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Pyramid scheme launches climb to highest in 5 years

Pyramid scheme launches climb to highest in 5 years


More than 400 new multi-level-marketing pyramid schemes were launched in India in 2023, the highest in five years, according to Strategy India, a policy, compliance and direct-selling consultancy that's an associate member of the Indian Direct Selling Association (IDSA).



Among the names on its scam alert list are entities such as Mission Green India, Jivan Daan, Dhan Vriddhi and Capcha Pay. Over 4,000 such schemes are said to be on currently, according to Strategy India. Tracking down the entities listed was difficult as they don't appear to have functional websites or contact addresses where they can be reached.



Operators of such schemes, based on money-circulation networks, pay existing investors with funds collected from new ones instead of doing so from profits. Many remain unchecked by taking advantage of loopholes in existing consumer protection laws. Such entities lure investors by offering unusually high rates of return within short time spans, seeking to recruit from low-income groups. But when new investments stop flowing in, the promoters fold up the venture and vanish with the money. 

"To prevent Ponzi and multi-level marketing (MLM) money circulation schemes, the Consumer Protection (Direct Selling) Rules should be revised to remove ambiguity and loopholes," said Pranjal Daniel, chief strategist at Strategy India. "A central committee needs to evaluate and monitor all MLM operations, which is vital to curb complex money circulation schemes with claims to increase investors' wealth through investments in forex trading, cryptocurrencies and NFTs (non-fungible tokens)."







The Ministry of Consumer Affairs had modified the Consumer Protection (Direct Selling) Rules, 2021, through a notification issued on June 21 this year to distinguish between such fraudulent pyramid and money-circulation schemes and legitimate, direct-selling multi-level marketing players. But executives said further clarity is needed in the definition of a network of sellers. Among the changes, the ministry clarified that the description of "through a network of sellers" be substituted with "directly selling through a network of sellers."



Vivek Katoch, chairman of IDSA, which represents Amway, Oriflame Tupperware, Avon and Herbalife, told ET, "The Consumer Protection Act needs further clarity, to differentiate between direct selling companies operating with multi-level marketing models, and fraudulent multi-level marketing schemes which operate with the intent of defrauding people from what is commonly referred to as pyramid or Ponzi schemes."



Legitimate companies offering a variety of products such as daily essentials, vacuum cleaners, cosmetics, air purifiers and storage containers, market their wares to consumers through their direct-seller members and not through retailers.

 



Source:The Economic Times




 


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