MLMs continue to loot and scoot while police, regulators act like mute spectators

MLMs like SpeakAsia and NMart thrive because the police and regulators like RBI, SEBI or IRDA, instead of taking prompt action, sit on their heads waiting for a formal complaint from duped investors, which happens only after promoters vanish with crores of rupees

Every other day, there is news about people getting cheated through “earn-double-money” in less than a year run under the multi-level marketing (MLM) model. While the ministry of corporate affairs (MCA) appears to have woken up by the financial mess and menace created by thousands of MLM companies, the watchdogs or regulators who have the powers to stop all this, on several occasions, are found to be merely watching things as mute spectators.
Take for example, SpeakAsia and N-Mart. While SpeakAsia conned lakhs of people by promising multiple returns on the ‘investment’ by just filling up mundane surveys, N-Mart promised huge ‘income’ just by becoming its members and purchasing daily need items from its branded shop. The promoters of SpeakAsia are absconding, while N-Mart promoters were not so lucky.
Due to prompt action by Vijaywada-based activist Shyam Sundar and his organisation Corporate Frauds Watch and the Andhra Pradesh (AP) Police, promoters and directors of NMart are cooling their heels behind bars. Last month, the AP High Court dismissed a writ petition filed by NMart promoter Gopal Singh Shekhawat. But more about Shekhawat and his N-Mart later.
Over the years, we at Moneylife had exposed several such fraud MLM or ponzi companies and alerted readers about these fly-by-night operators. At the same time we also informed the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA) about these companies. Unfortunately, except on few occasions, these regulators neither replied to our communication nor have they initiated any action against these fraudsters.
What is more shocking is that some of the known MLM operators are found sidelining prohibitory orders of SEBI. Take for example, despite SEBI’s order issued dated 9th July, Jaipur-based NGHI Developers neither stopped collecting money from people nor did it refund any amount. The company was collecting funds from the public for developing plots of land through its plans, terms as collective investment schemes (CIS) by SEBI.
The CIS, where an entity pools in money from investors for certain pre-specified purposes and later distributes the profits or income, come under the ambit of SEBI. While hundreds of companies have engaged in CIS activities in the country, just one such entity is registered with SEBI to undertake such kind of business.
Some of the most common CIS are related to investments for real estate properties, plantation and agriculture industry, art funds, time-sharing schemes and multi-level marketing (MLM) schemes, among others. As per SEBI data, more than one lakh investor complaints are currently pending with it in connection with such schemes, and the matter is sub-judice since long in most of the cases.
Moneylife first exposed the lies of SpeakAsia in October 2010 . However, due to inaction by the regulators, the company grew very rapidly. In fact, within a short span of eight months, it claimed to have enrolled over 20 lakh members. While India’s total investor population has fallen to 80 lakh, SpeakAsia managed to lure about 20 lakh people into its get-rich-quick scheme. But nobody really bothered to look into the case until some TV news channels stepped in and put pressure on the government to act.
Unfortunately, due to the lack of clarity in regulation and prompt and fast action, SpeakAsia officials, who were present in full force on 16 May 2011, later vanished. Except, the company’s chief operating officer Tarak Bajpai, all others including chief executive Manoj Kumar managed to escape. In fact, the SpeakAsia court cases are not being fought by the company but by some early (beneficiary) members under the banner of All India Speak Asia Panellists Association (AISPA).
Another such MLM company exposed by Moneylife is Kerala-based Royal Life. After keeping its shop shut for over two years, the network marketing company has again become active and is luring gullible people to invest in its schemes. Royal Life claimed to be a promotional arm of ALGA Marketing Pvt Ltd, which it said was a “unique and innovative marketing plan.” Two years ago, Royal Life was found using the picture of Kerala chief minister Oommen Chandy. Currently, there is no image of Mr Chandy now but there are several images of people which the company claims to be some sort of “super achievers”.
Coming back to NMart Retail and Gopal Shekhawat, this MLM also was able to gather over 15 lakh members in a short span. One of the reasons for this phenomenal growth was the use of popular TV stars in the company’s ad ( NMart used Jethalal and Daya, the two popular characters from TV serial ‘Tarak Mehta Ka Oolta Chashma’ in its ad. The use of popular actors from TV serials not only increased the member count for NMart, but also helped it to establish itself as ‘genuine’ retail company.
Unfortunately, NMart, its promoters and members fail to understand a simple thing, if it walks like a duck, talks like a duck then it is a duck. NMart seems to be collapsing under its own weight as happens with majority of ‘successful’ MLM schemes.
Some of the NMart members were seen claiming that its promoter Gopal Singh Shekhawat is the nephew of Pratibha Patil, former president of India. This was completely false. According to an email received by Moneylife from the President's Office, although both Ms Pati’'s nephew and the promoter of NMart share same name, they are not same person and Gopal Shekhawat, the nephew of Ms Patil is no where related with NMart. The email says, “Shri Gopal Shekhawat, nephew of the President is in Chandrapur near Nagpur. He is a School Teacher and has nothing to do with ‘NMart’. Only the names are similar.” ( )
The question is when there are thousands of network marketing or MLM or ponzi or pyramid companies not only proliferating but also duping lakhs of gullible investors, why are the regulators behaving like the police from an old Bollywood movie. In any old Hindi movie, the police used to be last one to reach at the spot or climax.
Last year, Moneylife Foundation, a non-governmental organisation (NGO) sent a representation to the prime minister, finance minister, finance secretary and governor of the RBI urging them to either completely ban MLM companies and schemes or bring them under the regulation of RBI or SEBI.
Senior officials from investigating agencies have been saying that there are sets of people who move from one place to another floating a new MLM or Ponzi scheme. And yet neither the police nor the regulators do anything to arrest these known culprits. Earlier in February, SEBI decided to share names of over 500 MLM companies and their directors to MCA, so that necessary action can be taken to prevent these companies and persons from floating new business.
While the MCA has decided to the publish names of fraudulent MLM firms and the menace these companies create, the real question is why prompt action is not taken by the police and the regulators. One of the problems in this is (and told by several officials, unofficially) is the lack of a complaint. This means unless somebody files a complaint against a MLM company, the police do not initiate any action. However, this needs to be changed and instead of waiting for a formal complaint, the police and regulators like RBI, SEBI or IRDA should initiate suo moto action against MLM or companies that run unauthorised CIS schemes.
2 years ago
It is very helpful and interesting . Thank you for sharing a great information .
on-demand food delivery app development company
Sandeep Patel
10 years ago
What is the government doing about Q Net ... they are hosting the Davis cup too at Bangalore ?

CS Sundar Raju, Secratary of KSLTA, is also on the V Council plus they have the legal advise of Mr. Pinky Anand ... a Supreme Court advocate ..
1 decade ago
1 decade ago
It is strange what money does to people and what people can do for money. These types of MLM or Ponzi schemes are difficult to identify at an early stage. They attract attention only after they have grown in size significantly.

We cannot call such MLM or Ponzi schemes as investments and those people who get lured by such schemes as investors. People who fling money mindlessly without applying commonsense are acting in a foolish manner, certainly not like investors. It is like calling people who buy lottery tickets - entrepreneurs.

Whenever someone promises abnormally higher returns, the question we need to ask ourselves is pretty basic and simple. Why? Why are higher returns being promised when cheaper means of raising funds are available for the one who is accepting money?
If the intention is never to repay then any promise looks small.

Any person who expects to get ‘abnormally higher returns’ in a relatively quickly is doomed to lose money; no regulator can protect these people who aspire to become rich quickly, simply by doing nothing.

There are two types of people who fall prey to these types of schemes:
1) Those who have lots of surplus funds and are therefore looking for mouthwatering opportunities, no matter what, and
2) There are those who do not have enough but want someone who can make them rich quickly

We do not have to depend on regulators or police to save us from these fraudsters. Remember. god helps those who help themselves. People can shield themselves from such crooks – by just refusing to part with their savings.
Vineeth A Kumar
Replied to Nilesh KAMERKAR comment 10 years ago
There are a third category of people, they do not join the company or its products but, they join their friends of lifetime.. later realize that the real friend we understand that the real friend is dead long time back.
I would be happy and very satisfied; if the regulators - remove any income to the sponsoring another friend.
Joining any company where they want should be the prerogative of the individual. eg X joins the company and fortunately he is just below your franchisee. In case the concerned upline trains this chap, help him to get back the initial capital in the shortest - only in such cases the upine qualify for real time incentive. this applies to each and every one...

Upline has to take charge of this newbies success...the same applies to the each & every one...!

This situation is the only way forward for MLM...
Replied to Nilesh KAMERKAR comment 1 decade ago
Many of the people who were cheated by MLM fraudsters are illiterate labourers and coolies.
Len Clements
1 decade ago
There are legitimate, legal MLM companies and their are illegal pyramid schemes. Unfortunately many such pyramid schemes try to disguise themselves as MLM companies because they want to appear legal and legitimate.

I have worked as a consultant with MLM companies in India and your country is indeed overrun with pyramid schemes. So much so that even those companies run by honest people offering real products of value feel they must employ aspects of the illegal schemes to be able to compete.

MLM offers many benefits to those seeking to start a business and can provide a legitimate means to earn extra income. India should not follow the path of China and "throw the baby out with the bathwater" by banning all MLM operations. MLMs should be more regulated in India, absolutely. But not illiminated entirely.
Replied to Len Clements comment 1 decade ago
Dear Mr. Clements,

You have not specified the name of the "LEGAL" companies in India you worked as a consultant. It will be helpful for the investors if you publish the names of such 'LEGAL" MLMs.
Replied to Len Clements comment 1 decade ago
Strange logic this Mr. Clements of starting a business with legitimate means to earn extra income by employing aspects of illegal scheme in order to compete ...
1 decade ago

What is the role of Registrar of Companies? just registration of companies only? CBI or any other central agency must probe the role of registrar of companies in various states in money chain/ MLM/ network marketing scams.

1 decade ago
Why the RBI, ED, SEBI, IRDA waiting for formal complaints? they can can act without any formal complaints under Prize Chit and Money Circulation (Banning)
Scheme Act, 1978 against these MLM cheats.
Vineeth A Kumar
Replied to MOHAN comment 10 years ago
Authorities deliberately delaying a verdict in speakasia scam, which was sharply criticized by Judiciary, asking them are they not filing a single charge-sheet even after 2 years an more time, I don't know or am not interested to know where the case file is at present. Management is ready to payback everything, then what is the problem for court/RBI or I0...?

The management has not vanished overnight, its here and attending every single court proceeding...have the SFIO or EOW received serious money by all the other competitors to ensure indefinite delay...? IN A DIFFERENT DIPLOMATIC COURT ASKED THEM THE SAME THE SAME...

I suspect that under the instruction of political masters - elections is a costly matter. 2014 Country goes to Poll,,,who will fund these people...?
Free Helpline
Legal Credit