Wednesday, October 22, 2014

Another Big MLM Marketing Fraud Comes to Light in City

Published: 21st January 2014 10:11 AM

Yet another case of alleged multi-level marketing fraud duping thousands of investors across many states has sprung up in the city.
Interestingly, Prathibha Group against whom a complaint has been lodged,had marketed themselves by creating a sense of trust among prospective investors by displaying photographs of higher dignitaries like prime minister Manmohan Singh, chief minister N Kiran Kumar Reddy, Tamil Nadu governor K Rosaiah, etc with their chairman and managing director P Ganti Sridhar.
Based on a complaint from Human Rights and Consumer Protection Cell in the city, the case has been taken up by the the Economic Offences Wing of Crime Investigation Department after it was first registered under Section 420 IPC and Section 4 and 76 of the Chit Funds Act at the KPHB police station last month. Prathibha group is alleged to have duped investors across Andhra Pradesh, Tamil Nadu, Kerala, Punjab, New Delhi, etc.
According to a memo issued by additional director-general (CID) T Krishna Prasad, “The complaints were verified by CID and it is found that the business activities of Prathibha Group through its various sister concerns attract the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 and the AP Protection of Depositors of Financial Establishments Act, 1999 and involve huge fraud.” Some of the declared businesses are farms & estates, foods, publications, GLK films, goat farm, tours & travels, agro, real estate, constructions and farmhouse. P Srinivas, DSPolice (EOW-CID) said investigation was in its early stages. “Prima facie, it looks like a fraud.
General secretary of Human Rights and Consumer Protection Cell Thakur Rajkumar Singh said directors of the group P Ganti Sridhar, P Rani Lokeswari Devi, PRS Lokendra Varma, M Adinarayana, D Sreedhar Patnaik, Veresh Kumar and Upendra had floated many companies as members of Prathibha group in 2010-11 and sought public investments in multi-level marketing business.
“They collected money from public under various schemes by offering plots of land as collateral security. Nearly 160 agents under whom another 1,200 investors are duped have approached me.
There are  thousands more,” he said adding that they lodged a complaint with the police after coming to know that the directors absconded. Other complainants Yella Ranganayakulu, Reddy Subba Reddy and Karnati Seetharamaiah added that the Prathibha group had no permissions for running the business.

Online and MLM fraud companies

Direct selling has completed 18 years in India and about 8 million of our countrymen are engaged with the industry. The industry continues to grow at rapid speed despite of scams (using the multilevel marketing compensation plans) causing damage of thousands of crores every year.
Scams not only swindle the people but also create confusion about the business model since they impersonate as principled direct selling companies. This snowballs to become menace for ethical direct selling companies because of misunderstandings created, this coupled by general dislike works in favour of scams which stand to benefit in case of damage to ethical direct selling companies when more and more people in greed for easy money leave product based direct selling companies to join scams promising easy money.
Scams continue to exploit loopholes to circumvent law and are continue to be a threat to the country. Even countries like Bangladesh and Vietnam have learned their lessons before us and have regulated direct selling along with others like Japan, Germany, United States, United Kingdom, Korea, Thailand, Malaysia, Canada, Russia, France, Brazil, Mexico, Italy, China, Taiwan and Columbia.
Online and MLM fraud companies

Scams continue to exploit loopholes to circumvent law and are continue to be a threat to the country.

The scams use MLM (Multilevel marketing) compensation plans:
* To avoid high cost of advertising and take advantage of the effectiveness of the word of mouth publicity which more effective to get bigger investments.
* To reduce risk of investor complaints if the founders abscond (since the investors approach and get initial investments from their friends and relatives who don't want their friends in trouble).
* To effectively and speedily spread in the rural areas where information about these types of scams is not available to the common man and the police.
* To fly below the radar or to avoid the limelight and scrutiny by government and non-government agencies.
* To spread fast in areas with little or no access to media (electronic and print)
Some popular get rich schemes in India:
Type 1 (Non MLM): Teak plantations, car lease program, real estate (investing in under construction flats, townships etc), investment in gold/silver, time shares, gold/diamond jewellery etc.
Type 2 (MLM) - Forex trading, trading in stocks, trading in commodities, investing in real estate, timeshares, e-books, surveys, get paid to watch advertisements, get paid for blogging, pay per click, investing in IT sector, investing in infrastructure projects, club
membership, e-zines, goat farming, emu farming, poultry farming, cow and buffalo farming, rabbit farming, plots, trading in virtual currency, etc
Scams like:
* Aryarup/ATCR , SpeakAsia , Unipay2u, Stock Guru, TVI Express contribute a small percentage to the total turnover of scams which goes as high as Rs 10,000 crores per year . Most of the companies do not register in India and siphon off money via various payment services not authorized by Reserve Bank of India.
The ideal process of direct selling is:
1. Enthusiastic consumer: Use the products and experience the benefits. When you discover that the benefits outstrip the promises made about them, and all the conditions that had to be met to obtain those benefits (including the purchase price and actually using them), you get really enthused.
An added benefit is, not having to face an ethical dilemma whenever you try to sell or introduce someone without that personal experience of the claimed benefits which undermines your integrity, self-respect and credibility.
2. Enthusiastic product advocate: Share the product benefits with other people. This will earn you reciprocal income, where you exchange one thing of value for another. (In this case your product for their money. Just like in a job, you exchange your time for your boss's/companies money.) Reciprocal income may or may not be your main income source in direct selling, but it's the most immediate and the easiest to earn for new people.
The products work for others and they get excited by the benefits and second, you can actually make money selling the products to others. Once again, your enthusiasm is based on fulfilment, not promises. Not just your own fulfilment, either, your consumers' fulfilment as well.
3. Enthusiastic business advocate: Share the income opportunity with other people. Some of those consumers may catch your own enthusiasm, and your reality will become their vision. They'll join you and experience the benefits of reciprocal income, immediately and also get the products for themselves at discounts.
This will begin to create residual income for you - the real income stream in direct selling, because it's high leverage.
The more people who join you, the more your income will grow - your time and effort will increase a little for helping your team and guiding the team members to achieve their goals. Now your enthusiasm is climbing rapidly, based once more on actual fulfilment, not mere promises. And because your people are experiencing their own fulfilments based on actual experience, the synergy within your team becomes extremely powerful.
This happens mainly because of lack of clarity on the business model and this will continue till the industry is regulated.
Till that time the industry is regulated there are red flags you should look out for :
a) If you are not shown and spoken about the products offered by the direct selling company - Do not join
b) If you cannot see value at which the products are sold (even if you can afford them) - Do not buy them or join the company since if you yourself would not use them, you would not have the confidence to recommend them to others. If the products don't get sold - you don't make any money.
c) In case the products sold by the company have no market value - Stay away.
d) If the products are based on speculations and probability - Stay away
e) If the cost of entry to start earning is high - Stay away .
f) Avoid the companies promoting the following:
* Deposits/Investments - in/ for/ in form of - stocks, debentures, gifts/ help/ assistance/ support/ donations, currency, preferential shares, forex trading, plantations, farming, infrastructure projects, resorts, trading in commodities, birds (poultry, Emu, etc), animals (rabbit, goats, cows, buffaloes, etc), media and real estate.
* Discount coupons/Vouchers
* Crypto currency
* Bid coupons/Vouchers
* Websites/Web space/ Hosting space
* Get paid- to click, to give surveys, watch advertisements, receive SMS and receive emails.
g) If you primarily get paid to recruit new distributors - Stay away
h) "Earlier you join, richer you become" is the mantra - Stay away
i) "More you invest, the more money you get " is the case - Stay away
j) If the company claims to pay you back higher than 50 per cent as commissions on sale of products ( online or physical ) - Stay away
k) If opportunity is shown to be greater and more important than the products - Stay away

Sebi to auction Ponzi assets

Calcutta, Oct. 5, 2014 (PTI): Capital market regulator Sebi will conduct the e-auction of land and buildings of city-based Tower Infotech Ltd, which had garnered money through so-called “chit fund” schemes, to repay investors.
Bids for the assets have been invited till October 27, while the auction will take place on October 30, Sebi said in a tender notice.
Earlier, Calcutta High Court had directed Sebi to sell certain assets of Tower Infotech and distribute the proceeds among duped depositors and debenture holders. This is probably the first instance of Sebi conducting an e-auction to liquidate the assets of a deposit-mobilising company for refund to the investors.
In some other cases, Sebi has ordered the sale of shares held by certain companies that have found to be in default of payments.
Through enhanced powers, Sebi has been allowed to attach and liquidate the assets of defaulter entities. Sebi has also been given the power to act against companies running illicit money-pooling schemes involving Rs 100 crore or more.
The four properties of Tower Infotech being sold have a total reserve price of over Rs 17 crore.
Bids have been invited along with a payment for an amount equivalent to 10 per cent of the reserve price as earnest money.
The properties listed for sale include a land parcel with a four-storey building in Calcutta with a reserve price of Rs 6.36 crore and another land with a three-storey lodge building and marriage hall (among others) in Midnapore with a reserve price of about Rs 2.94 crore.
Two other properties include land plots with a three-storey hospital building; and an office building (reserve price of Rs 2.32 crore) in South 24 Parganas and land with a two-storey auditorium hall, a single-storey restaurant building, a single-storey office building and a pump room (reserve price of Rs 5.56 crore).
The unauthorised money-collection schemes are widely known as “chit funds” in Bengal and other eastern and northeastern states, although their operators are not registered as “chit fund” companies in most cases.
In many such cases, regulators and government agencies such as the Securities and Exchange Board of India (Sebi) and the Serious Fraud Investigation Office (SFIO) have found that these were Ponzi, or illegal money-circulation schemes, where new investors were given returns from funds of earlier investors.
This has been the case for the Saradha group, too, whose schemes were among the most high-profile. The SFIO had recently submitted its final report in the case to the government.

Ponzis Continue To Rule the Roost

Chain marketing schemes are still having a nice time, despite SEBI’s enhanced powers 
 
The Direct Selling Association of India and the high-profile, multinational multi-level marketing (MLM) companies have stepped up the pressure on the National Democratic Alliance (NDA) government to frame new rules to give them legal cover. After the arrest and long incarceration of the chairman & CEO of Amway India (since 27th May), and the virtual crackdown on QNet, promoted by a Malaysian national, the industry is in serious disarray.  
 
The MLM industry’s argument is: frame tough rules but remove the ambiguity about the legitimacy and legality of MLM companies operating in India. They also insist that they do not fall under the purview of the Prize Chits & Money Circulation Act, 1954. However, Moneylife has held the view that all MLMs lure people with the promise of high returns and their very structure requires them to entice people to become agents or distributors. 
 
While powerful foreign companies in the MLM business are lobbying the government, the Securities & Exchange Board of India (SEBI) is struggling to initiate action against hundreds of ponzis and ‘collective investment schemes’ that are destroying lives and savings. Consider just one example. KBC Multi Trade, a Nashik-based company, seems to be a repeat of West Bengal’s Saradha scam. It is reported to have collected Rs2,000 crore from unsuspecting victims and the promoters are now absconding. Two of its agents have committed suicide under pressure. The scheme promised to triple the investment in 30 months on an investment of Rs1 lakh each.
 
Unfortunately, the greed for high returns is so pervasive that these schemes manage to garner a few thousand crore rupees each. It is important for the government to keep this in mind before it allows itself to be influenced by those who are lobbying for legal protection for MLMs and chain schemes.

87 MLM companies under government scanner, SFIO probing seven

SFIO has also been ordered scrutiny of balance-sheets of around 80 companies to ascertain whether these MLM operators have violated the provisions of the Companies Act
 
New Delhi: A total of 87 companies have come under the government scanner for allegedly running illegal multi-level marketing (MLM), investment schemes and seven of them are being probed for possibly serious frauds, reports PTI.
 
The government has ordered inspection of accounts of remaining 80 companies for any violation of company regulations, Corporate Affairs Minister Sachin Pilot informed Lok Sabha in a written reply.
 
Most of these companies are located in West Bengal and Tamil Nadu and one company registered outside the country doing business online in association with some Indian companies, he said.
 
Pilot further said that Ministry has ordered Serious Fraud Investigation Office (SFIO) to probe into the affairs of seven companies.
 
Besides, SFIO has also been ordered scrutiny of balance-sheets of the remaining 80 companies to ascertain whether the firms have violated the provisions of the Companies Act.
 
Raising of funds through money circulation scheme is an offence under the Prize Chits and Money Circulation Schemes (Banning) Act 1978. The Act is administered by the Department of Financial Services through the state governments.
 
Recently, Finance Ministry in consultant with RBI have circulated model rules to be notified by the states.
 
In order to protect the interest of small investors, various awareness programmes are being conducted regularly by the ministry in coordination with the trade and industry association and professional institute such as Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India.

Adooye.com, another MLM promising big money just for watching ads!

ADooye is selling its 'packages' with a promise to pay for watching online advertisements and adding more members to the network. The whole things sounds more like a MLM or 'double your money' scheme

Adooye.com, (ADooye) a supposedly US based website, provides online network marketing platform to its members by selling 'packages', which offer around Rs500 for watching 10 advertisements every day. It also offers various 'points' based rewards, bonuses and commisions on adding more people down the line as per binary system used by multi-level marketing (MLM) companies. ADooye is another in a string of MLMs that we have come across, like Speak Asia, Fanbox, Empower Network, QNet and other pyramid and Ponzi schemes that lured people by promising high returns under the pretext of different products and services.

Moneylife investigated this company when a worried reader wrote to asking to look into their credentials. Their website states that Adooye is founded by Australian Mathew Reichgruber and Alessandro Sen, and marketed by Delhi based AD Marketing.  This affiliated marketing company, which operates like an MLM sells various 'packages' containing online advertisements, on viewing which the member is rewarded.

In their FAQs section, in response to the question, “So how does it work? And where does the money come from? The sardonic reply is, “we are still developing the whole system and cannot afford for anyone to abuse the idea and outrun us in the end.” However, in its presentation (http://www.adooye.com/Adooye_thomas_latest.pdf) ADooye pitches itself as an 'Affiliate Marketing' company and says that as more viewers watch advertisements, this generates web traffic for advertisers and income for ADoyee.

Apart from this, ADooye earns more income from selling various expensive 'packages', which are nothing but login access to view 10 advertisements daily for 140 days, to its registered members. They have a built network with the help of paid members who generate web traffic, when even for showcasing advertisement they charge money from its members.


If you are amazed by its offers and think its a 'great earning opportunity,' its certainly not! They need you to pay first to get started. ADoyee asks to register online by paying Rs500 and giving referral ID of any active ADooye member (so that the  member will get a commision on your registration). After registering, they ask you to purchase any of their 'packages' which costs from Rs3000 to Rs25,000 with 140 days of validity. These packages offer you nothing but a login panel wherein you see 10 advertisements daily. The costlier the packege, higher your rewards for clicking on the advertisements. It also includes conditions like 'affiliate lock period for ad watch payout' for 20 days.

Many of its agents describe it as an 'MLM company with a legal payment gateway!' As it offers various shopping cards with the points you earn, which you can then use for shopping at various places. Points earned by members can be transfered to your bank account or Adooye card, which lets the points be used for shopping at various places. Adoyee.com said, “The bigger your crowd, the more you earn, there will be an innovative activity of pair and direct referral.” It offers 5% referral and 10% binary commisions on adding another members to network.


Their network of agents often use social media and blogs to market ADoyee and its packages in typical MLM fashion, as the 'best life changing online earning opportunity'. Many of their agents put advertisements on various job portals as the best part time income opportunity. One of their messages says, 'Earn Rs500 in 5 minutes daily just by clicking on advertisement!'


While checking Adooye.com's credentials and safety on scamadviser.com, it reviewed Adoyee.com as a 'Suspicious - Might be unsafe' website based in United States. Scamadviser.com in its review said, “This site is using an anonymous service, which prevents us from identifying the site owner. Be aware that many scam sites use this as a method to hide their identity. The website has been newly registered with a short life expectancy, which follows the pattern used by many fraudulent and dubious websites. Please be vigilant and take extra care before providing any payment information.”


It appears to be nothing but another MLM, which is trying to get money out of your pockets by promising you great monetary returns and non-monetary rewards for nothing. Moneylife has written several articles on frauds that lure people by floating various MLMs and frequently warned investors that “If it looks too good to be true, it usually is.” This is clearly another in the same category.

Officials from ADooye were not immediately available for comments. Our emails sent to them remained unanswered till writing the story. We would incorporate their views as and when we receive it.

KBC Multi Trade, another MLM, goes bust; three agents dead

Within four years, Nashik-based KBC Multi Trade was able to collect crores of rupees. Its promoters and directors are absconding and three agents are already dead. The question is, why nobody, including SEBI took action in time?

Even as several network marketing companies or multi-level marketing (MLM) companies are trying very hard to lobby with the union government, to legalise their 'direct selling' module, here comes a story of the tragic end of an agent of one such company. As it happens with almost all MLM or money circulations schemes, in the case of Nashik-based KBC Multi Trade Pvt Ltd, the promoters have vanished with the loot estimated to be about Rs2,000 crore. Also, as usual, despite registering a complaint and subsequent raids on KBC Multi Trade offices, the Police could not make any further progress. Even market regulator Securities and Exchange Board of India (SEBI), which is supposed to be regulating collective investment scheme (CIS) has so far not shown any interest in KBC Multi Trade's fund mobilisation. KBC Multi Trade's scheme was, if you invest Rs1 lakh today, the company would pay you Rs1 lakh in six months, Rs1 lakh in the next 18 months, and another Rs1 lakh after 30 months. Thus giving three-times return on investment in 30 months.
 
According to local media reports, Pushpalata Popatrao Nikam and her son Sagar committed suicide due to mounting pressure from people seeking refund of their money invested in KBC Multi Trade. The mother-son duo had invested their own money in the MLM too, while Sagar was also working as agent for KBC Multi Trade and collected huge amounts from people. Balaji Gujjewar, another agent of KBC from Hingoli in Marathwada region, died due to a heart attack. Gujjewar too, had collected crores of rupees in and around Hingoli for investing in KBC Multi Trade and was under severe pressure from these investors.
 
Earlier in March, Nashik Police conducted raids on the offices of KBC Multi Trade and seized Rs4.66 crore, along with some computers and documents. They also arrested one Babu Chavan, but he was granted bail by a city court on the same day.
 
According to reports, the main promoters of KBC Multi Trade are Bhausaheb Chavan and his wife Aarti. Bhausaheb was reportedly working in a local bank and hence, had knowledge about the financial status of several of the bank's customers. In 2010, he floated KBC Multi Trade and promised to make his investors 'crorepatis' within few months if they invest lakhs of rupees. He also promised 20% to 30% commission to 'agents' who would lure more people into the 'get-rich-quick' scheme.
 
On Monday, several investors staged a rasta roko at Adgaon, near Nashik, demanding immediate arrest of the company's promoters and directors. After the rasta roko, the Police arrested Bapusaheb Chavan, managers, Pankaj and Nitin Shinde, both agents of KBC Multi Trade, as well as a driver of KBC's main promoter-Bhausaheb Chavan.
 
On 25 February 2013, the Economic Offences Wing (EOW) of Nashik Police even issued a public note, warning people about KBC Multi Trade. Following the raids and arrest of one person by Nashik Police in March this year, the EOW of Aurangabad Police also asked people to file complaints against KBC Multi Trade. The MLM company was active in several districts in Maharashtra, including Aurangabad.
 
However, besides issuing a public notice, the Police kept mum on the MLM. This probably helped the promoters of KBC Multi Trade to collect as much money as they could and vanish overnight. According to unconfirmed reports, Bhausaheb may have fled to Singapore along with his family.
 
There are thousands of people who are coming forward to lodge complaints against KBC Multi Trade and its promoters. While the exact number of people and the money they invested cannot be ascertained, it is estimated to be hundreds of crores.
 
Karan Gaikar, president of Chhava Sangathana, that organised the rasta roko, has demanded an inquiry by the Central Bureau of Investigation (CBI) in this money circulation fraud. “People were asked to invest in bands of Rs7,200, Rs17,200, Rs57,200 and Rs86,000; assuring a three-times return in less than three years," Gaikar was quoted as saying in a news report.
 
Bapurao Mate, a resident of Adgaon area, told the Times of India that he had invested Rs2.63 lakh with the hope that he would get an assured amount of Rs11.63 lakh in two to four years for his daughter's wedding. “I am from Marathwada and at least 300 people from the region have invested money with the company on my assurance," he told the newspaper.

Minerals For All, another MLM, offering single remedy for all diseases!

Minerals For All is yet another MLM hard selling ‘concentrated mineral water products’ as the single remedy for all diseases and promises high returns to its marketing agents. Only issue is the water it claimes to procure from the US is just the saltiest water
 
Minerals For All (MFA), a multi-level marketing (MLM) company is luring people with the fanciful claim of fostering India's biggest health revolution through the use of 'concentrated mineral water' allegedly collected from the 'Salt Lake of Utah' in the US. Making such a claim falls foul of the Drugs & Magic Remedies Act, however, since it ensnares people through the MLM route with high incentives to agents, it has managed to fly below the radar of most regulators. 
 
The products are sold by mfadirect.com, owned by Itspossbile Marketing Ltd, a New Delhi-based marketing firm. Like all MLMs, its sale of products is combined with the 'promised' lucrative income opportunities through distributorship, franchise and direct marketing options. It offers 10% to 30% commissions (as mentioned on its website) exciting prices, preferred customer rewards and bonus for building marketing network.
 
The website claims that US-based Mineral Resources International (MRI) manufactures these products and mines mineral water from the 'Salt Lake of Utah'. Itspossible Marketing claims to be an exclusive distributor of these products.
 
MFA’s website mineralsforall.com also promotes products from another website called mfadirect.com and provides details on how one can join, become a member and start earning. 
 
It provides business presentation and compensation plans
 
A simple reading of the site makes the MLM pitch very clear. It says, “We feel that nature has given us amazing simple ways to fulfil nutrition needs let us lead a healthy life and our product range offers natural products with simple rationale but excellent results. Therefore we want to reach out to as many households as possible and offer them our product to achieve a better health; considering this fact we want to spread our reach not only to all major four metros but will dig into tier one, tier two cities and also to remote villages with an aggressive expansion plan. If you have entrepreneur zeal our business model will give wings to your business ambitions, contact us and one of our associate will explain you in details.”
 
Those who are tempted by its claims must also notice the fine print that absolves it of responsibility. It reads, “Company does not provide any guarantee of earnings neither it gives any money on recruitment of distributors. Incentives can only be earned by independent representatives/ distributors of the company by affecting the sales of products.”
 
The MLM claims that most diseases are due to mineral deficiency, which can be overcome by using its  'concentrated mineral water'  (Anderson's CMD also know as MRI CMD, Precious Waters, Elete Electrolyte) by adding it to water to cure major diseases like arthritis, cancer and diabetes.
 
In an email, Vipin Rohila, director and chief executive of MFA Marketing Pvt Ltd said, "Please note that the Company has clearly mentioned on all of its Marketing Brochures, website or packaging and label itself that 'Anderson’s CMD is not a drug. Not for medicinal use. No approved therapeutic claims'."

However, at the same time the company again tried to tell us, through the email, about the 'benefits' of their product. "Since our diet is nutritionally deficient therefore it is bound to be deficient in essential minerals and trace elements and since our product offers a natural composition of minerals found and prepared be Mother Nature in Great Salt Lake water, it helps replenish the deficiency of various minerals in today’s diet. Therefore it can be concluded that though we do not sell Anderson’s CMD as a medicine to cure one or more diseases but it has been observed that with regular usage some people have noticed benefits in their various health problems, which is a clear indication of improved general well being," Rohila added.

He also claimed that the company has received product approval from Food Safety and Standards Authority of India (FSSAI) as mineral supplement.
 
Now, let’s check some facts about the Great Salt Lake from where the company claims to source its products. The Great Salt Lake, located in the northern part of the US state of Utah, is the largest salt water lake in the Western Hemisphere. In an average year the lake covers an area of around 4,400 sq km but the lake's size fluctuates substantially due to its shallowness.
 
According to Wikipedia, the salinity of the lake's main basin, Gilbert Bay, is highly variable and depends on the lake's level; it ranges from 5 to 27% (50 to 270 parts per thousand). For comparison, the average salinity of the world ocean is 3.5% (35 parts per thousand) and 33.7% in the Dead Sea. The ionic composition is similar to seawater, much more so than the Dead Sea's water; compared to the ocean; Great Salt Lake's waters are slightly enriched in potassium and depleted in calcium.
 
 In short, there is no 'mineral water' in the Great Salt Lake, and its water is the most saltier than ocean. Same goes for mineral deposits as well. So be aware, there is no 'one shot' cure for any diseases by using the 'mineral water' from this lake as claimed by Minerals For All and its agents. 
 
Moneylife has written several articles on frauds that lure people by floating various MLM and frequently warned investors that “If it looks too good to be true, it usually is.” This is clearly another in the same category. Moneylife investigated this company when a worried reader wrote to ask us to investigate the company. 

NMart runs CIS-based MLM under guise of a retail chain

 NMart Retail is collecting money from people under the guise of giving them an opportunity to shop at its retail chains, offering huge returns on their investment. But it admits there is no guarantee that anyone joining will make money and that its system is purely dependent on new joiners

Surat-based NMart Retails, a division of Newlook Multitrade Pvt Ltd, is running a collective investment scheme (CIS) based on the multi-level marketing (MLM) business, under the guise of selling products through its retail chain. What is stunning is that the company openly says there is no guarantee that anyone joining would make money and its system is purely dependent on new entrants expanding the chain.

Here's what the company says under the disclaimer page on its website: "The owner/owners of this website (www.NMart.co.in) inform the distributors and would-be distributors that there is no guarantee that anyone joining the system would make money. The system purely depends on the number of distributors joining the system and distributor referrals."

In addition, NMart says that the payment would not be refunded under any circumstances.

Unfortunately, no one seems to be reading the fine print on the NMart Website. Most of the new distributors are blinded, or fooled by the lure to buy daily-need items from the company's retail chain, which may or may not be there in their local area. This also means that you not only have to enrol new distributors in your down line, but also continue to buy products from the retail chain.

NMart offers a return that works out to about four times the original investment over a period of 48 months, without taking into account other income like binary, spill-over or royalties. The highest income that a distributor can earn, as presented by the company, works out to Rs48 lakh, or 873 times of the original Rs5,500 invested and this is simply not possible.

'Business' plan

According to information available on the company's Website, anyone wanting to join the NMart Retail system or business plan, has to invest or deposit Rs5,500. The company provides 48 vouchers of Rs220 (it needs to be consumed each month over a period of four years), a 'smart' card, credit facility of Rs1,500 per month (provided you settle the bill by the 7th of the following month), and last but not the least, a bonus of Rs11,000, if at all you remain with the company (and continue to enrol new recruits and buy products from its shop) for 48 months. Not satisfied, yet? The company also promises to pay other incomes, like binary income, spill-over income, royalty and repurchase incomes.

For any two new joinees, on either your left or right leg or down line, you would get Rs600 as pair income for an unlimited depth. (But it is capped at 100 pairs, or a payment of Rs60,000 per week.) So, the company says, enrolling 8,000 new distributors below your rank can earn a binary income of Rs24 lakh. If your success percentage is just 1%, you could still earn Rs24,000 just as binary income!

It, however, does not mention that for this you still need to enrol 80 new people with an investment of Rs5,500 each, or a total Rs4.40 lakh, of which the company would pay you Rs24,000. That's about 5% only and it keeps the rest with itself! If this is not enough, then the company promises to pay you spill-over income, or Rs200, for every new joinee below your line for an unlimited depth. In addition to this, NMart also promises to pay royalty and repurchase income.

The company projects an income of Rs48 lakh for a down line of 16,000 distributors, with 8,000 associates on the left and right legs, each earning Rs24 lakh. But the next presentation slide suggests that you to do 'smart work' and instead recruit your own family members (like your spouse and your mother) instead of outsiders, to you can keep all the money (Rs48 lakh + Rs24 lakh + Rs24 lakh = Rs96 lakh) within the family!

According to Consumerfraudreporting.org, one must analyse the compensation plan to determine whether participants are paid from actual sales to customers and not from money received from new recruits. If participants are paid primarily from money received from new recruits, then the company is an illegal pyramid or Ponzi scheme, the website said. This is exactly what NMart is doing.

Promoters

The company is promoted by Gopal Shekhawat, who is also said to be chairman for Asia of the International Human Rights Association. In some places, Mr Shekhawat is also referred to as being the nephew of the President of India, Pratibhai Patil, but this cannot be confirmed.

Among other promoters and officials of NMart Retail are Akil Patrawala, CEO; Pratik Desai, business head for retail; Hiren Devani, HR head; Dr Riyaz Mushrif, marketing head for network; Bharat Handifod, business head for network; Prashant More, training in-charge and Dashrath Mali, insurance in-charge.

Newlook Multitrade, the parent of NMart Retail, has its corporate office in Surat and mentions a Mumbai address in the records of the Registrar of Companies (RoC). According to information available on its Website, NMart operates around 51 retail stores across the country and plans to increase that to 135.

Regulators silent

Some questions about NMart, put to the Securities and Exchange Board of India (SEBI) by Moneylife were not answered. In May 2011, the market regulator asked Kolkata-based Sun-Plant Agro to wind up its CIS and refund the money it had collected.

Sun-Plant Agro was raising funds in the name of 'sale of plants'. It allegedly sold plants to purchasers, maintained the plants and thereafter provided returns on the amounts invested at the end of the scheme in the form of wood, although investors were not provided any identity or reference to the particular plant sold.

SEBI said such activities had the characteristics of a collective investment scheme, as specified under Section 11AA of the SEBI Act read with Regulation 3 of the SEBI (CIS) Regulations. Sun-Plant Agro ought to have wound up the scheme in 2003 pursuant to rejection of the application for provisional registration by SEBI and the filing of the 'Winding Up and Repayment Report' by it.

"The activities of Sun-Plant Agro and the details of amounts received by it against the cost of trees from 2003 to 2010 prima facie indicate that even after submission of the Winding Up and Repayment Report in 2003, the company carried out activities of a CIS without obtaining a Certificate of Registration from SEBI," the market regulator had said.

In addition to collecting money from people, NMart also paid them commissions for recruiting new people. On the issue of MLMs, the United States Federal Trade Commission states, "Steer clear of multi-level marketing plans that pay commissions for recruiting new distributors. They are actually illegal pyramid schemes. Why is pyramiding dangerous? Because plans that pay commissions for recruiting new distributors inevitably collapse when no new distributors can be recruited. And when a plan collapses, most people-except perhaps those at the very top of the pyramid-end up empty-handed."

This MLM openly flouts SEBI norms and offers 120% returns in a year through stock market investment!

Stockguru.India and its group companies are self-styled investment advisors, offering Rs22,000 on an investment of Rs10,000 in one year

As if there were not enough potholes on the stock market route, here is a multi-level marketing (MLM) company that is promising 20% returns per month! The company Stockguru.India describes itself as the country's 'Premier Financial Consultancy', offering trading solutions in equity, derivatives, currency futures, commodities trading, initial public offerings (IPOs), insurance (life/non-life), general insurance, mutual funds, portfolio management services, terminal handling all under one roof.

Stockguruindia.com (the company's portal) has only one standard line of advice in all market situations-whether it is a bull market or a bear market, range-bound market or volatile market. It says, "We advise our clients to buy shares at a low price and sell them at a higher price. Selecting the right share at the right price and entering the capital market at the right time is an art. We help all our clients to make huge profits by investing in good shares for very short/short/medium/long term depending upon the client's requirements. Trading/investment for minimum intraday to T+5 days may give you a handsome return of 5% to 25% on your capital investment."

This MLM company's investment (!) plan is simple. You pay a minimum Rs10,000 as investment and Rs1,000 as registration fees. There is no limit on the maximum amount one can invest. Stockguruindia.com offers a return of 20% per month for up to six months and the principal amount invested is returned in the next six months. It also gives post-dated cheques of the principal and a promissory note as security. In short, on an investment of Rs11,000, the company offers to pay you Rs12,000 in six months and the rest Rs10,000 over the next six months, a total of Rs22,000 or a 120% return in a year.

So how does Stockguruindia.com offer such a high return where even leading investors like Rakesh Jhunjhunwala found it very hard to earn even 20% return from the stock markets? Here is the company's logic..."If you have gained Rs1,000 somebody has lost Rs1,000. If you have lost Rs1,000 somebody has gained Rs1,000. Most of the people you meet say (around 90%) that we have lost a lot of money in the financial markets. But that means around 90% people you do not know have made huge profits. For every seller there is a buyer."

If this sounds to be too good to be true, it lures investors with an additional 3% per month income through a binary plan of 27 levels. Binary plans of MLM companies are the new clients you bring in, who are placed below you in rank in a right and left combination. It's nothing but a trap. All MLM companies promise say you rewards if you complete the left leg-right leg cycle. But in practice this does not happen. There are very few people who manage to do this in a proper way. A majority of those participating fall in the category where they lack a single member in one leg, or a member becomes inactive thus freezing the spread of that leg and the business.

How do MLM companies operate without a trading license from the regulators, the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI)? Why has there been no action against Stockguru.India, Stockguruindia.com and its subsidiaries? Market regulator SEBI had, on its part, issued SEBI (Investment Advisers) Regulations, 2007 (the 'Draft Regulations') to regulate the advisory activities of investment advisers in India. But till date it has remained a draft only.

According to R Balakrishnan, a columnist for Moneylife, India probably is the only market in the world where a distributor needs to pass an exam, but absolutely no qualifications are required for someone to become a fund manager. The same is applicable for investment advisors as well. As a result, there are a number of 'self-styled investment advisors', including wealth managers, private bankers, chartered accountants and even some MLM companies like Stockguru.India. 

According to the SEBI Act 1992, "No stock-broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with the securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act."

In addition, the Act says, "No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment scheme (CIS) including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations."

Stockguru.India and all its group companies are openly flouting the norms and rules. It is not registered with SEBI as investment adviser and still offers to trade on behalf of its clients. According to information available over the internet, Stockguru.India and its chairman and managing director Lokeshwar Dev, will help anyone to open a demat account with Sharekhan so that they can manage the investor's money. We checked with Sharekhan and the brokerage said, neither Stockguru.India nor Lokeshwar Dev have any relations with or any demat account with them.

In addition, neither Stockguru.India nor any of its group companies possess a certificate of registration from SEBI for CIS, but they are still collecting huge amounts from clients under the pretext of stock market investment. Are the regulators sleeping on this one?

MMM India, QNet ‘cult’ growing. Why government is dragging its feet in tackling this MLM menace?

 EAS Sarma, former secretary to GoI has questioned the non-action from the government on the growing menace of multi-level marketing (MLM) and money-circulation schemes, which are duping lakhs of gullible savers

When Moneylife wrote about a ponzi scheme founded by a convicted Russian fraudster, Sergey Mavrodi, which was luring thousands of Indians to follow its ideology of ‘trust’ and help one another, we were in for a surprise. Our article has unleashed a barrage of intemperate responses that seem straight from the followers of the Mavrodi. In typical cult-like fashion, they claim to be creating a parallel universe with their own currency known as ‘Mavro’ named after the founder who conceived the system. The Bitcoin drama is obviously being re-enacted with another coin and currency.


We forwarded details of this to EAS Sarma, former secretary to the Government of India (GoI), who has helped raise several issues with the Prime Minister’s Office as well ministry of corporate affairs (MCA) and the finance ministry.“As I write this letter, a vigilant Andhra Pradesh police has arrested Gopal Shekhawat of NMart. A Russian company, MMM India has already spread its tentacles into every nook and corner of India with a virtual currency, dubiously attractive incentives and agents to push through the scheme to cheat the gullible households.  The ubiquitous ‘Q Group’, changing its name like a chameleon changing its colours, continues to swindle the people unhindered, as evident from media reports,” Mr Sarma said in a letter to Naved Masood, secretary, MCA.


He said, “Why is the government dragging its feet in tackling this menace? Are influential politicians involved in these MLMs? I suggest that your ministry (MCA) takes the initiative, though highly belated, to form a task force consisting of Serious Frauds Investigation Office (SFIO), Enforcement Directorate (ED), State Police and other investigating agencies to detect these multi-level marketing (MLM) well in advance and bring them to book before they cause any large damage. “


“The moment any company is found to be either registered or unregistered, offering unduly high incentives, it should trigger action on the part of the task force. As an immediate measure, the examples I have given, especially, MMM India and Q Group of companies, should be investigated speedily,” Mr Sarma said in this letter.


While Bitcoin was created to solve the mathematical solution to double-counting, it grew into a separate currency and system altogether and its value has skyrocketed as more and more people, investors and enthusiasts jump into the bandwagon and started transacting in the virtual currency. We had written, in detail, a primer on Bitcoin for those who are not familiar with it, in an accessible manner over here. The reason people took to Bitcoin, apart from its meteoric rise in value is because there is no regulator to control the currency unlike fiat currencies which get depreciated. However, recently, the Bitcoin has come under attack after hackers managed to penetrate into some of the Bitcoin e-Wallet sites, which caused them to shut down and stop offering Bitcoins for sale.


Similarly, the Mavro, the virtual currency transacted by so called ‘Mavrodians’ (i.e. those who have enrolled into MMM India), eerily resembles Bitcoin in the in many ways. Firstly, like Bitcoin, there is no regulator for it. MMM India website says, “In terms of legislation, MMM INDIA  is an ephemeral combination of letters and numbers. MMM INDIA is an idea, a concept, and nothing more. There are no offices, no sales centres, no cash payments etc.” Secondly, like Bitcoin, participants simply transfer cash from one to another party through the internet using virtual currency. In order to acquire the currency, real currency must be paid first.


However, there is one catch, and an important one at that: exchange rate. While Bitcoin is market-determined and entirely prone to hackers, the Mavro is not market-determined at all. In fact, one man controls it.


The value or the rates of the Mavro currency are decided by none other than Sergey Mavrodi himself. He gets to decide how much the currency is worth and how much can be redeemed and has power to reset the entire system, and so on and so forth. He also gets to decide when to freeze redemptions. According to the MMM India website, it states: “Just like regular currency, MAVRO has two different ‘exchange rates’, one for ‘selling’ and one for ‘buying’. Each participant can ‘sell’ or ‘buy’ MAVRO, according to the ‘rates’. ‘Purchase’ and ‘sale’ of MAVRO are carried out by special automatic software on the official website”. The most important part is this, which is also stated on MMM India website: “These ‘rates’ would be established personally by Mr Sergey Mavrodi. Twice a week, on Tuesdays and Thursdays, and, supposedly, would be growing continually.”


Recently, Sergey Mavrodi had reset the value of the Mavro, thus shortchanging many so called ‘Mavrodians’, who will see that 95% of their virtual money in the system will be “frozen” leaving only 5% available for redemption. In other words, if you have, say 100 Mavros in your account, you will be only able to redeem five Mavros. Sergey Mavrodi explained the cause for the reset: “Despite the huge influx of new participants, wanting to give help, the number of people and most importantly the amount with which these people wanted to ‘GET HELP’ was much much more”. 


He said, “Therefore, I declare the restart of MMM in India. Mavro of all participants will be recalculated as next: total amount of purchased confirmed Mavro minus total amount of withdrawal, plus 10%. This is to ensure from our side that all who have not yet received help - will get it for sure.” Needless to say, 95% will still be locked and frozen and it is not known when they can redeem the full value, if at all.


As of now only the 30% Mavro is being offered now (i.e. 30% returns as opposed to 40%). He even goes on to say, “By the way, 30% is also not a joke! This growth is approximately 10 times after nine months. Where and who is paying this type of percent?”


Surprisingly, the same Mavrodi froze operations of MMM-2011 in May 2012. In January 2011, he launched MMM-2011 frankly describing it as a pyramid adding, “It is a naked scheme, nothing more ... People interact with each other and give each other money. For no reason!” Within 17 months, Mavrodi announced that there would no more payouts in MMM-2011. This can well be the fate of MMM India as well.


This is exactly “too good to be true” that savers ought to avoid at all cost. Of course, when there is no regulator to govern the currency, anything can happen.

QNet: Ferriera, six others misled court by submitting 'fake' document, says EOW

Have QNet team leaders misled the Mumbai Sessions Court by submitting a fake document along with their bail application? The Economic Offences Wing has made this sensational disclosure. The police official, whose signature is on the document has also denied having prepared or signed it

In a sensational new development, the Economic Offences Wing (EOW) of the Mumbai Police, in their objection to the anticipatory bail application filed by seven team leaders of the shady QNet scheme have accused them of submitting fake documents. The EOW has told the Sessions Court that a document submitted by the QNet leaders is bogus and concocted. The Police Sub-Inspector (PSI), under whose name the document was submitted, has, in an affidavit, denied having prepared it.

According to EOW, the team leaders of QNet, including former world billiards champion Michael Ferriera, Srinavas Rao Vanka, Magarlal Viravali Balaji, Malcolm Nozer Desai, Navjyot Mahesh Das, Chinar Surendra Shinde and Mereilla Kamal Dutta have misled the Court by submitting a fake document while seeking bail. This is in connection with various charges made by the intrepid whistleblower Gurpreet Singh.


The document on which the Court relied for granting anticipatory bail pertains to a report allegedly prepared by PSI Vishnu Pandu Rathod of Oshiwara Police Station in Mumbai. It states: Since complainant Parmit Anand Kaur had gone to Hyderabad, her husband Gurupreet Anand, in his statement on her behalf has stated that his wife has no complaint against e-commerce company QNet.

However, PSI Rathod, in an affidavit has denied having recorded any such statement. He said, "I state and declare before this Court that the documents which were relied upon by the applicants in their anticipatory bail applications as the statement recorded by me and the report prepared by me are not the documents prepared by me and I have no knowledge whatsoever in respect of the said documents forwarded under my name and designation."



The EOW of Mumbai Police, which is probing the MLM fraud, had so far arrested nine team leaders of QNet for allegedly duping investors by offering to sell products such as magnetic disks, herbal products and holiday schemes through fraudulent practices. The accused have been charged with cheating and forgery under relevant sections of the Prize, Chits and Money Circulation Schemes (Banning) Act 1978.

The complainant, Gurupreet Singh Anand, a computer consultant from Lokhandawala, Andheri in his first information report (FIR) before the EOW stated that his wife was duped for Rs30,000 by some people who had introduced themselves as the independent representatives (IRs) of QNet. Anand told the police, “They (IRs) had said that one of the bio-products my wife bought could be used to treat my 12-year-old son's brain-related diseases.”

Earlier in February 2014, the Enforcement Directorate (ED), the agency responsible for enforcing economic laws and fighting economic crime in India, registered a case in the Rs425 crore QNet scam for money laundering.

The ED has named QNet Ltd from Hong Kong, its official franchisee Vihaan Direct Selling Pvt Ltd, Vijay Eswaran, the founder of QI group and three other independent representatives (IRs) of QNet from Mumbai.

In a media statement, QNET called the money-laundering probe by ED against it as 'allegations that are preposterous and completely baseless'.

Another MLM scam in the happening, this time under the pretext of an online survey

An MLM company that claims to be Asia’s largest online survey company, does not even have an office address or a telephone number but is offering to ‘pay’ $10 just for filling out online surveys

Speak Asia Online, which claims to be based in Singapore, is spreading its multi-level marketing (MLM) wings in India under the pretext of online surveys. As is usual in any MLM scheme, this company also makes big claims about earnings, but fails to provide any documentary evidence for the same.

The company asks new customers or subscribers to pay $120 (standard) or $220 (premium) for becoming a panellist for one year. However, it says the fee is for its e-bulletin for one year. It clearly says: "You can remain a panellist and earn from Speak Asia only as long as your subscription to E-Bulletin is in force." This means, before earning a single penny, you need to pay the company upfront. After the one-year period, one needs to renew the subscription. There is no mention of renewal fees.

Speak Asia Online sends its surveys mostly on Wednesday to all subscribers. Each survey takes around 40 minutes to complete. It says: "The first eight weeks are treated as a training period and the company provides you feedback on incorrectly filled surveys." After that period, any incomplete or incorrect surveys are rejected and the company does not pay for it.

The company assures that it will make the payment in local currency through direct bank transfers. The catch here is that one has to pay bank transfer charges of 3% or minimum $7.5 per payment. In case you have earned $10 for the month, you would get payment of $2.5 only, as $7.5 from the total payment would get deducted as bank transfer charges.

Speak Asia Online says it provides income in reward points (one reward point is $1). It awards up to seven reward points per week for a standard panellist and 20 reward points to a premium panellist. It offers survey income as well as passive income that one earns by adding more people into a down-line. However, for the next day's incentive calculations, it does not consider the weaker line. It says: "Weaker leg is flushed out whereas the stronger leg is always carried forward for next day's incentive calculation."

Although the company offers to pay for filling out surveys online, it fails to mention that for doing this job one requires minimum knowledge of English and the Internet.

Speakasiaonline.com is hosted in the US on the GoDaddy.com server and the hosting services will expire on 21 January 2011. Besides that, there is no information available on the domain, its owners, their addresses and contact details.

The company website does provide links for all countries and major cities but directs all queries to its Singapore address only, which neither has a telephone number nor any email ID. Except India, the so called 'good income business opportunity' does not exist for other countries.

According to a complaint posted on India-complaints.com, this company has changed its name three times over the past five years and is blacklisted for non-compliance in Singapore.
SpeakAsia ad
Its website, speakasiaonline.com does have a link for legal documents but provides the legal documents not of the company but generic documents from the Customs Department, the Reserve Bank of India (RBI) and so on.

Speak Asia Online shows no evidence about the legality of its business or any registration certificate issued by government authorities. All the company can show as evidence is a registration certificate issued by the Singapore government. The issuing authority of this certificate, Registrar of Companies and Businesses, however, has clearly stated that the certificate of good standing or any of its contents shall not be reproduced, republished, uploaded, posted, transmitted or otherwise distributed in any way without prior permission of the Accounting and Corporate Regulatory Authority (ACRA), Singapore.

In addition, there is no mention of its promoter or top management on the site. In fact, there are no names on the website. All one can see is just names of its 'dealers' and their bank account numbers.

Is the Modi govt helping Ponzi, MLMs become legal?

Ordinary people are the biggest losers in the Ponzi, MLMs, chit fund and money circulation schemes like Saradha, Speak Asia and QNet. Yet, under 'pressure' from powerful MNCs operating as direct selling companies, the Modi government is reportedly proposing to dilute the PCMCS Act. Will it impose stringent conditions on them or merely help them to escape scrutiny?
 
It is reliably learnt that Department of Banking and Financial Services under the Ministry of Finance is moving a Cabinet Note on 7 October 2014 to bring exceptions to Prize Chits & Money Circulations Schemes (Banning) (PCMCS) Act, 1978.
 
By using this amendment, several multi-level marketing (MLM) companies, like Amway, QNet may get a free run in this country and become completely legal, when they were operating in a grey area so far.  The lobbyists of these companies in Delhi have been extremely active in New Delhi to get the Narendra Modi government support by diluting the Act. The irony is that while the Finance Ministry is quietly working at diluting the Prize Chits Act, the very same government and its capital market regulator has been going after the Saradha scamsters with renewed vigour and the chairman of MPS Greenery has been arrested following action by the capital market regulator. Ponzi schemes have been bursting on the national scene with great regularity and in most cases, there is political collusion. A major scam is also being investigated in Orissa after tens of thousands of people were duped of their life savings.  
 
So why is the dilution of the PCMCS act such a priority for the new government? Why is it being discussed so quietly, without a public engagement and seeking of feedback from stakeholders? Those who have persistently fought to protect people or highlighted activities of these MLM companies are surprised that the government has time to discuss dilution of this act, when at least six nationalised banks are headless for months and many do not even have executive directors. 
 
EAS Sarma, former secretary to the Government of India (GoI) has written to Cabinet Secretary Ajit Seth and the Banking Secretary Mr Sandhu in response to reports that the Ministry of Finance has circulated a Cabinet note with respect to proposed amendments to the PCMCS Act, 1978.
 
He says, “There are issues that impinge on several court cases and any dilution of the Act will prejudice the Centre's and States' cases before the Courts. Such a dilution will allow the delinquent MLM companies and their promoters to escape scot-free to the detriment of the public interest”.
 
The Cabinet note cited by Mr Sarma comes in the wake of regular chit fund scams, like Saradha, breaking all over the country and the government's as yet ineffective efforts to bring these chit funds under control.
 
By aping the model of MNCs, many indigenous companies are promoting illegal money circulation schemes in every nook and corner, thus ruining the fiscal system of this country. Rough estimates till now has revealed that financial consumers have lost a whopping Rs3 lakh crore by ‘investing’ or ‘buying products’ from these MNCs and local indigenous companies.
 
Even, the Intelligence Bureau (IB) in October 2012, written to the government about the illegal financial activities of chit fund companies. The IB reported "fresh" illegal financial activities of chit fund companies and multi-level marketing schemes that were cheating lower middle class and poor people, especially from rural and semi urban areas. Of the four firms named, two companies - Rose Valley Estate Construction Ltd, Kolkata and MPS Greenery Developers Ltd, Jhargram are in West Bengal, says a report from Hindustan Times.
 
The provisions of the PCMCS (Banning) Act, 1978 deals with such activities.  Section 2(c) of the Act defines ‘Money Circulation Scheme’ as a scheme by whatever name called for making of quick or easy money on any event or contingency relative or applicable to enrolment of new members into the scheme; for receipt of any money or valuable thing as consideration for a promise to pay money on any event or contingency relative or applicable to enrolment of new members into the scheme. This section further clarifies that it is immaterial whether the commission derived from entrance fee of new members, renewal of periodical subscriptions, conducting of seminars and sale of products or not.
 
Section 3 of the Act bans (i) Promotion or conduct of these schemes, (ii) enrol of members into such scheme, (iii) Participate or otherwise involvement in these schemes and (iv) remit or receive of the money relating to these schemes.
 
Mr Sarma, says, “I wish to underline the fact that ‘economic liberalisation’ should not mean welcoming firms that add no value to the economy. Most MLMs, the world over, belong to that category. Many of them are high and mighty, as they are MNCs supported by their parent countries. Their parent governments lobby on their behalf as they profiteer at the cost of the public in the developing world. These companies have, time and again, tried to sneak into the country, through the questionable FIPB route. The smaller MLMs and Chit Funds, hand-in-glove with the regulatory authorities, function merrily without registering under the Companies Act and swindle people. Several of these companies have financial links with terrorist groups, drug traffickers and so on. There is no place in India today where some family or the other is not shedding tears for having got robbed by one of these Ponzi companies! Do you want this unfortunate situation to continue and become worse?”
 
“If this report is true and if the Act is diluted in anyway, it will not only prejudice the ongoing court cases against MLM companies like Amway but also help more and more unethical Ponzi companies to derive strength and rob millions of unwary households of their meagre savings. There will be a mushrooming of Saradha-like companies having their sway over unsuspecting public and destroying their lives. Instead of curbing the MLMs, then the Central Government will have the unenviable distinction of being an abettor of the MLMs' anti-social activity,” the former Secretary said in his letter.
 
What is urgently needed today is not any dilution of the PCMCS Act but making it more stringent so that any company that tries to carry on activities that add no value to the economy but syphon off the savings of the small households are brought under rigorous regulatory oversight. The need of the hour is to secure coordination among regulators like SEBI, Registrar of Companies, Enforcement Directorate, Serious Fraud Investigation Office (SFIO), the State police and so on. Similarly, there is need for coordination among Central Ministries such as Finance, Corporate Affairs, Consumer Affairs and the State governments.
 
Moneylife has been writing and exposing thousands of MLMs, including Speak Asia, QNet (earlier version Gold Quest and Quest Net), StockGuru India, NMart, Minerals for All, and so on. Even Moneylife Foundation, the voice of over 31,000 financial consumers across the country, sent a Memorandum to the then Prime Minister Manmohan Singh urging him to either to ban out rightly or put in place a regulator in-charge to monitor such MLM companies and their schemes.

Huge Ponzi Scandal Unfolds in India

Politically well-wired group takes millions for a ride
Millions of small investors in eastern India have lost their life savings with the collapse of the politically well-wired Saradha Group, whose boss, Sudipta Sen, is now behind bars and with more than US$800 million having disappeared, one of the biggest scams in Indian history.
It is a scandal that appears directly related to the failures of India’s financial and regulatory agencies. Beyond that, Saradha Group’s demise is an archetypal story of cheating hundreds of thousands of poor families, offering unbelievable returns up to 30 percent annually against deposits, in what appears to have been a classic Ponzi scheme, built partly on the cachet that rubbed off from high-level officials recruited by Sen.
Arrested with the group boss, for instance, were a dozen high profile individuals including Saradha’s media wing boss Kunal Ghosh, former Bengal police chief Rajat Majumdar, East Bengal football club official Debabrata Sarkar, businessman Sandhir Agarwal, popular Assamese singer Sadananda Gogoi and others. Shankar Barua,the former director general of the Assam police, committed suicide after being suspected as a beneficiary. Raids have been carried out on the residence of Himanta Biswa Sarma, a former Assam health and education minister,and the offices of three satellite news channels.
The CBI suspects that Sadananda introduced Sen to former Assam minister Dr Sarma and State police chief Barua. Sadananda was arrested on Sept. 12.
Both the Securities and Exchange Board of India and the Reserve Bank of India are being blamed for their ineffectiveness. A High Court has directed that both SEBI and RBI should be questioned over their inability to control scams by mysterious companies like Saradha, called non-banking financial companies, or NBFCs.
Prime Minister Narendra Modi has become personally involved, reportedly telling the Central Bureau of Investigation to go ahead with the probe. The prime minister’s office has warned opposition Union-held ministries not to interfere.
Headquartered in the eastern city of Kolkata, the Saradha Group is suspected of having collected more than Rs50 billion (US$816.3 million) through various schemes run by over 200 companies from gullible investors with little access to formal banking or other financial institutions in poor provinces.
Sen employed more than 1,600 workers and 200,000 agents, offering hefty commissions to lure largely rural people to deposit their money in 12 Saradha companies. Although Saradha started operations a decade ago, it only appeared above the horizon in 2010. By that time Saradha had entered the media business, publishing six newspapers in English, Hindi and Bengali and operating two Bengali television news channels and three entertainment channels. He donated money to the committees of Durga Puja celebrations, football clubs, other social organizations and hosted lavish dinners in star hotels to attract media attention.
The company hired popular Bengali film personalities like Mithun Chakraborty and Satabdi Roy, both also members of the Indian Parliament, as brand ambassadors. Both Chakraborty and Roy are associated with the Trinamool Congress Party led by West Bengal chief minister Mamata Banerjee. The now-jailed Trinamool lawmaker Kunal Ghosh was appointed CEO of Saradha’s media wing. Thus the general impression was that the party and Banerjee were directly or indirectly involved. Sen exploited the impression, hanging his photograph with the Bengal chief minister in all Saradha offices.
The group attained unprecedented advantages once Banerjee became chief minister in May 2011, defeating Kolkata’s left-front government. Saradha started various money-pooling schemes, camouflaging the deposits in various names like tourism packages, advance hotel booking agencies and reserving space in real estate and other concerns. As with many other such bodies, Saradha also misrepresented itself as a chit fund company, collecting public money under their multilevel marketing structures. The chit fund activities have survived for centuries, recognized as close transactions among members only. They are supposedly prevented from collecting deposits from the general public.
The Rs35-billion scam broke in early 2013 as offices in various parts of the region began closing, with thousands of beneficiaries impatiently demanding their money back at advertised high returns. Hundreds of thousand families have lost any hope, however, resulting in the suicide of nearly 100 dejected investors and agents who lost everything. Disgruntled investors sought court action and high-level probes, sending Sen into hiding after sending a letter to the CBI declaring the collapse of his group. He was finally arrested and jailed in April 2013 in Jammu & Kashmir with two close associates.
Sen was an active member of the ultra-left Naxalite movement that erupted across middle and eastern India during the 1970s before surfacing with a new identity as a business tycoon. Soon he started Saradha, promising high returns that were supposedly insured, saying the funds would be invested in big profit-making projects.
But Pinku Rajbongshi runs a small shop in the Ambari locality of Guwahati in Assam. He is typical of the defrauded, losing deposits of Rs24,000. “I wanted to buy a photocopy machine to increase my income in the shop,” he said. “But today I have lost all my deposits only to ruin my small shop through which I am taking care of our four-member family.”
He said he actually wanted to deposit his money in a conventional bank or small saving schemes run by the Indian Postal Service, but said it was too difficult to open an account, with officers asking for multiple documents.
But not all investors are as simple and semi-literate. Hundreds or perhaps thousands of professionals deposited funds in Saradha type non-banking financial companies for higher interest rates and to avoid income taxes. Dilip Goswami (name changed), a physician based in rural Assam, works in a government hospital. He is not allowed to earn extra money treating patients during the duty-hours. But in practice, the young physician always attends patients in private hospitals.
To hide the amount, the physician preferred to deposit the extra funds in various Saradha schemes. Goswami asserted that he wanted a hefty amount with a maturity return of 30 percent, far above what banks pay, and hidden from his accounted income sources.
“People like Dr Goswami help the mysterious NBFCs to survive,” said Amal Borpujari, a local economist. “We must understand that these people avoided paying income tax to the government while depositing their money in such groups and they took the initiative for personal greed only.”
Borpujari acknowledged that hundreds of thousands of rural depositors have no basic economic awareness and little access to formal banking, and thus approach the NBFCs to avoid opening accounts in registered banks far from their villages.
“Here comes the responsibility of a government. The authorities should encourage the people to deposit their money in a government-recognized agency, such that the return can be ensured to the investors,” he said.
The West Bengal government was initially reluctant to hand over the Saradha cases to the CBI, forming its own investigative team. However, the Supreme Court of India intervened and handed over the cases in May. Later, Banerjee welcomed the probe and appointed a judicial inquiry commission headed by Shyamal Sen, a retired high court chief justice. She also announced a Rs5 billion relief fund seeking to ensure that low-income investors get their returns, though the decision was criticized.
Sen is also suspected of having transferred a huge amount of money to foreign banks, which may have disappeared for good. The investigation also covers the flow of Saradha money to a fundamentalist outfit in neighboring Bangladesh. Unconfirmed reports say Jamaat-e-Islami, a fundamentalist Islamic political party, got money from the Saradha boss through Trinamool Congress leader Ahmad Hassan Imran.
Bangladesh Prime Minister Sheikh Hasina has also expressed concern over the matter as Jamaat-e-Islami is a rival to her political party (Awami League) in Dhaka. Moreover in the recent past, Jamaat-e-Islami has been found responsible for killing innocent Bangladeshi nationals in general and a number of Awami League leaders in particular.

Need to rein in ponzi schemes

In what could be described as a welcome move, the Department of Financial Services of the Union Ministry of Finance has decided to clamp down on ponzi schemes which are thriving throughout the country in the name of selling products and services. With several people fleeced by them filing criminal cases against these companies, the Union Ministry of Finance has woken up and taken stock of the situation. It augurs well for the Modi administration to get tough with the illegal money circulation schemes or ponzi schemes by bringing in the toughest of norms to rein in the money circulation schemes and pyramid marketing businesses. The new norms, it appears, would include a detailed definition of ‘money circulation schemes’ to cover all money-pooling activities with a corpus of less than Rs 100 crore as well as those not covered under the collective investment schemes regulated by the SEBI. As the SEBI can only deal with illicit money-pooling activities with a turnover of Rs 100 crore or more, the ponzi operators are running at times multiple small schemes rather than a single big one. This has to be taken under consideration before framing of new rules to rein in all the ponzi schemes.

However, one has to wait and see the outcome of these proposals. In relation to the amendments to the PCMCSB Act, the draft proposals would be first discussed by various ministries concerned before they are placed before the Union Cabinet for approval. It would be better if the draft legislation is forwarded to the consumer organisations for their views as larger issues are involved. Since the Consumer Affairs Ministry has to decide whether to seek a separate legislation to cover the direct selling companies, these companies may lobby hard for legislation in their favour. The Enforcement Directorate decided recently that Amway alone has siphoned out Rs 8,000 crore illegally out of India. Against this backdrop, the Consumer Affairs Ministry should thoroughly look into all angles of the issue before preparing guidelines for direct selling. The Kerala State government has already prepared some guidelines in this respect, and the Consumer Affairs Ministry could well study them. As SEBI chief U K Sinha rightly pointed out, some action is required in the area of multilevel marketing (MLM) and PCMCSB Act. It is high time all the loopholes are plugged. In a welcome move, the Central government is said to be contemplating heavy penalties and even imprisonment for the managements of companies or individuals running such type of illicit schemes. It has been estimated that people all over India have lost about Rs 3 lakh crore in the schemes illegally run by these fraudulent companies. It is desired that the Union Ministry Finance should take a right decision to completely banish such schemes in the larger interests of people.

Govt to study global practices to check growing ponzi schemes

As various ponzi schemes continue to defraud investors of hard-earned money, the government is seeking details from industry and regulators abroad about practices being followed there to check the menace.

A move is on by the government to amend the Prize Chits and Money Circulation Schemes (Banning) or (PCMCSB) Act. The comments on the amendments and the international legal and regulatory framework for regulation of Multi Level Marketing (MLM) companies and pyramid marketing companies have been obtained by the Department of Financial Services (DFS), official sources said.

The DFS has proposed for a comprehensive cabinet note and legal amendments after obtaining more industry and regulatory practices around the world independently. The process of getting details of global industry and regulatory practices is underway, they said.

The department had earlier circulated draft amendments to PCMCSB Act, 1978, to various law and enforcement agencies for their views, which have been received and are being examined by DFS, the sources said.

Regarding amendment of the PCMCSB Act, 1978, a number of meetings have taken place with capital market regulator Securities and Exchange Board of India (Sebi) also.

The government was also considering forming a central nodal agency to deal with all kinds of ponzi schemes, they said.

A typical ponzi scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.

Such activities came to be known as ponzi schemes after Charles Ponzi, who became notorious in the United States in the 1920s for deploying this technique while promising 50 per cent return on investments in 45 days and 100 per cent within 90 days.

A large number of such schemes have come to the fore in the country as well and many of them are currently being probed by various agencies, including Sebi and Serious Fraud Investigation Office (SFIO).

While the capital markets watchdog has been given greater powers to deal with ponzi schemes, involving Rs 100 crore or more, Sebi feels that there are still some grey areas and the regulatory loopholes need to be looked into for a greater oversight.

"Another area which still needs to be clarified is the area of MLM and PCMCSB Act... We have had (a) series of dialogue with the government (on this). The position has to be clarified to remove these loopholes," Sebi Chairman UK Sinha had told PTI recently.

The move to bring in a regulatory framework to check ponzi scheme assumes significance in the wake of multi-crore Saradha chitfund scam being probed by the Central Bureau of Investigation (CBI), Sebi and Enforcement Directorate.

The SFIO had recently submitted its probe report on the Saradha scam and found it to be a ponzi scheme.

Read more at: http://www.livemint.com/Politics/91IcoU9VvP2OJ0jJzJgzsN/Saradha-Group-ran-ponzi-schemes-concludes-SFIO-report.html?utm_source=copy

Government plans tighter norms to check ponzi schemes below Rs 100 crore

To check ponzi menace, government plans to bring in a tough set of norms to regulate money- circulation and pyramid marketing businesses involving corpus of less than Rs 100 crore wherein those running illicit schemes would face large penalties and imprisonment.
The new norms would include a detailed definition for 'money circulation schemes' to include all money-pooling activities with a corpus of less than Rs 100 crore and not covered under 'collective investment schemes' regulated by Sebi.
The new norms, as proposed by the Department of Financial Services after consultation with Sebi, RBI and various government departments and regulators, would also ensure a clampdown against all 'pyramid marketing activities', except for those involving transfer of goods or services having a real economic value.
However, the issues related to 'direct selling' have been left for the Consumer Affairs Ministry to decide.
The draft proposals, for amendments to the Prize Chits and Money Circulation Schemes (Banning) Act, would be first discussed by various concerned ministries, before being sent to the Union Cabinet, sources said.
The move is aimed at removing the regulatory gaps in tackling the ponzi menace. While Sebi has been given the powers to deal with all illicit money-pooling activities involving Rs 100 crore or more, there has been a lacunae with regard to smaller schemes. At times, ponzi operators also run multiple smaller schemes, rather than a single big one.
Sebi Chairman U K Sinha recently said that one area where some action is required is "the area of MLM and PCMCSB Act".
"We have had series of dialogue with the government (on this). The position has to be clarified to remove these loopholes," Sinha had told PTI in an interview.
A typical ponzi scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.
Many such schemes have come to the fore in India as well and many of them are currently being probed by various agencies, including Securities and Exchange Board of India (SEBI) and Serious Fraud Investigation Office (SFIO).

Saradha Group ran ponzi schemes, says SFIO report A govt release said SFIO report will be shared with the concerned state governments and the CBI

Saradha Group ran ponzi schemes, says SFIO report
The Saradha group of companies, their promoters, directors and managerial personnel have been found to be guilty on many counts for violation of various provisions of the Companies Act, 1956.



 New Delhi/Kolkata: The Serious Fraud Investigation Office (SFIO) has found that investment schemes run by Saradha Group companies were ponzi schemes, where the primary source of payments to subscribers were collections made from new members rather than income from investments.

After completing investigations into 14 firms of the Saradha Group, SFIO found these companies had illegally collected deposits and were guilty of numerous other violations, the corporate affairs ministry said in a statement on Monday. SFIO operates under the ministry. The corporate affairs ministry will now proceed with prosecution in a magisterial court since the violations are criminal offences.

SFIO’s report has been sent to the concerned state governments and the Central Bureau of Investigation (CBI) and market regulator Securities and Exchange Board of India (Sebi), corporate affairs secretary Naved Masood said over the phone. West Bengal and Odisha had been investigating the matter till it was transferred to the Central Bureau of Investigation (CBI) in May. SFIO’s report into the multi-crore Saradha chit fund scam was likely to reveal a clear money trail, Mint reported on 25 June.

SFIO had found verifiable trails of how funds were funnelled into and out of a central pool on a daily basis and that money raised from investors was diverted to a complex web of companies at the end of every day for purposes other than those for which it was intended, Mint’s report had said. The forensic unit of SFIO had traced the money trail from the computer servers of the Saradha Group. Masood on Monday confirmed these details. “Yes, this was indeed the modus operandi,” he said, but declined to put a figure on the scale of the fraud. “It was not the purpose of the investigation to ascertain the quantum of the scam,” he said. “It was about what company laws were violated.”

From around 2009-10, a large number of financial enterprises started ponzi schemes in West Bengal to take advantage of the high savings propensity among the people. Among them, the Saradha Group gained prominence because of the patronage it appeared to receive from Trinamool Congress leaders. It also launched or bought into several media organizations. It has recently been alleged by Kunal Ghosh, former chief executive of the Saradha Group’s media ventures, that West Bengal chief minister Mamata Banerjee was the biggest beneficiary of the Saradha Group’s diverse operations, although the Trinamool Congress leader has vehemently denied such allegations, saying that neither she nor her party took a penny from it.

Ghosh, who was arrested by the Kolkata police in November last year and has spent almost a year in detention, is a Rajya Sabha member nominated by the Trinamool Congress. He has since been ousted from the party. The Saradha Group was the first major financial enterprise that ran aground. In February last year, its founder and chairman Sudipta Sen fled Kolkata, only to be hauled back by the police from Kashmir within a few days. As protests escalated in Kolkata, the central government ordered a probe by SFIO. Since then, Sebi has laid siege on bank accounts of several other financial enterprises, forcing almost all to default on repayments to investors.

A commission of inquiry constituted by the West Bengal government in the wake of the collapse of the Saradha Group has received some 1.7 million complaints, of which at least 500,000 were against firms other than those of the Saradha Group. No firm action has yet been taken against them. On 9 May, the Supreme Court ordered the Kolkata police to hand the responsibility of investigating the operations of the Saradha Group to CBI, saying the local administration had failed to unearth the money trail.

The Enforcement Directorate, too, is probing foreign exchange violations and allegations of money laundering by the Saradha Group. On 4 June, CBI said it had registered 46 first information reports (FIRs) in the case out of which 43 were registered in Odisha and three in West Bengal. Some of the people booked by CBI, apart from Sudipta Sen and Kunal Ghosh, are Debjani Mukherjee, director of the group; a business associate Arvind Singh Chouhan; Manoj Kumar Nagel, director of Saradha Realty; and Somnath Datta, vice-president of Saradha’s media group and former leader of the Communist Party of India (Marxist).

CBI has since made a string of arrests and questioned several people as its investigation has progressed. In the latest arrests, CBI said late on Sunday that it had detained Manoj Das, chairman and managing director of Kamyab TV and Madhusudan Mohanty, owner of Odiya newspaper Odisha Bhaskar in the Artha Tatwa case “on charges of siphoning of funds”.

Sayed Mohammed Masood, chairman of a firm ‘City Limouzines’ in Mumbai assets attached

Wed, Oct 08 2014

Ponzi scheme: ED attaches Rs1.04 crore assets of Mumbai firm An office premise in Mumbai and a flat in Pune have been attached under the provisions of PMLA
Ponzi scheme: ED attaches Rs1.04 crore assets of Mumbai firm
 The case pertains to alleged contravention of money laundering laws by Sayed Mohammed Masood, chairman of a firm ‘City Limouzines’ in Mumbai.

The case pertains to alleged contravention of money laundering laws by Sayed Mohammed Masood, chairman of a firm ‘City Limousines’ in Mumbai. Photo: Hindustan Times New Delhi: Enforcement Directorate (ED) has attached properties worth Rs.1.04 crore in connection with its money laundering probe against a Mumbai-based firm and its owner for allegedly running illegal chit fund schemes few years back. An office premise in Mumbai and a flat in Pune have been attached under the provisions of Prevention of Money Laundering Act (PMLA) by agency’s office in Mumbai, a statement from the agency said. The total value of these two assets is Rs.1.04 crore, it said. The case pertains to alleged contravention of money laundering laws by Sayed Mohammed Masood, chairman of a firm “City Limousines” in Mumbai, whom the agency is probing for floating illegal ponzi (fraud investment) schemes by promising extraordinary returns to depositors which were not honoured. The agency, in the same case, had earlier attached two Swiss accounts in the name of Masood and his business firms holding Rs.1.25 million, under the same law. An ED attachment ensures that these properties cannot be used by the accused and they cannot take any benefits from these assets and such an order can be challenged by the accused only at the adjudicating authority of the PMLA. “By floating ponzi schemes offering astronomically high returns, Ms City Limousines (India) Ltd, Ms City Realcom Ltd, its Chairman and other directors of the companies have cheated thousands of investors across the country of funds to the tune of hundreds of crores,” the agency had earlier said in its probe report against the firm. ED enforces the PMLA in the country and is the lead agency to probe black money cases apart from the Income Tax department.

Read more at: http://www.livemint.com/Politics/XI9NAiPUCjcMeh54FYVWkL/Ponzi-scheme-ED-attaches-Rs104-crore-assets-of-Mumbai-firm.html?utm_source=copy


New Delhi: Enforcement Directorate (ED) has attached properties worth Rs.1.04 crore in connection with its money laundering probe against a Mumbai-based firm and its owner for allegedly running illegal chit fund schemes few years back. An office premise in Mumbai and a flat in Pune have been attached under the provisions of Prevention of Money Laundering Act (PMLA) by agency’s office in Mumbai, a statement from the agency said.

The total value of these two assets is Rs.1.04 crore, it said. The case pertains to alleged contravention of money laundering laws by Sayed Mohammed Masood, chairman of a firm “City Limousines” in Mumbai, whom the agency is probing for floating illegal ponzi (fraud investment) schemes by promising extraordinary returns to depositors which were not honoured.

The agency, in the same case, had earlier attached two Swiss accounts in the name of Masood and his business firms holding Rs.1.25 million, under the same law.

An ED attachment ensures that these properties cannot be used by the accused and they cannot take any benefits from these assets and such an order can be challenged by the accused only at the adjudicating authority of the PMLA.

“By floating ponzi schemes offering astronomically high returns, Ms City Limousines (India) Ltd, Ms City Realcom Ltd, its Chairman and other directors of the companies have cheated thousands of investors across the country of funds to the tune of hundreds of crores,” the agency had earlier said in its probe report against the firm. ED enforces the PMLA in the country and is the lead agency to probe black money cases apart from the Income Tax department.

Ponzi scheme: ED attaches Rs1.04 crore assets of Mumbai firm An office premise in Mumbai and a flat in Pune have been attached under the provisions of PMLA

Read more at: http://www.livemint.com/Politics/XI9NAiPUCjcMeh54FYVWkL/Ponzi-scheme-ED-attaches-Rs104-crore-assets-of-Mumbai-firm.html?utm_source=copy

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