Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 150
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Code Context


        trigger_error($message, E_USER_DEPRECATED);

    }
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 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php.'
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deprecationWarning - CORE/src/Core/functions.php, line 311
Cake\Http\ServerRequest::offsetGet() - CORE/src/Http/ServerRequest.php, line 2421
App\Controller\ArtileDetailController::index() - APP/Controller/ArtileDetailController.php, line 150
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Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
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Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Http\Runner::run() - CORE/src/Http/Runner.php, line 51
Cake\Http\Server::run() - CORE/src/Http/Server.php, line 98

Deprecated (16384): The ArrayAccess methods will be removed in 4.0.0.Use getParam(), getData() and getQuery() instead. - /home/brlfuser/public_html/src/Controller/ArtileDetailController.php, line: 151
 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php. [CORE/src/Core/functions.php, line 311]
Code Context


        trigger_error($message, E_USER_DEPRECATED);

    }
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 You can disable deprecation warnings by setting `Error.errorLevel` to `E_ALL & ~E_USER_DEPRECATED` in your config/app.php.'
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deprecationWarning - CORE/src/Core/functions.php, line 311
Cake\Http\ServerRequest::offsetGet() - CORE/src/Http/ServerRequest.php, line 2421
App\Controller\ArtileDetailController::index() - APP/Controller/ArtileDetailController.php, line 151
Cake\Controller\Controller::invokeAction() - CORE/src/Controller/Controller.php, line 610
Cake\Http\ActionDispatcher::_invoke() - CORE/src/Http/ActionDispatcher.php, line 120
Cake\Http\ActionDispatcher::dispatch() - CORE/src/Http/ActionDispatcher.php, line 94
Cake\Http\BaseApplication::__invoke() - CORE/src/Http/BaseApplication.php, line 235
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Routing\Middleware\RoutingMiddleware::__invoke() - CORE/src/Routing/Middleware/RoutingMiddleware.php, line 162
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Routing\Middleware\AssetMiddleware::__invoke() - CORE/src/Routing/Middleware/AssetMiddleware.php, line 97
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Error\Middleware\ErrorHandlerMiddleware::__invoke() - CORE/src/Error/Middleware/ErrorHandlerMiddleware.php, line 96
Cake\Http\Runner::__invoke() - CORE/src/Http/Runner.php, line 65
Cake\Http\Runner::run() - CORE/src/Http/Runner.php, line 51
Cake\Http\Server::run() - CORE/src/Http/Server.php, line 98

Warning (512): Unable to emit headers. Headers sent in file=/home/brlfuser/public_html/vendor/cakephp/cakephp/src/Error/Debugger.php line=853 [CORE/src/Http/ResponseEmitter.php, line 48]
Code Context
            if (Configure::read('debug')) {

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        LATEST NEWS UPDATES | Ponzi puzzle stumps Amway    </title>
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The sudden arrest of Amway India's top brass on Monday has focused the spotlight on the crumbling fault lines and the grey areas in the demarcation between some of the world's best-known direct selling companies and the dodgy Ponzi..."/>
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-The Telegraph



The sudden arrest of Amway India's top brass on Monday has focused the spotlight on the crumbling fault lines and the grey areas in the demarcation between some of the world's best-known direct selling companies and the dodgy Ponzi..." />
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                            <div align="justify">-The Telegraph</div><p align="justify"><br />The sudden arrest of Amway India's top brass on Monday has focused the spotlight on the crumbling fault lines and the grey areas in the demarcation between some of the world's best-known direct selling companies and the dodgy Ponzi schemes that promise huge returns to gullible investors and have lately grabbed all the sensational headlines in Bengal.</p><p align="justify">William S. Pinckney, managing director of Amway India, and two directors of the company - Sanjay Malhotra and Anshu Budhraja - were today granted conditional bail by the Wayanad district court in Kerala.</p><p align="justify">The court has directed them to furnish two personal sureties of Rs 1 lakh each and to co-operate with the investigative process.</p><p align="justify">The Wayanad police had used a little bit of subterfuge to make the arrest. The Amway officials had come to Kozhikode in connection with an anticipatory bail process relating to a complaint filed by a lady named Vishalakshy who said she had purchased Amway products worth Rs 3 lakh but suffered a loss when she failed to sell them.</p><p align="justify">The Amway officials were apparently unaware that three other Wayanad residents - Jaffer, Ashraf and Hariharan - had also filed complaints against them in 2011 after being denied promised returns after stumping up a lot of money to stock Amway products.</p><p align="justify">Crime branch SP P.A. Valsan told The Telegraph in Thiruvananthapuram that there were six cases against Amway: two being investigated by the Economic Offences Wing, three booked by the Wayanad police and one in Kannur district.</p><p align="justify">They have been charged under section 420 of the Indian penal code and sections 4, 5 and 6 of the Prize Chits and Money Circulation Schemes (Banning) Act.</p><p align="justify">&quot;Our investigation showed that their mode of selling violated the terms of the act. Members who join get money on a contingency - and the contingency is that they must enroll more people,&quot; Valsan said.</p><p align="justify">He questioned the direct selling business model that Amway was professing. &quot;Seizures made during the searches showed that the products were being sold at 10 to 12 times their real price. How can this be direct selling?&quot;</p><p align="justify"><em>Litmus test</em></p><p align="justify">The Amway incident comes at a time a high-level inter-ministry group at the Centre had been trying to pick its way through a minefield of legalese in order to precisely define which multi-level marketing schemes are legit and which are egregious Ponzi-style rip-offs.</p><p align="justify">The panel was formed after the Speak Asia scam broke last year. The committee concluded its meetings last month and submitted a report to the government. At the same time, economist Bibek Debroy has prepared a report on direct selling for Ficci.</p><p align="justify">A committee within the department of financial services in the finance ministry is now poring over the two reports to formulate its own views on the vexed subject to help the government draw up a new set of rules on direct selling.</p><p align="justify">The Kerala lawsuit against Amway has brought to the fore the risks that companies such as Amway face because the charges against the company have been framed under the Prize Chits and Money Circulation Schemes (Banning) Act of 1978.</p><p align="justify">The provisions of this act have been used to book the perpetrators of a number of Ponzi schemes such as Speak Asia and Saradha Realty.</p><p align="justify">Singapore-based Speak Asia invited the public to participate in online research surveys after paying a six-month subscription of Rs 6000. The bait was that participation in the survey would make them richer by Rs 1000 a week. If the participant roped in others, they would get commissions as well. As many as 2 million Indians poured money into the Ponzi scheme before it went bust.</p><p align="justify"><em>Perfectly legit</em></p><p align="justify">Amway says it runs a direct selling business through a chain of distributors in a multi-level marketing scheme. Amway appoints a distributor who sells its products directly to those who want to buy it. The distributor, in turn, can appoint other distributors with permission and training from Amway who could also sell Amway goods. Any commission that the first distributor makes is his.</p><p align="justify">Distributors down the chain have to pass on a small amount of the commissions they earn to the person who recruited them into the network in the first place. Commissions vary according to the product sold and the quantities but range from anywhere between 6 per cent and 21 per cent.</p><p align="justify">&quot;What the Wayanad police are contending is that this is a disguised money circulation scheme ... which it is not. It is direct selling through a chain of distributors. And this is perfectly legal in India as in the rest of the world,&quot; said Amway India spokesperson Sudeep Sengupta.</p><p align="justify">Ironically, the Indian Direct Selling Association - which counts Amway, Avon, Oriflame and Tupperware as members along with Hindustan Lever, Max Life Insurance and Modicare - have been warning that their members may be harassed with such punitive arrests arising from misinterpretation of the law, especially after the media has turned its attention on a number of Ponzi schemes in the past year.</p><p align="justify">The Prize Chits and Money Circulation Schemes (Banning) Act prohibits firms from running illegal money circulation schemes, including &quot;disguised money circulation schemes&quot; which misuse marketing of products to run illegal fund flows.</p><p align="justify">The test of whether a pyramid marketing scheme is legal or not, say legal experts, are two basic premises - that the scheme should not &quot;rob Paul to pay Peter&quot; and it should not allure people with promises of abnormally high returns.</p><p align="justify">&quot;These principals were established by the Supreme Court in the Kuriachan Chacko vs State of Kerala case in 2008, and implies to be legal, a scheme should not depend on recruiting new members to pay older members but on actual selling of products and that this should not involve promising abnormally high returns which are unsustainable,&quot; said Parijat Sinha, senior Supreme Court advocate.</p><p align="justify">Saradha and Speak Asia failed on both counts - they depended solely on earnings paid by new members to pay older members and they promised extraordinarily high returns of up to 500 per cent.</p><p align="justify">Amway, Tupperware, and Avon have been contending that they are not in the same league as Speak Asia or Saradha. The IDSA has been particularly anxious that this be done through proper legislation and by the police cracking down on fraudulent schemes.</p><p align="justify">&quot;There is a crying need for a proper regulatory framework to facilitate direct selling which will also prevent unscrupulous elements operating under the garb of direct selling business. This will protect public at large,&quot; said Chavi Hemanth, secretary general of the IDSA.</p><p align="justify"><em>What's the difference?</em></p><p align="justify">The direct selling companies - who claim to have established legitimate operations in over a 100 countries across the world - say there are some key differentiators between their business model and the ones used by the perpetrators of Ponzi schemes.</p><p align="justify">They contend that firstly, direct sellers encourage minimal inventory with replenishment as and when the need arises. The Ponzi schemes tend to &quot;front load&quot; product sales.</p><p align="justify">Second, they claim to provide rigorous product sales training unlike the Ponzis.</p><p align="justify">Third, they argue that they provide incentives based on sales performance, while Ponzis merely focus on collection of money.</p><p align="justify">Fourth, direct sellers recruitment is not compulsory for doing business, while it is mandatory in the Ponzi schemes.</p><p align="justify">Fifth, they claim to provide remuneration to all distributors only through direct selling companies. Ponzis, on the other hand, pay out of the payments received from new recruits.</p><p align="justify">Sixth, the direct seller can exit the scheme after a reasonable time, while Ponzis have no refund or exit policy.</p><p align="justify">Finally, the direct sellers insist they provide a 100 per cent buyback guarantee on the products they sell, while Ponzis do not have such a policy.</p><p align="justify">The assertions by the direct sellers are seen as just that: assertions that have not been tested or certified by an independent agency. Nor is there an industry-wide redressal system for complaints though companies claim they do have a robust mechanism.</p><p align="justify">The new rules may eventually create that litmus test, a certification system and a redressal mechanism. But till that happens the Amway-style arrests remains a huge business.</p><p align="justify">Amway, which has invested Rs 200 crore in India, warned that &quot;such rash action serves little purpose but to tarnish the image of India as an investment destination&quot;.</p><p align="justify">At a time India is struggling to contain its current account deficit, this could severely impact foreign fund flows into the country - which is the only way to fund CAD which has ballooned to about 5 per cent of gross domestic product.</p>                                                           
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    <br><a href="http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco" class="re" target="_blank">The Telegraph, 29 May, 2013, http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco</a><div class="clear"></div>
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    <h1 class="cat-box-title">Ponzi puzzle stumps Amway</h1>
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                            <div align="justify">-The Telegraph</div><p align="justify"><br />The sudden arrest of Amway India's top brass on Monday has focused the spotlight on the crumbling fault lines and the grey areas in the demarcation between some of the world's best-known direct selling companies and the dodgy Ponzi schemes that promise huge returns to gullible investors and have lately grabbed all the sensational headlines in Bengal.</p><p align="justify">William S. Pinckney, managing director of Amway India, and two directors of the company - Sanjay Malhotra and Anshu Budhraja - were today granted conditional bail by the Wayanad district court in Kerala.</p><p align="justify">The court has directed them to furnish two personal sureties of Rs 1 lakh each and to co-operate with the investigative process.</p><p align="justify">The Wayanad police had used a little bit of subterfuge to make the arrest. The Amway officials had come to Kozhikode in connection with an anticipatory bail process relating to a complaint filed by a lady named Vishalakshy who said she had purchased Amway products worth Rs 3 lakh but suffered a loss when she failed to sell them.</p><p align="justify">The Amway officials were apparently unaware that three other Wayanad residents - Jaffer, Ashraf and Hariharan - had also filed complaints against them in 2011 after being denied promised returns after stumping up a lot of money to stock Amway products.</p><p align="justify">Crime branch SP P.A. Valsan told The Telegraph in Thiruvananthapuram that there were six cases against Amway: two being investigated by the Economic Offences Wing, three booked by the Wayanad police and one in Kannur district.</p><p align="justify">They have been charged under section 420 of the Indian penal code and sections 4, 5 and 6 of the Prize Chits and Money Circulation Schemes (Banning) Act.</p><p align="justify">&quot;Our investigation showed that their mode of selling violated the terms of the act. Members who join get money on a contingency - and the contingency is that they must enroll more people,&quot; Valsan said.</p><p align="justify">He questioned the direct selling business model that Amway was professing. &quot;Seizures made during the searches showed that the products were being sold at 10 to 12 times their real price. How can this be direct selling?&quot;</p><p align="justify"><em>Litmus test</em></p><p align="justify">The Amway incident comes at a time a high-level inter-ministry group at the Centre had been trying to pick its way through a minefield of legalese in order to precisely define which multi-level marketing schemes are legit and which are egregious Ponzi-style rip-offs.</p><p align="justify">The panel was formed after the Speak Asia scam broke last year. The committee concluded its meetings last month and submitted a report to the government. At the same time, economist Bibek Debroy has prepared a report on direct selling for Ficci.</p><p align="justify">A committee within the department of financial services in the finance ministry is now poring over the two reports to formulate its own views on the vexed subject to help the government draw up a new set of rules on direct selling.</p><p align="justify">The Kerala lawsuit against Amway has brought to the fore the risks that companies such as Amway face because the charges against the company have been framed under the Prize Chits and Money Circulation Schemes (Banning) Act of 1978.</p><p align="justify">The provisions of this act have been used to book the perpetrators of a number of Ponzi schemes such as Speak Asia and Saradha Realty.</p><p align="justify">Singapore-based Speak Asia invited the public to participate in online research surveys after paying a six-month subscription of Rs 6000. The bait was that participation in the survey would make them richer by Rs 1000 a week. If the participant roped in others, they would get commissions as well. As many as 2 million Indians poured money into the Ponzi scheme before it went bust.</p><p align="justify"><em>Perfectly legit</em></p><p align="justify">Amway says it runs a direct selling business through a chain of distributors in a multi-level marketing scheme. Amway appoints a distributor who sells its products directly to those who want to buy it. The distributor, in turn, can appoint other distributors with permission and training from Amway who could also sell Amway goods. Any commission that the first distributor makes is his.</p><p align="justify">Distributors down the chain have to pass on a small amount of the commissions they earn to the person who recruited them into the network in the first place. Commissions vary according to the product sold and the quantities but range from anywhere between 6 per cent and 21 per cent.</p><p align="justify">&quot;What the Wayanad police are contending is that this is a disguised money circulation scheme ... which it is not. It is direct selling through a chain of distributors. And this is perfectly legal in India as in the rest of the world,&quot; said Amway India spokesperson Sudeep Sengupta.</p><p align="justify">Ironically, the Indian Direct Selling Association - which counts Amway, Avon, Oriflame and Tupperware as members along with Hindustan Lever, Max Life Insurance and Modicare - have been warning that their members may be harassed with such punitive arrests arising from misinterpretation of the law, especially after the media has turned its attention on a number of Ponzi schemes in the past year.</p><p align="justify">The Prize Chits and Money Circulation Schemes (Banning) Act prohibits firms from running illegal money circulation schemes, including &quot;disguised money circulation schemes&quot; which misuse marketing of products to run illegal fund flows.</p><p align="justify">The test of whether a pyramid marketing scheme is legal or not, say legal experts, are two basic premises - that the scheme should not &quot;rob Paul to pay Peter&quot; and it should not allure people with promises of abnormally high returns.</p><p align="justify">&quot;These principals were established by the Supreme Court in the Kuriachan Chacko vs State of Kerala case in 2008, and implies to be legal, a scheme should not depend on recruiting new members to pay older members but on actual selling of products and that this should not involve promising abnormally high returns which are unsustainable,&quot; said Parijat Sinha, senior Supreme Court advocate.</p><p align="justify">Saradha and Speak Asia failed on both counts - they depended solely on earnings paid by new members to pay older members and they promised extraordinarily high returns of up to 500 per cent.</p><p align="justify">Amway, Tupperware, and Avon have been contending that they are not in the same league as Speak Asia or Saradha. The IDSA has been particularly anxious that this be done through proper legislation and by the police cracking down on fraudulent schemes.</p><p align="justify">&quot;There is a crying need for a proper regulatory framework to facilitate direct selling which will also prevent unscrupulous elements operating under the garb of direct selling business. This will protect public at large,&quot; said Chavi Hemanth, secretary general of the IDSA.</p><p align="justify"><em>What's the difference?</em></p><p align="justify">The direct selling companies - who claim to have established legitimate operations in over a 100 countries across the world - say there are some key differentiators between their business model and the ones used by the perpetrators of Ponzi schemes.</p><p align="justify">They contend that firstly, direct sellers encourage minimal inventory with replenishment as and when the need arises. The Ponzi schemes tend to &quot;front load&quot; product sales.</p><p align="justify">Second, they claim to provide rigorous product sales training unlike the Ponzis.</p><p align="justify">Third, they argue that they provide incentives based on sales performance, while Ponzis merely focus on collection of money.</p><p align="justify">Fourth, direct sellers recruitment is not compulsory for doing business, while it is mandatory in the Ponzi schemes.</p><p align="justify">Fifth, they claim to provide remuneration to all distributors only through direct selling companies. Ponzis, on the other hand, pay out of the payments received from new recruits.</p><p align="justify">Sixth, the direct seller can exit the scheme after a reasonable time, while Ponzis have no refund or exit policy.</p><p align="justify">Finally, the direct sellers insist they provide a 100 per cent buyback guarantee on the products they sell, while Ponzis do not have such a policy.</p><p align="justify">The assertions by the direct sellers are seen as just that: assertions that have not been tested or certified by an independent agency. Nor is there an industry-wide redressal system for complaints though companies claim they do have a robust mechanism.</p><p align="justify">The new rules may eventually create that litmus test, a certification system and a redressal mechanism. But till that happens the Amway-style arrests remains a huge business.</p><p align="justify">Amway, which has invested Rs 200 crore in India, warned that &quot;such rash action serves little purpose but to tarnish the image of India as an investment destination&quot;.</p><p align="justify">At a time India is struggling to contain its current account deficit, this could severely impact foreign fund flows into the country - which is the only way to fund CAD which has ballooned to about 5 per cent of gross domestic product.</p>                                                           
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    <br><a href="http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco" class="re" target="_blank">The Telegraph, 29 May, 2013, http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco</a><div class="clear"></div>
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    <h1 class="cat-box-title">Ponzi puzzle stumps Amway</h1>
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                            <div align="justify">-The Telegraph</div><p align="justify"><br />The sudden arrest of Amway India's top brass on Monday has focused the spotlight on the crumbling fault lines and the grey areas in the demarcation between some of the world's best-known direct selling companies and the dodgy Ponzi schemes that promise huge returns to gullible investors and have lately grabbed all the sensational headlines in Bengal.</p><p align="justify">William S. Pinckney, managing director of Amway India, and two directors of the company - Sanjay Malhotra and Anshu Budhraja - were today granted conditional bail by the Wayanad district court in Kerala.</p><p align="justify">The court has directed them to furnish two personal sureties of Rs 1 lakh each and to co-operate with the investigative process.</p><p align="justify">The Wayanad police had used a little bit of subterfuge to make the arrest. The Amway officials had come to Kozhikode in connection with an anticipatory bail process relating to a complaint filed by a lady named Vishalakshy who said she had purchased Amway products worth Rs 3 lakh but suffered a loss when she failed to sell them.</p><p align="justify">The Amway officials were apparently unaware that three other Wayanad residents - Jaffer, Ashraf and Hariharan - had also filed complaints against them in 2011 after being denied promised returns after stumping up a lot of money to stock Amway products.</p><p align="justify">Crime branch SP P.A. Valsan told The Telegraph in Thiruvananthapuram that there were six cases against Amway: two being investigated by the Economic Offences Wing, three booked by the Wayanad police and one in Kannur district.</p><p align="justify">They have been charged under section 420 of the Indian penal code and sections 4, 5 and 6 of the Prize Chits and Money Circulation Schemes (Banning) Act.</p><p align="justify">&quot;Our investigation showed that their mode of selling violated the terms of the act. Members who join get money on a contingency - and the contingency is that they must enroll more people,&quot; Valsan said.</p><p align="justify">He questioned the direct selling business model that Amway was professing. &quot;Seizures made during the searches showed that the products were being sold at 10 to 12 times their real price. How can this be direct selling?&quot;</p><p align="justify"><em>Litmus test</em></p><p align="justify">The Amway incident comes at a time a high-level inter-ministry group at the Centre had been trying to pick its way through a minefield of legalese in order to precisely define which multi-level marketing schemes are legit and which are egregious Ponzi-style rip-offs.</p><p align="justify">The panel was formed after the Speak Asia scam broke last year. The committee concluded its meetings last month and submitted a report to the government. At the same time, economist Bibek Debroy has prepared a report on direct selling for Ficci.</p><p align="justify">A committee within the department of financial services in the finance ministry is now poring over the two reports to formulate its own views on the vexed subject to help the government draw up a new set of rules on direct selling.</p><p align="justify">The Kerala lawsuit against Amway has brought to the fore the risks that companies such as Amway face because the charges against the company have been framed under the Prize Chits and Money Circulation Schemes (Banning) Act of 1978.</p><p align="justify">The provisions of this act have been used to book the perpetrators of a number of Ponzi schemes such as Speak Asia and Saradha Realty.</p><p align="justify">Singapore-based Speak Asia invited the public to participate in online research surveys after paying a six-month subscription of Rs 6000. The bait was that participation in the survey would make them richer by Rs 1000 a week. If the participant roped in others, they would get commissions as well. As many as 2 million Indians poured money into the Ponzi scheme before it went bust.</p><p align="justify"><em>Perfectly legit</em></p><p align="justify">Amway says it runs a direct selling business through a chain of distributors in a multi-level marketing scheme. Amway appoints a distributor who sells its products directly to those who want to buy it. The distributor, in turn, can appoint other distributors with permission and training from Amway who could also sell Amway goods. Any commission that the first distributor makes is his.</p><p align="justify">Distributors down the chain have to pass on a small amount of the commissions they earn to the person who recruited them into the network in the first place. Commissions vary according to the product sold and the quantities but range from anywhere between 6 per cent and 21 per cent.</p><p align="justify">&quot;What the Wayanad police are contending is that this is a disguised money circulation scheme ... which it is not. It is direct selling through a chain of distributors. And this is perfectly legal in India as in the rest of the world,&quot; said Amway India spokesperson Sudeep Sengupta.</p><p align="justify">Ironically, the Indian Direct Selling Association - which counts Amway, Avon, Oriflame and Tupperware as members along with Hindustan Lever, Max Life Insurance and Modicare - have been warning that their members may be harassed with such punitive arrests arising from misinterpretation of the law, especially after the media has turned its attention on a number of Ponzi schemes in the past year.</p><p align="justify">The Prize Chits and Money Circulation Schemes (Banning) Act prohibits firms from running illegal money circulation schemes, including &quot;disguised money circulation schemes&quot; which misuse marketing of products to run illegal fund flows.</p><p align="justify">The test of whether a pyramid marketing scheme is legal or not, say legal experts, are two basic premises - that the scheme should not &quot;rob Paul to pay Peter&quot; and it should not allure people with promises of abnormally high returns.</p><p align="justify">&quot;These principals were established by the Supreme Court in the Kuriachan Chacko vs State of Kerala case in 2008, and implies to be legal, a scheme should not depend on recruiting new members to pay older members but on actual selling of products and that this should not involve promising abnormally high returns which are unsustainable,&quot; said Parijat Sinha, senior Supreme Court advocate.</p><p align="justify">Saradha and Speak Asia failed on both counts - they depended solely on earnings paid by new members to pay older members and they promised extraordinarily high returns of up to 500 per cent.</p><p align="justify">Amway, Tupperware, and Avon have been contending that they are not in the same league as Speak Asia or Saradha. The IDSA has been particularly anxious that this be done through proper legislation and by the police cracking down on fraudulent schemes.</p><p align="justify">&quot;There is a crying need for a proper regulatory framework to facilitate direct selling which will also prevent unscrupulous elements operating under the garb of direct selling business. This will protect public at large,&quot; said Chavi Hemanth, secretary general of the IDSA.</p><p align="justify"><em>What's the difference?</em></p><p align="justify">The direct selling companies - who claim to have established legitimate operations in over a 100 countries across the world - say there are some key differentiators between their business model and the ones used by the perpetrators of Ponzi schemes.</p><p align="justify">They contend that firstly, direct sellers encourage minimal inventory with replenishment as and when the need arises. The Ponzi schemes tend to &quot;front load&quot; product sales.</p><p align="justify">Second, they claim to provide rigorous product sales training unlike the Ponzis.</p><p align="justify">Third, they argue that they provide incentives based on sales performance, while Ponzis merely focus on collection of money.</p><p align="justify">Fourth, direct sellers recruitment is not compulsory for doing business, while it is mandatory in the Ponzi schemes.</p><p align="justify">Fifth, they claim to provide remuneration to all distributors only through direct selling companies. Ponzis, on the other hand, pay out of the payments received from new recruits.</p><p align="justify">Sixth, the direct seller can exit the scheme after a reasonable time, while Ponzis have no refund or exit policy.</p><p align="justify">Finally, the direct sellers insist they provide a 100 per cent buyback guarantee on the products they sell, while Ponzis do not have such a policy.</p><p align="justify">The assertions by the direct sellers are seen as just that: assertions that have not been tested or certified by an independent agency. Nor is there an industry-wide redressal system for complaints though companies claim they do have a robust mechanism.</p><p align="justify">The new rules may eventually create that litmus test, a certification system and a redressal mechanism. But till that happens the Amway-style arrests remains a huge business.</p><p align="justify">Amway, which has invested Rs 200 crore in India, warned that &quot;such rash action serves little purpose but to tarnish the image of India as an investment destination&quot;.</p><p align="justify">At a time India is struggling to contain its current account deficit, this could severely impact foreign fund flows into the country - which is the only way to fund CAD which has ballooned to about 5 per cent of gross domestic product.</p>                                                           
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    <br><a href="http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco" class="re" target="_blank">The Telegraph, 29 May, 2013, http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco</a><div class="clear"></div>
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Home हिन्दी

Ponzi puzzle stumps Amway

Published on May 29, 2013   Modified on May 29, 2013

-The Telegraph The sudden arrest of Amway India's top brass on Monday has focused the spotlight on the crumbling fault lines and the grey areas in the demarcation between some of the world's best-known direct selling companies and the dodgy Ponzi schemes that promise huge returns to gullible investors and have lately grabbed all the sensational headlines in Bengal. William S. Pinckney, managing director of Amway India, and two directors of the company - Sanjay Malhotra and Anshu Budhraja - were today granted conditional bail by the Wayanad district court in Kerala. The court has directed them to furnish two personal sureties of Rs 1 lakh each and to co-operate with the investigative process. The Wayanad police had used a little bit of subterfuge to make the arrest. The Amway officials had come to Kozhikode in connection with an anticipatory bail process relating to a complaint filed by a lady named Vishalakshy who said she had purchased Amway products worth Rs 3 lakh but suffered a loss when she failed to sell them. The Amway officials were apparently unaware that three other Wayanad residents - Jaffer, Ashraf and Hariharan - had also filed complaints against them in 2011 after being denied promised returns after stumping up a lot of money to stock Amway products. Crime branch SP P.A. Valsan told The Telegraph in Thiruvananthapuram that there were six cases against Amway: two being investigated by the Economic Offences Wing, three booked by the Wayanad police and one in Kannur district. They have been charged under section 420 of the Indian penal code and sections 4, 5 and 6 of the Prize Chits and Money Circulation Schemes (Banning) Act. "Our investigation showed that their mode of selling violated the terms of the act. Members who join get money on a contingency - and the contingency is that they must enroll more people," Valsan said. He questioned the direct selling business model that Amway was professing. "Seizures made during the searches showed that the products were being sold at 10 to 12 times their real price. How can this be direct selling?" Litmus test The Amway incident comes at a time a high-level inter-ministry group at the Centre had been trying to pick its way through a minefield of legalese in order to precisely define which multi-level marketing schemes are legit and which are egregious Ponzi-style rip-offs. The panel was formed after the Speak Asia scam broke last year. The committee concluded its meetings last month and submitted a report to the government. At the same time, economist Bibek Debroy has prepared a report on direct selling for Ficci. A committee within the department of financial services in the finance ministry is now poring over the two reports to formulate its own views on the vexed subject to help the government draw up a new set of rules on direct selling. The Kerala lawsuit against Amway has brought to the fore the risks that companies such as Amway face because the charges against the company have been framed under the Prize Chits and Money Circulation Schemes (Banning) Act of 1978. The provisions of this act have been used to book the perpetrators of a number of Ponzi schemes such as Speak Asia and Saradha Realty. Singapore-based Speak Asia invited the public to participate in online research surveys after paying a six-month subscription of Rs 6000. The bait was that participation in the survey would make them richer by Rs 1000 a week. If the participant roped in others, they would get commissions as well. As many as 2 million Indians poured money into the Ponzi scheme before it went bust. Perfectly legit Amway says it runs a direct selling business through a chain of distributors in a multi-level marketing scheme. Amway appoints a distributor who sells its products directly to those who want to buy it. The distributor, in turn, can appoint other distributors with permission and training from Amway who could also sell Amway goods. Any commission that the first distributor makes is his. Distributors down the chain have to pass on a small amount of the commissions they earn to the person who recruited them into the network in the first place. Commissions vary according to the product sold and the quantities but range from anywhere between 6 per cent and 21 per cent. "What the Wayanad police are contending is that this is a disguised money circulation scheme ... which it is not. It is direct selling through a chain of distributors. And this is perfectly legal in India as in the rest of the world," said Amway India spokesperson Sudeep Sengupta. Ironically, the Indian Direct Selling Association - which counts Amway, Avon, Oriflame and Tupperware as members along with Hindustan Lever, Max Life Insurance and Modicare - have been warning that their members may be harassed with such punitive arrests arising from misinterpretation of the law, especially after the media has turned its attention on a number of Ponzi schemes in the past year. The Prize Chits and Money Circulation Schemes (Banning) Act prohibits firms from running illegal money circulation schemes, including "disguised money circulation schemes" which misuse marketing of products to run illegal fund flows. The test of whether a pyramid marketing scheme is legal or not, say legal experts, are two basic premises - that the scheme should not "rob Paul to pay Peter" and it should not allure people with promises of abnormally high returns. "These principals were established by the Supreme Court in the Kuriachan Chacko vs State of Kerala case in 2008, and implies to be legal, a scheme should not depend on recruiting new members to pay older members but on actual selling of products and that this should not involve promising abnormally high returns which are unsustainable," said Parijat Sinha, senior Supreme Court advocate. Saradha and Speak Asia failed on both counts - they depended solely on earnings paid by new members to pay older members and they promised extraordinarily high returns of up to 500 per cent. Amway, Tupperware, and Avon have been contending that they are not in the same league as Speak Asia or Saradha. The IDSA has been particularly anxious that this be done through proper legislation and by the police cracking down on fraudulent schemes. "There is a crying need for a proper regulatory framework to facilitate direct selling which will also prevent unscrupulous elements operating under the garb of direct selling business. This will protect public at large," said Chavi Hemanth, secretary general of the IDSA. What's the difference? The direct selling companies - who claim to have established legitimate operations in over a 100 countries across the world - say there are some key differentiators between their business model and the ones used by the perpetrators of Ponzi schemes. They contend that firstly, direct sellers encourage minimal inventory with replenishment as and when the need arises. The Ponzi schemes tend to "front load" product sales. Second, they claim to provide rigorous product sales training unlike the Ponzis. Third, they argue that they provide incentives based on sales performance, while Ponzis merely focus on collection of money. Fourth, direct sellers recruitment is not compulsory for doing business, while it is mandatory in the Ponzi schemes. Fifth, they claim to provide remuneration to all distributors only through direct selling companies. Ponzis, on the other hand, pay out of the payments received from new recruits. Sixth, the direct seller can exit the scheme after a reasonable time, while Ponzis have no refund or exit policy. Finally, the direct sellers insist they provide a 100 per cent buyback guarantee on the products they sell, while Ponzis do not have such a policy. The assertions by the direct sellers are seen as just that: assertions that have not been tested or certified by an independent agency. Nor is there an industry-wide redressal system for complaints though companies claim they do have a robust mechanism. The new rules may eventually create that litmus test, a certification system and a redressal mechanism. But till that happens the Amway-style arrests remains a huge business. Amway, which has invested Rs 200 crore in India, warned that "such rash action serves little purpose but to tarnish the image of India as an investment destination". At a time India is struggling to contain its current account deficit, this could severely impact foreign fund flows into the country - which is the only way to fund CAD which has ballooned to about 5 per cent of gross domestic product.

The Telegraph, 29 May, 2013, http://www.telegraphindia.com/1130529/jsp/business/story_16947913.jsp#.UaXDIdjcjco

Tagged with: Corporate Governance Ponzi scheme

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