Sucheta Dalal :Money Chain
Sucheta Dalal

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Money Chain  

August 26, 2009


In our previous issue, we wrote about how a dubious deposit scheme has been proliferating rapidly in Orissa, Chhattisgarh and other states, offering incredible returns on what are ostensibly deposit schemes. Investigators say that over Rs1,000 crore has been collected through such deposits, but the collection could be significantly higher. While deposits are collected in a large number of accounts, the funds are rapidly transferred to some core accounts and quickly moved out of these states to a few large accounts in other states.

The Orissa police, which has zealously led the investigation so far, has already frozen Rs115 crore of deposits across the country, but the scam seems set to acquire a more sinister dimension. Investigators from the police and the Intelligence Bureau now believe that the amount involved may already be a multiple of Rs1,000 crore. It has also discovered that big chunks of the money have been remitted to Sharjah, Singapore and Bangladesh, although some of it is claimed to be used for financing films and making products such as chanderi saris. The singular absence of complaints from depositors, despite agents’ accounts being frozen, is seen as a worrisome issue and there are indications of cash pa yments being made to suppress complaints.


 As we said earlier, the deposit scam is utterly simple in its operation. It offers a whopping return of Rs1,000 per month on a deposit of Rs10,000, with the promise of getting the principal amount back in a year. The scheme requires each depositor to introduce two other depositors to maximise the returns. What business can afford such high returns? Is it legitimate? The fact that ‘agents’ canvassing for such deposits attempt to lend false legitimacy to their operation by claiming private banks such as ICICI Bank, State Bank of India and Axis Bank as their ‘channel partners’ answers the question.


Interestingly, all banks were happy to receive large deposits running into crores of rupees from tiny cities in economically backward states such as Orissa. Each of them had issued anywhere between 25,000 cheque leaves to 100,000 cheque leaves, to those collecting the dubious deposits. They, in turn, issued post-dated cheques to depositors to enhance the credibility of the scheme.


 The scam can be traced back to the tiny town of Balasore where over Rs65 crore was found deposited in one bank account. Sources say the suspicious nature of the deposits attracted attention only when one bank official complained that he couldn’t handle the load of clearing over 4,000 cheques a day in a branch that wasn’t used to dealing with more than a few hundred.


 After mounting evidence that the money has been transferred to several other states and even overseas, the Reserve Bank of India (RBI) finally says it will escalate the issue and push for comprehensive action against the scam. Its stand is that the antiquated Prize Chits and Money Circulation Schemes (Banning) Act, 1978, places investigation of Ponzi, pyramid or multi-level-marketing (MLM) schemes under the purview of state governments. However, this scam uses the bank deposit system and the RBI can hardly shirk responsibility. In fact, ever since the Payments Bill was passed, the RBI seems like the natural regulator for all pyramid schemes that are currently outside any regulatory supervision.


The Moneylife team decided to look for other MLM schemes that are proliferating across the country. We have found that dozens of companies, with varying degrees of legitimacy, many of them with global footprints, are raising money or selling obscenely expensive products by creating a high-reward matrix that is built on luring new distributors/depositors/buyers into the scheme. More importantly, each of them grows by roping in people who enjoy high public trust, such as doctors, bankers, reputed sportspersons, government officers, senior corporate executives or their spouses and sometimes even god-men.


 But first, what exactly is a Ponzi or a pyramid scheme? Wikipedia says, "A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered."


In fact, modern pyramid schemes always deliver a product or a service—although usually at an exaggeratedly high price. The real magnet for luring in people is the elaborate matrix of rewards that can only be earned by roping in new members to grow the pyramid. The bigger ones have been in existence for decades by diversifying into newer businesses and taking their business to more countries. In fact, Bernie Madoff has shown the world that a skilfully-run Ponzi scheme can grow to a massive $65 billion and run for a decade before it blows up. But for a global financial crisis, Madoff may even have continued to fool people for a few more years.


MLM/pyramid schemes are a little different from outright confidence tricksters, such as the Nigerian inheritance scam, a lottery scam or offers of ‘distributorship’ of global companies for products like tea or textiles that spam our email boxes regularly.


MLM schemes come in many forms. About a year ago, a reader alerted us to the ‘Swiss Mutual Fund’ which was making waves in Gujarat. It offered a stupendous 25% return per month, "plus 10% Commission, 10% Bonus, 10% Revenue & 0.10 Daily Profit Payout!!! Guaranteed By Swiss Mutual Fund (1948)." A ‘group investment target’ sweetened the return, while the need for an invitation to participate lent fake legitimacy. A Google search revealed that it faced regulatory action in several countries and was run by an offshore investment company of shadowy origins; even the Swiss government had felt the need to declare that it was not a Swiss company.


Although the Swiss Mutual Fund does not seem to have made much headway, our question is: How are these companies able to start operations in India and grow so rapidly? Every survey shows that India is a tough place to do business and as much as 14% of top management time is spent on dealing with government permissions, officials and red tape. Given their dubious business models, it only means that pyramid companies necessarily co-opt officials and regulators in their business. This probably explains the government’s reluctance to put in place an appropriate statute that either bans them outright (as many countries do) or places stringent restrictions on their activities.


 This was exactly what a Singapore-based legal executive of the controversial Gold Quest scheme told us. Moneylife has written extensively about Gold Quest which started by selling expensive numismatic coins through a pyramid structure, on the promise that the limited coins will appreciate in value. Police action in several states has ruined the business which was actively canvassed by such celebrities as former World Billiards Champion Michael Ferreira.


Interestingly, con artists are constantly spawning MLM scams, but only a very few grow into large pyramids, like the Orissa deposit scam or Gold Quest. Many are modelled along the lines of Amway or Tupperware which have been around for decades and have formal global operations. But they continue to attract great suspicion. Amway offers a range of expensive but good quality nutraceuticals, personal care products, cosmetics and energy drinks. What irritates people is that the big income comes from creating a down-chain of dealers to push its products and these are often doctors and government officials who use their position of trust or clout to prescribe/push costly products through their long chain. That is why, after 40 years in business, Amway continues to attract a debate on whether its business is legitimate. Even in India, the Andhra Pradesh government banned Amway in 2008, although the company is fighting the ban. China too has banned Amway and other MLM schemes which include well-known ones such as Tupperware and even Avon.


 Of course, the larger ones claim they are different from the many fly-by-night, look-alike schemes that have mushroomed across the country. Even a cursory search on the Internet throws up dozens of Amway-like schemes that ‘sell’ everything from shirts, magnetic bracelets and other wellness products to insurance policies or computer courses. For example, there is Highbis ( which includes Birla Sun Life Insurance in its portfolio (is the Insurance Regulatory and Development Authority paying attention?); RMP Infotec Private Limited (; ebiz (; ecosbiz, etc.


Although they are too numerous to list, all have one thing in common—you earn by selling their products, but you make serious money only when you create a forward chain of distributors who ensure you a trailing commission.

 The larger companies have formed what is called the Indian Direct Selling Association which works hard to distinguish between direct selling and MLM or pyramid schemes. They point out that many countries, such as Singapore, and the European Union, have legalised direct selling and have clear and unambiguous regulations to govern it. Meanwhile, unlike India, dozens of countries have an outright ban on pyramid and chain schemes. With liberalisation, especially of foreign exchange regulations, India has become a big market and a happy hunting ground for direct sellers, who claim greater legitimacy, as well as the dubious MLM and pyramid schemes. In the absence of clear policy and regulation at the national level, companies that can fix the system by roping in influential government and police officials thrive and grow—at least, until complaints begin to mount. Complaints end up in ruthless action, including bans and arrests, under the Prize Chits and Money Circulation Schemes Act; but it usually happens when the pyramid is getting ready to collapse.


 Moneylife’s investigation clearly shows that people cannot distinguish between direct selling and MLM or pyramid schemes and that we need better regulation and enforcement than the episodic action initiated by the local police in various states. The Orissa case also shows that scamsters are now making skilful use of banking technology and skirting the KYC regulation to dupe people. Officials involved in the investigation openly admit that they suspect money laundering, the possible use of fake notes to prevent depositor complaints and, worse, the possibility of underworld involvement. 


The Money Trail: RBI’s ‘Circular’ Reasoning

In the second week of August, senior police officials, bankers and investigation agencies met in Orissa to discuss the growing ramifications of the deposit scam that was raging in that state. Before the meeting, the RBI in Orissa had already asked banks to close 10 accounts due to suspicious transactions. It said: "These MNCs (multi-national companies) are opening accounts without complying with Know-Your-Customer (KYC) norms and Prevention of Money Laundering (PMLA) Act. Innocent people are being lured into the fraudulent plans of such unscrupulous persons/companies."


The Orissa police has, however, followed up the investigation zealously. They now believe that the deposit collections may be as high as Rs4,000 crore and are especially perturbed to discover that money from the core collection accounts has been transmitted to Dhaka, Sharjah and Singapore. Police sources say that they have frozen over Rs115 crore in suspicious accounts across the country. They have also made several arrests.


The police have identified the following companies as the core collectors of deposits through multi-level-marketing (MLM) schemes—Fine India Sales Pvt Ltd (Kanpur); Tridant Advertising and Trade Links Pvt Ltd (Vashi, Mumbai); Super Life Link Distributors (Indore, MP); Lue Brain Education Society (Najafgarh, New Delhi); Many Mantra Marketing (Jaipur); Lakshya Levels Marketing (Kandivali, Mumbai); Eve Industries (Kanpur, UP); Alaska India; Superlife Linked Distributors; Star Consultancy Pvt Ltd; Dreamachiever; and Seashore Funds Management Pvt Ltd. As we reported earlier, the Kanpur-based Fine India Sales alone had collected a whopping Rs600 crore in its account.

The companies have primarily used State Bank of India, ICICI Bank, Axis Bank, IDBI Bank, Bank of India and Indian Overseas Bank for their transactions. Some of these companies have even claimed that the banks are their ‘channel partners’.


Interestingly, several weeks after the investigations picked up momentum, none of the companies seems to have been affected. Their websites have not shut down and they continue to flaunt account numbers with SBI and ICICI Bank to claim fake legitimacy.


The RBI now says it will escalate the issue and ask for a CBI inquiry However, on 18th August, the Department of Banking Supervision (DBS) issued a circular asking banks to adhere to KYC and ALM guidelines with respect to MLM companies. The circular takes on board some of the issues raised by us. However, its shoddy drafting suggests that the central bank is merely taking cognisance of a problem that may blow up into a larger scam. At the same time, it has held banks responsible for misuse of accounts, even in remote locations, without raising the larger issue of tightening regulation on MLM companies.


The circular names barely seven companies which have been found indulging in MLM activities (all these seven companies were reported by Moneylife in our previous issue)—Fine India Sales, Tridant Advertising and Trade Links, Super Life Link Distributors, Lue Brain Education Society, Many Mantra Marketing, Lakshya Levels Marketing and Eve Industries. However, the circular makes no mention of five other companies which have already been investigated and named by the Orissa police, namely, Alaska India, Superlife Linked Distributors, Star Consultancy, Dreamachiever and Seashore Funds Management. Yet, the circular mentions the websites of Alaska India and Fine India Sales as examples where the MLM schemes are described in detail.


After outlining the modus operandi, the RBI notes that the post-dated cheques issued by the banks to these collection firms are bound to be dishonoured at some time when the flow of deposits ceases.


Had the RBI been more serious about investigating the racket, it would have alerted the insurance regulator as well as the capital market regulator about the claim on their websites that the funds are invested in the capital market and the MLM route is being used to hawk insurance policies.


Instead, the circular merely cautions the banks about reputation risks and warns them against issuing cheque books in bulk without following due process; it also asks the banks to verify that the number of cheque books issued matches the customer profile and the nature of their business.


As is evident from the circular, the RBI has merely transferred responsibility to the banks by issuing yet another warning. It makes no effort to protect them by seeking stricter regulation of MLM companies or even an outright ban.


The role of the banks in these MLM schemes is also extremely intriguing. It is clear that banks have learnt no lesson from the IPO scam of 2006 where many of them were punished for colluding with dubious investors to facilitate multiple applications funded through the same account.


Most banks failed to flag suspicious activity, as required under the RBI rules, at a time when tiny, backward states like Orissa and Chhattisgarh began to report a phenomenal jump in deposit collection, accompanied by the swift transfer of funds to certain core accounts and then out of the state.


Secondly, they compounded the problem by issuing cheque books in bulk to these MLM companies, their distributors and agents without any verification. Several agents were issued in excess of 25,000 cheques; one agent received 100,000 cheques. Agents apparently used these to issue post-dated cheques to depositors to build their confidence.

While banks may have been lax initially, it was ICICI Bank that reportedly raised the alarm by filing ‘suspicious transaction’ reports and informed the RBI and the Financial Intelligence Unit (FIU). The RBI circular again asks banks to report all shady accounts to the FIU. But will the FIU understand the dangers of these schemes and seek statutory changes?



Dreamachiever: The Orissa police arrested one Saroj Kumar Samanta from Balasore, where Rs65 crore was collected in a single account.

Mr Samanta ran a company which hosted a website called It is the only website that is no longer functional; for all the others, it is business as usual.

Fine India Sales Pvt Ltd: Based in Kanpur, this company has the most comprehensive web presence ( The group claims to generate ‘super profits’ from the entertainment sector, the stock market, real estate and various other industries which are ‘booming’. Its websites shows money raining on the BSE (see illustration).

They also claim to have expert ‘fund managers’ with rich experience in ‘market movement’ who manage the portfolio and ‘generate huge recurring profits’ and ‘reduce market risk automatically’. This must alert the Securities and Exchange Board of India, since market manipulation is widespread. Fine India apparently comprises five different groups—Merit group of Industries, Eve Industries, Venus Exports, Chandel Group and ATF Chemicals.


The group claims to have five years’ experience in MLM schemes, 15 years in the gutka industry, 17 years in share trading, 57 years in the leather industry, 81 years in cosmetics and 101 years in the herbal industry. It has five founders: Mohammed Nasser is blind but ‘brilliant and computer savvy’; Mohammed Kamran Khursheed is ‘a super genius, IIT Roorkee double gold medallist’. The other three founders—Mahesh Bahadur Singh Chandel, Shamhad Alam and Sayeed Ahmed—are projected as businessmen.


Link India: This company collects money in multiples of Rs10,000 and has complex and multiple reward systems that offer returns of ‘not less than 10% every month’. It also displays PAN and TDS details, an impressive list of legal advisors and legal disclaimers that are more comprehensive than those in any IPO document to lend legitimacy to its operations.

Alaska Ideal Multi Marketing Limited: This company claims to sell insurance policies, jewellery and holiday packages. A section titled ‘Banking on Bankers’ on the company’s website ( lists Bank of India, ICICI Bank, Axis Bank, State Bank of India (SBI), HDFC Bank and Indian Overseas Bank. It also displays a bunch of account numbers of the SBI branch at Kandivali and an ICICI Bank account. The company claims to have distributors in Jharkhand, Orissa, Uttar Pradesh, Madhya Pradesh, West Bengal, Maharashtra, Bihar, Goa and Diu & Daman. Its product packages are in multiples of Rs20,000 and it claims to distribute insurance polices of Bajaj Allianz and Life Insurance Corporation. The office address mentioned on the website is: Super Shopping Complex (A-101), Kandivali West, Mumbai

-- Sucheta Dalal