Sucheta Dalal :Multi-level marketing: Seeking legitimacy
Sucheta Dalal

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Multi-level marketing: Seeking legitimacy  

August 31, 2011

MLMs are lobbying to amend the law which lumps them along with dubious pyramid schemes

Sucheta Dalal

The Securities and Exchange Board of India (SEBI) has released a discussion paper on its plans to regulate private fund pools to reduce fraud and market risk. While some private equity (PE) fund managers expressed surprise at this move, we are told a few top PE funds support the plan because registration and regulation, they believe, will give them an identity that is separate from speculators, such as hedge funds, who also take the Mauritius route to India.
Meanwhile, we learn that multi-level marketing schemes (MLMs) and others with powerful political friends are also lobbying for greater legitimacy. They have stepped up pressure to amend the Prize Chits and Money Circulation Schemes (Banning) Act of 1978 which lumps MLMs along with dubious pyramid marketing schemes making them illegal in India. The rest of the world makes a distinction and bans pyramid schemes, even when they pretend to sell a product/service.

Along with dubious Ponzi schemes, beleaguered collective schemes are also seeking legitimacy. For instance, Osian’s Art Fund, which is unable to repay investors, is seeking to place its assets under a trusteeship company. So does the Jaipur-based PACL India Ltd (or Pearls) which has collected a massive Rs20,000 crore on the pretext of investing in land and expanding its network through MLM. PACL has appointed a top Supreme Court lawyer and is shopping for a trustee company to legitimise its claimed land holdings on the Indo-Pak border.

Even controversial Speak Asia was desperately trying to register a presence in India and diversify from shady surveys into real products to re-position itself as a direct selling company. It probably hoped to follow the politically-connected GoldQuest, (reborn as Q-Net) selling a bunch of products, including watches and holiday packages, with investments ranging from Rs30,000 to Rs7 lakh. There are over 10,000 (police estimates) quick-money schemes operating in every state and digging a hole into the savings of people by luring them with false promises. Unfortunately, no regulator wants to touch these ‘private fund pools’

-- Sucheta Dalal