Chain-money schemes like Saradha, QNet and Speak Asia are flourishing in our country. Countless money has been lost in this manner. Almost every other month we get to know of a big scam in one state or another, where thousands of crores have been collected from investors, who have been promised high returns, sometimes of more than 100%, in a relatively short period of time. Sucheta Dalal, managing editor, Moneylife magazine, said, “In 2010, for example, a pyramid scheme called City Limousine found investors from even within the RBI and Income Tax office. According to numbers in a Times of India story, 15 RBI officials, 200 I-T officers and no less than 6,000 police officers invested in this dubious scheme.” She was speaking at a seminar organised by Moneylife Foundation in Mumbai on Friday.
These kinds of reports are becoming more repetitive in recent days. Multilevel marketing (MLM) and chain money scams have rocked the entire country for a considerable time. Ms Dalal talked in detail about how the different multi-level marketing scams have siphoned off money from the country and the helplessness of the police to fight with those having political clout.
She started the seminar by differentiating between regulated and non -regulated investment schemes. Most of the MLMs, pyramid and Ponzi schemes are run under pretext of chit fund, which do not fall under the SEBI regulation. This keeps these dubious schemes run galore with an unbelievable number of clients resulting in eventual scams.
According to Ms Dalal, pyramid schemes are the most vicious of all the schemes. The saddest part is the fact that the ones sitting at the top end do not bear the brunt of the losses. It is the ones at the bottom half who suffer. She explained to the audience that multi level marketing works on two levels, one with products and the other without products. Companies like Rose Valley in West Bengal had come up with glitzy terms like Redeemable Reference Bonds, Secured Debentures to lure the customers into such schemes.
Ms Dalal says that the political connections of these dubious companies allow them to flourish. She said, “A lot of promises are made immediately after the scam is exposed, but nothing happens. At a previous seminar we’ve had officers from the Serious Fraud Investigation Office tell us that they would like to take action but the government opposes this. The only way to ensure you are safe is by focusing on what is being sold to you. Keep in mind that if something is too good to be true, it probably is.”
There are a number of variants of pyramid schemes, but Ms Dalal said that, in her opinion, the binary scheme is the most dangerous. She said, “Any scheme that requires you to draw in a couple of other people is always a scam. It doesn’t matter if there’s a product involved. The only reason there is a product involved is so that it doesn’t become a money circulation scheme.”
On the issue of steps taken by the government, she discussed at length the steps taken by various states to tackle the issue. She said, “In India there are loads of legislation but very few actions.” Direct selling companies like Amway, Tupperware attract the housewives first since they are the most gullible. In such cases, acts like Prize Chits and Money Circulation Acts(banning), 1978, Drug and Magic Remedies Act ,1954 are never properly implemented to protect the interest of the investors.
The seminar ended with a Q and A session where several investors shared their experiences, and came up with ideas to create a forum, which can redress the complaints of the investors, who were cheated.