According to an ET report, the scam alert list compiled by Strategy India includes names like Mission Green India, Jivan Daan, Dhan Vriddhi, and Capcha Pay.Currently, there are believed to be over 4,000 such schemes operating in the country. However, tracking down these entities has proven challenging as they do not have functional websites or contact addresses.
These schemes operate by using money-circulation networks, where existing investors are paid with funds collected from new investors rather than from profits. Many of these schemes exploit loopholes in consumer protection laws and target individuals from low-income groups by promising abnormally high returns in a short period of time. Once new investments dry up, the promoters shut down the scheme and disappear 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, says 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), he said.
Pyramid scheme launches
The Ministry of Consumer Affairs has recently modified the Consumer Protection (Direct Selling) Rules, 2021, through a notification issued on June 21 this year to differentiate between fraudulent pyramid and money-circulation schemes and legitimate direct-selling multi-level marketing companies. However, further clarity is required in defining a network of sellers. The ministry clarified that the term “through a network of sellers” should be replaced with “directly selling through a netwo rk of sellers.”
Vivek Katoch, chairman of IDSA, which represents Amway, Oriflame, Tupperware, Avon, and Herbalife, emphasized the need for clearer distinctions within the Consumer Protection Act. It is important to differentiate between direct selling companies operating with multi-level marketing models and fraudulent multi-level marketing schemes designed to defraud people, commonly known as pyramid or Ponzi schemes.
Legitimate companies offering various products such as daily essentials, vacuum cleaners, cosmetics, air purifiers, and storage containers market their products directly to consumers through their network of direct-seller members, rather than through retailers.
