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PRESENTATION ON MULTI-LEVEL MARKETING(MLM) FRAUDS

PRESENTATION ON MULTI-LEVEL MARKETING(MLM) FRAUDS. Frauds by some of MLM companies...Newspaper reporting. Note:- The list is extending day by days… Deccan Chronicle 21/6/20114. F.I.Rs. AGAINST SOME MLM COMPANIES. THESE ARE ONLY FEW COMPANIES…. HOW MLM COMPANIES TRAP.

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PRESENTATION ON MULTI-LEVEL MARKETING(MLM) FRAUDS

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  1. PRESENTATION ON MULTI-LEVEL MARKETING(MLM) FRAUDS

  2. Frauds by some of MLM companies...Newspaper reporting Note:- The list is extending day by days… Deccan Chronicle 21/6/20114

  3. F.I.Rs. AGAINST SOME MLM COMPANIES THESE ARE ONLY FEW COMPANIES…..

  4. HOW MLM COMPANIES TRAP

  5. TARGETEES OF M.L.M. COMPANIES AS PER CNN IBN STUDY Note:- Misuse of social status and exploitation of social relations is the business of these companies.

  6. Types of Money Circulation Schemes

  7. MLM VS TRADITIONAL MARKET

  8. Money Circulation Schemes Banning Act

  9. Prize Chits and Money Circulation Schemes (Banning) Act, 1978 An Act to ban the promotion or conduct of prize chits and money circulation schemes and for matters connected therewith or incidental thereto.

  10. Sec. 2(C) – Defines “ Money Circulation Scheme” The Hon’ble Supreme Court of India divided the definition of “Money Circulation Scheme” for better understanding in State of West Bengal Vs. Swapan Kumar Guha: (1982) 1 SCC 561. This is the graphical representation of the same. Personal Explanation: The whole crux is “whether or not”. Due to these words, Sales, Seminars etc fall under the purview of definition of MCS. It is immaterial whether such money or thing is derived from entrance money of the members of such scheme or periodical subscriptions or otherwise viz. sales and services, conducting seminars etc.

  11. Banned Activity under - Prize Chits and Money Circulation Schemes (Banning) Act, 1978 The Hon’ble Division bench of High Court of AP (2007(4) ALT 808(DB) – Amway Vs. Union of India – held that (Para 49)- It is a well settled principle of criminal jurisprudence that no person shall be presumed to be guilty until his guilt is proved, but we are unable to accept the broad submissions of the learned counsel for the petitioners that till the conclusion of the criminal case the police have no power to interfere with the business activities of the petitioners. Section 7 of the Act empowers the police officer not below the rank of an officer in charge of a police station to exercise all or any of the powers enumerated therein.

  12. Penalties and Punishments under the Act

  13. HOW TO IDENTIFY THESE SCHEMES….

  14. High Court of A.P. (Division Bench)- Amway India Enterprises Vs. Union of India 2007(4) ALT 808 (DB): From the whole analysis of the scheme and the way in which it is structured it is quite apparent that once a person gets into this scheme he will find it difficult to come out of the web and it becomes a vicious circle for him. In any event the petitioners have not specifically denied the turnover they are achieving and the income they are earning towards the initial enrollment of the distributors, the renewal subscription fee and the minimum sales being achieved by the distributors as alleged in the counter affidavit. By no means can it be said that the money which the first petitioner is earning is not the quick/easy money. By promising payment of commission on the business turned out by the down-line members sponsored either directly or indirectly by the up-line members (which constitutes an event or contingency relative to enrollment of members), the first petitioner is earning quick/easy money from its distributors, apart from ensuring its distributor earn quick/easy money. Thus the two ingredients are satisfied in the case of promoter too. We are, therefore, of the considered view that the scheme run by the petitioners squarely attracts the definition of “Money Circulation Scheme” as provided in Section 2(c) of the Act. (Para 35). High Court of A.P. - Speak Asia online Vs. State of A.P. CRLP No.5626/2011 on a mere reading, indicate that there is no need of any loss or misappropriation of funds to attract an offence. Mere informing a scheme, which covered under the money circulation scheme and enrolling members as subscribers, itself is an offence. It is not necessary to further elaborate on the same, since the Sections are unambiguous and clearly indicate the acts which attract an offence. Court verdicts against MLM in India

  15. Supreme Court of India – KuriachanChako Vs. State of Kerala (2008) 8 SCC 708: The High Court also upheld the argument of the prosecution that the Scheme was a '"mathematical impossibility". The promoters of the Scheme very well knew that it is certain that the Scheme was impracticable and inworkable, making tall promises which the makers of the promises knew trully well that it could not work successfully. It could work for some time. These schemes are like "Paul can be robbed to pay Peter" but ultimately when there is a large mass of Peters, they will be left in the lurch without any remedy as they would by then have been deceived and deprived of their money. (para 41). 39.We are unable to agree with the learned counsel. The courts below rightly held that prima facie case had been made out against the accused both the ingredients necessary for application of Section 2(c) of the Act are present in the case on hand. The trial court, for coming to that conclusions' referred to certain documents. The advertisement clearly declared that a member would get double the amount when after his enrolment, two members were enrolled under him and thereafter, 4 other persons were enrolled and after the enrolled 4 persons, 8 persons were enrolled under them. Thus, only after 14 persons under the first enrolled person become members under the Scheme, the first person would get Rs.1250 i.e., double the amount of Rs625 (1+2+4+8). The trial court also noted that Kuriachan Chacko (Accused I) who proposed the project for implementation, described how the project would work from which also it is clear that the double amount will be given to a person who purchases a unit only after 14 persons are enrolled subsequent to him. Court verdicts against MLM in India

  16. When Sale of goods are justified? Sale of movable Products are governed by Sale of Goods Act, 1930 r/w Indian Contract Act, 1872 and likewise Immovable property i.e. land under Transfer of Property Act. When Consideration is illegal, the transaction becomes illegal. Because of Section. 23 of Contract Act, sale of Guns and NDPS substance etc. became illegal. Therefore, even sale of products by MLM companies adopting the Money Circulation Schemes, becomes illegal under Section. 23 of Contract Act.

  17. Collection of Deposits S.E.B.I. Act, 1992 – Section. 11AA.Collective investment scheme (1) Any scheme or arrangement which satisfies the conditions referred to in sub-section (2) shall be a collective investment scheme. (2) Any scheme or arrangement made or offered by any company under which,—  (i) The contributions, or payments made by the investors, by whatever name called, are pooled and utilised for the purposes of the scheme or arrangement; (ii) The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement; (iii) The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors; (iv) The investors do not have day-to-day control over the management and operation of the scheme or arrangement. (3) Notwithstanding anything contained in sub-section (2), any scheme or arrangement—  (i) Made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State;  (ii) Under which deposits are accepted by non-banking financial companies as defined in clause (f) of section 45-1 of the Reserve Bank of India Act, 1934;  (iii) Being a contract of insurance to which the Insurance Act, 1938, applies;  (iv) Providing for any Scheme, Pension Scheme or the Insurance Scheme framed under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952;  (v) Under which deposits are accepted under section 58A of the Companies Act, 1956;  (vi) Under which deposits are accepted by a company declared as a Nidhi or a 31 mutual benefit society under section 620A of the Companies Act, 1956;  (vii) Falling within the meaning of Chit business as defined in clause (d) of section 2 of the Chit Fund Act, 1982;  (viii) Under which contributions made are in the nature of subscription to a mutual fund;  Shall not be a collective investment scheme.

  18. Food Safety and Standard Act, 2006 • Seller is responsible for unsafe or unhygienic conditions • (1) No person shall commence or carry on any food business except under a license. • (2) petty retailer, hawker, itinerant vendor • or a temporary stall holder or small scale or cottage or such other industries relating to food • business or tiny food business operator have to register to carry on business.

  19. Indian Direct Selling Association (IDSA) Members Amway is founder member of IDSA. http://www.idsa.co.in/members.html

  20. AMWAY India enterprises Case Study

  21. Amway Business opportunity :- www.amway.in

  22. Amway Recruiting seminars...

  23. Live Example - Sales and Marketing Plan of Amway - 6-4-3 Scheme ------Contingency------- Source : - www.amwayindia.com-images-SalesMarketPlan.jpg Through this plan Amway is inducing to give Rs.56,925/- for enrolling / sponsoring 102 members with merchandise of products worth Rs.4,500/- (100 PV of each member). In traditional market for merchandise of products worth Rs.4,500/- of one can get Rs.5,000/- or Maximum Rs.9,000/-, but not Rs.56,925/-. It also promises to Give Rs.6,83,100/- per annum if this contingency extends .Thus the money above earned belongs to the efforts of down line members thus this money is earned without personal efforts, hence it is easy money. Note : - If it is not possible, then giving advertisements and promises are nothing but Cheating the public.

  24. Amway Rules of conduct

  25. Promise of commissions by Amway Current PV:BV ratio is 1 PV = 76 BV and is subject to change. *50 Personal PV required to become eligible for commission on group sale. (Refer rule 4.19).

  26. Is there no joining fee in Amway scheme? Enrolment application form of Amway

  27. Ban on advertisement relating to efficacy of products FOOD SAFETY AND STANDARD ACT 2006 24. Restrictions of advertisement and prohibition as to unfair trade practices. (1) No advertisement shall be made of any food which is misleading or deceiving or contravenes the provisions of this Act, the rules and regulations made thereunder. (2) No person shall engage himself in any unfair trade practice for purpose of promoting the sale, supply, use and consumption of articles of food or adopt any unfair or deceptive practice including the practice of making any statement, whether orally or in writing or by visible representation which - (a) falsely represents that the foods are of a particular standard, quality, quantity or grade-composition; (b) makes a false or misleading representation concerning the need for, or the usefulness; (c) gives to the public any guarantee of the efficacy that is not based on an adequate or scientific justification thereof: Provided that where a defence is raised to the effect that such guarantee is based on adequate or scientific justification, the burden of proof of such defence shall lie on the person raising such defence. The Drugs and Magic Remedies (Objectionable Advertisements) Act, 1954  3. Prohibition of Advertisement of Certain Drugs for Treatment of Certain Diseases and Disorders…….. 4. Prohibition of Misleading Advertisements Relating to Drugs.– Subject to the provisions of this Act, no person shall take any part in the publication of any advertisement relating to a drug if the advertisement contains any matter which – a) directly or indirectly gives a false impression regarding the true character of the drug; or b) makes a false claim for the drug; or c) is otherwise false or misleading in any material particular.  5. Prohibition of Advertisement of Magic Remedies for Treatment of Certain Diseases and Disorders.– No person carrying on or purporting to carry on the profession of administering magic remedies shall take any part in the publication of any advertisement referring to any magic remedy which directly or indirectly claims to be efficacious for any of the purposes specified in section 3.

  28. Amway Products • State Food Laboratory, Nacharam, Hyderabad, Telangana after analyzing products opined that, nearly 24 products of Amway are not food, misbranded and some are adulterated. Amway is facing criminal trial in Criminal Court, Hyderabad in this regard. • District Consumer Forum of Vijayawada, Andhra Pradesh after enquiry fined Amway and in turn on appeal State Consumer Forum AP Hyderabad upheld the same. Now the matter is in National Commission. • Union of India issued a Circular prohibiting sale of dietary supplements as food. Lr. No. P-15015/6/2003 Director General of health services, New Delhi Nirman Bhavan Dated 12th January, 2004 All State/UTs. Food (health) Authorities. Sub: Sale of food supplements under PFA Rules 1995 – Licensing – Regarding. *** Madam/Sir, A number of food supplements / dietary supplements / herbal foods are being marketed with or without medicinal claims. These products are mostly in capsure or Tablet form with dosage level given on the label. The Department of Indian System of Medicines & Homeopathy in the Ministry of Health and Family Welfare is formulating a legislation ‘Draft Health Food Supplement Bill’ to regulate manufacture, sale / distribution of dietary supplements / health food supplements, neutraceutical and herbaceuticals which do not fall under the definition of ‘food; as defined under PFA Act, 1954. Hence, you may inform all PFA Licensing Authroities under your control to take action accordingly. The receipt of letter may please be acknowledged. Yours faithfully, Sd/- (Dr. B.K. Mahajan) Assistant Director General (PFA) Copy to: All Central Food Laboratories / All Public Analysts

  29. Claim of Central Govt. permissions GOVERNMENT OF INDIA MINISTRY OF FINANCE & COMPANY AFFAIRS DEPARTMENT OF ECONOMIC AFFAIRS, BANKING DIVISION LOK SABHA UNSTARRED QUESTION NO. 4889 TO BE ANSWERED ON THE 20TH DECEMBER, 2002/AGRAHAYANA 29, 1924 (SAKA) RBI ACTION AGAINST AMWAY INDIA QUESTION 4889. SHRI RAVINDRA KUMAR PANDEY: DR. S. VENUGOPAL: DR. M.V.V.S MURTHI: SHRI RAM MOHAN GADDE: Will the MINISTER OF FINANCE AND COMPANY AFFAIRS be please to state:- a) Whether any observations has been passed by RBI against AMWAY India and its promoter’s company. b) if so, the details of observation passed by the RBI against this company; whether the said company is involved in violation of various rules; if so, the details thereof; whether some members of parliament and investors Association brought to the notice of RBI and Government regarding the violations committed by the said company; and if so, the details of action taken by the Government against this company? ANSWER MINISTER OF STATE IN THE MINISTRY OF FINANCE & COMPANY AFFAIRS (SHRI ANANDRAO V. ADSUL) (a),(b),(c)&(d): Reserve Bank of India (RBI) has reported that it had examined the scheme of M/s. Amway India Enterprises (AMWAY) in March 2001 and again in May 2002 aiming at creating a chain of distributors and taken a views that the said scheme appears to be a prize chit or money circulation scheme as defined in and prohibited under Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The offences under the said Act are cognizable and the police authorities of the concerned State Governments have to investigate and take a view whether the scheme of Amway India attract the prohibition under the said Act. (e)&(f): Amway had made representation to the Minister (Economic), Embassy of India in Washington DC that its schemes are not covered under the Act. RBI had once again examined the matter and it had advised to the Embassy that the Amway’s activities appear to attract the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. RBI has forwarded a report in this regard to the Police authorities who are empowered under the Act for taking necessary action.

  30. ……………………………………………………………………… The State police authorities have to investigate and take a view whether the scheme of Amway India attracts the prohibition under the Act. What if the police decide that direct selling is not violative of the law? In that case what is the sanctity of RBI's findings? Ironically, police in different States can take different views. How will the company Amway function? Wait for the answer. MISUSE OF LETTER ISSUED BY CONSUMER SECRETARY BY MLM COS SUBSEQUENT CLARIFICATION LETTER ISSUED BY CONSUMER SECRETARY F. NO. 21/(22)/IT/2001 Government of India Ministry of Consumer Affairs, Food & Public Distribution Deptt. of Consumer Affairs Shastri Bhavan, New Delhi. Dated: 23.9.2003. To MS. Sunitha Kalla, Dy. Director General & Joint Secretary, Ministry of Finance, Department of Revenue, Central Economic Intelligence Bureau 6th Floor, ‘B’ Wing, Janpath Bhavan, Janpath, New Delhi 110 001. Subject: Applicability of the Provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 to pyramid marketing structures/schemes – Regarding. ….. Madam, I am directed to refer to your D.O. Letter No. 301/15/200-CEIB (Pt-II) dated the 22nd September, 2003 addressed to Shri Wajahat Habibbullah, Secretary (Consumer Affairs) on the subject mentioned above and to say that this Department was considering the issue of direct selling/network/multi-level, marketing as an alternative form of marketing of goods and the entire issue was looked from that angle. However, subsequent feed back/response have showed that companies using pyramid structured marketing techniques too sell their products putting forth their schemes based on the clarification issued vide D.O. letter of even no dated the 31st March, 2003 claiming that their activities also do not fall within the provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. It is clarified that this Department’s clarification of even number dated 31st March, 2003 does not cover pyramid structured marketing schemes. That area also does not fall within the purview of this Department. This issues with the approval of Secretary (CA). Yours faithfully, Sd/-xxxxxxx (Alice Chacko) Under Secretary to the Government of India. Copy to: Chief Secretaries of all States and UTs. Subject: Inapplicability of the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 to direct/net work/multi level marketing. ….. A number of representations have been received by this Department regarding alleged harassment of companies dealing with direct/net work/multi level marketing by the Police authorities in various States/Union Territories. Very often the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 are invoked against these companies. We have examined these issues in detail, including consulting the Ministry of law, regarding the applicability of the said Act to these companies. It is our considered view that the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 are not applicable to companies dealing with distribution of goods including multi level/net work marketing companies. Interpretation of various judgments by the Hon’ble Supreme Court [(a) State of West Bengal Vs. Swapan Kumar Guha (1982) 1 SCC 561; (b) Srinivasa Enterprise Vs. UOI. (1980) 4 SCC 507; and (c) Reserve Bank of India Vs. Peerless Co. (1987), 1 SCC 499)] implies that activities of direct/net work/multi level marketing do not fall within the provisions of the aforesaid Act. In light of the above, I would request you to kindly instruct the officials concerned to distinguish between Companies dealing with activities coming strictly under the purview of the above Act and those such as direct/net work/multi level marketing dealing in distribution of goods so as to avoid harassment and commercial losses to bonafide investors. With regards. Yours sincerely, Sd/-xxxxxxx Chief Secretaries of All States & UTs (Wajahat Habibullah) Copy for information to:- Shri N. Gopalaswami, Secretary, Ministry of Home Affairs, North Block, New Delhi. Sd/-xxxxx (C.K.G. Nair) Director. Source: http://www.thehindubusinessline.in/2003/01/01/stories/2003010102040600.htm

  31. Is Amway doing direct selling? “Direct selling” means no middle man in between Company and End consumer. • Note: • Rule 2 (w) of Standards of Weight and Measurements Act, 1977: 'wholesale dealer' in relation to any commodity in packaged form means a dealer who does not directly sell such commodity to any consumer but distributes or sells such commodity through one or more intermediaries; The above clearly indicates that AMWAY has not been indulging in direct selling due to involvement of middlemen i.e. ABOs/IBOs

  32. Truth in Amway Claims….

  33. Is Amway facing problem in AP only?... These are some of examples……

  34. Is it possible permanent employment with MLM ? Thus employment in MLM is nothing but a mirage……

  35. Is there any ambiguity in PCMCS Act ? When Most of High Courts in India and Hon’ble Supreme Court of India did not find ambiguity in the Act, where is the question of ambiguity in PCMCS Act, 1978……

  36. GOVERNMENT OF ANDHRA PRADESH ABSTRACT Investigation of case against M/s Amway India Enterprises – Issue of Notification under Section 8 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 – Orders- Issued ------------------------------------------------------------------------------------------------------- HOME (GENERAL-B) DEPARTMENT GO Ms No. 178                                                                                             Dated:15-09-2008 Read: Letter Rc. No.121/A2/2008, dated: 26-05-2008 of the Director General of Police, Andhra Pradesh, Hyderabad. *** ORDER: Whereas the Director General of Police, Andhra Pradesh, Hyderabad, in the reference read above has informed that investigation in the case of M/s. Amway India Enterprises has been finalized and charge sheet has been filed on 24-01-2008, in the Court of Hon’ble Chief Metropolitan Magistrate, Hyderabad, vide C.C.No.125/2008, and requested the Government, to issue Notification under Section 8 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, in the official Gazette declaring every copy of the Newspaper and every copy of the publication / websites containing such material or the advertisement connected with any prize chit or money circulation scheme promoted or conducted in contravention of the provisions of this Act or any advertisement or in relation thereto, to be forfeited to the Government of Andhra Pradesh. 2. And whereas, the Government have carefully examined the proposal of the Director General of Police, Andhra Pradesh, Hyderabad, and after careful consideration have decided to issue a Notification in the Official Gazette of Andhra Pradesh, to declare every copy of the Newspaper and every copy of the Publication / containing such material to be forfeited to the Government of Andhra Pradesh which is connected with the propagation or otherwise under the Prize Chits & Money Circulation Schemes (Banning) Act, 1978. 3. Accordingly the following notification shall be published in the next Extraordinary issue of the Andhra Pradesh Gazette. NOTIFICATION In exercise of the powers conferred under section 8 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (Central Act No.43 of 1978), the Government of Andhra Pradesh hereby notifies that the “Amway India Enterprises” is hereby restrained from publishing any material / advertisements containing such material connected with any Prize Chit or Money Circulation Scheme, promoted or conducted in contravention of the provisions of the Act, and declare every copy of the Newspaper and every copy of the publication containing such material or the advertisement to be forfeited to the State Government of Andhra Pradesh (BY ORDER AND IN THE NAME OF THE GOVERNOR OF ANDHRA PRADESH) AJOYENDRA PYAL, PRINCIPAL SECRETARY TO GOVERNMENT To The Commissioner of Printing, Stationery & Stores Purchase, Andhra Pradesh, Hyderabad  (with a request to publish the Gazette Notification and to furnish 500 copies of the Gazette to the Government immediately) Copy to: The Director General of Police, Andhra Pradesh, Hyderabad The Additional Director General of Police, CID, A.P, Hyderabad The Law (E) Department //FORWARDED::BY ORDER// SECTION OFFICER AP State Gazette restraining Amway from issuing Ads

  37. Does MLM members come under Consumer Protection Act ? • MLM Companies enroll members as their distributors • In the case of Amway, All the members of Amway are its distributors. • Amway sells products to ABOs for retailing as ABOs are retail distributors. Thus ABOs i.e. members of Amway are not end-consumers but they sell for retail profit. • As per Consumer Protection Act, only end-consumers will get protection under the Act not the retailers/distributors. Thus members of MLM company being distributors of the company does not cover under Consumer Protection Act.

  38. Thank you

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