaints are registered until money is lost by investors, and by that time, it is usually too late.

Many MLM companies however, have a more complex model and offer a tangible product~ like Amway, Tupperware and Oriflame. Such companies usually have a global presence and persist for a long time. But apart from the top layer, none of the other investors make money.

Member of the audience talked about numismatic coin schemes and Gold Quest, an MLM scheme~ which promised high returns in gold or precious coins and took investors for a ride. “No coin is precious if it is not rare. If such coins are churned out by a factory and don’t have a market like for genuine collectibles, it is surely a fraudulent product”, Ms Dalal said.

Even though there have been lawsuits, most investors don’t get their money back. It is better to stay away from these schemes altogether~ rather than invest and repent, she said.

Even some insurance companies have started to sell their products through a multi-level-marketing (MLM) model, said Ms Dalal. She gave the example of National Insurance Company, which is a government undertaking. “The selling technique for some products look like MLM, but the company denies it,” she said.