AP High Court's judgement in full against speakasiaonline

AP High Court's judgement in full against speakasiaonline

IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH

HON'BLE SRI JUSTICE RAJA ELANGO

 

CRL.M.P.Nos.6459 and 7016 of 2011

and

CRIMINAL PETITION No.5626 of 2011

 

SPEAKASIA ONLINE PTE.LTD.,OFFICE AT SINGAPORE, REP.BY AU.REP

VS

THE STATE OF A.P., THROUGH CID, HYDERABAD & ANOTHER, REP PP.

ORDER:

          This Criminal Petition is filed by the petitioner company namely Speakasia Online Pvt. Ltd. represented by its Authorised Representative Mr. Charan Kumar, under Section 482 Cr.P.C., seeking to quash the proceedings in F.I.R.No.30 of 2011 on the file of the Station House Officer, C.B.C.I.D., Hyderabad, registered on the basis of the complaint given by the 2^nd respondent.

The petitioner company was arrayed as an accused in F.I.R.No.30 of 2011 for the offences under Sections 420 of I.P.C. and 4, 5 and 6 r/w 2(c) and 3 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (for short “the Act”).

The contents in the complaint are as follows:

i)        The business of the company is told as Online survey. The joining fee of the company is Rs.11,000/-. One must get enrolled into the scheme to join others into the scheme for commissions. Huge income is promised by the company within a short span of time. The scheme of the company is Binary scheme. Binary scheme means one person has to enrol two persons and again these two persons have to enrol two persons each and again these four persons have to enrol two persons each and this chain continues endlessly. As the network and chain of members get extended, the upline members will get more commissions.

ii)       It is promised by the company that the commission is paid not only on the personal efforts of joining members into its scheme but also on the efforts of joining new members into the scheme.

iii)      The promoters of the scheme very well knew that it is certain that the scheme was impracticable and unworkable making tall promises and for the benefit of very few who have joined the scheme at the initial stage. If each person keep on enrolling two persons, at the 15^th or 18^th  level all the Indian population and at the 24^th level all the World population will become the members of the company and there would be no member left to join/enrol into the scheme of new members by the already existing members. This will result in heavy loss of money of the enrolled members. The scheme will collapse under its own weight.

iv)      Because of misrepresentation and deceptive words, nearly 19 lakh people have joined into the scheme of the petitioner company all over India and the company got quick and easy money of Rs.5000 crore by cheating and looting all these 19 lakh people.

This Court on 13.07.2011 passed the following order:

“There shall be interim stay of arrest of Officials/Employees belonging to the petitioner company, but investigation can go on.”

Respondent Nos.1 and 2 filed petitions in Crl.P.M.P.Nos.6459 of 2011 and 7016 of 2011 respectively, with a prayer to vacate the interim stay granted by this Court on 13.7.2011.

The main contentions raised by Sri Vedula Venkata Ramana, Senior Counsel, appearing for the petitioner company are as follows:

1)   1)     First Information Report can be registered only for commission of an offence. The First Information Report should state the manner in which the offence committed. In the absence of any commission of offence, there cannot be any registration of First Information Report.

2)   2)     The entire complaint does not disclose any offence as stated in the First Information Report.

3)   3)     The complainant lodged the complaint in expectation of loss of money to the public, even prior to commission of any offence. The complaint does not disclose about the manner in which the subscribers are cheated and also the modus operandi of the petitioner company.

4)   4)     The allegations made in the complaint do not attract an offence under Section 420 of IPC.

5)   5)     Section 511 of IPC is also not registered in the First Information Report.

Hence, the prosecution cannot claim that an attempt was made to commit the offence.

The learned Senior Counsel, to substantiate his contentions, relied on a decision in “State of West Bangal and others Vs. Sanchaita Investments and others”[1][1]. In the said judgment, the learned Senior Counsel has drawn the attention of this Court regarding his first contention that there cannot be any First Information Report, when cognizable offence is not committed. He further submitted that in the said case, the Apex Court held that to attract an offence under the provisions of the Money Circulation Scheme, the following ingredients should be there:

A.      A.      there must be a scheme;

B.      B.      there must be members of the scheme;

C.       C.       the scheme must be for the making of quick or easy money on any event or contingency relative or applicable to the enrolment of members into the scheme or there must be a scheme for the receipt of any money or valuable thing as the consideration for a promise to pay money on any event or contingency relative or applicable to the enrolment of members into the scheme;

D.     D.     the event of contingency relative or applicable to the enrolment of members into the scheme will however not be in any way affected by the fact whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscription.

The learned Senior Counsel also relied on a decision in “Indian Oil Corpn. Vs. NEPC India Ltd. and others”[2][2] wherein the principles of exercise of jurisdiction under Section 482 of Cr.P.C. are reiterated by the Apex Court on the basis of its earlier judgment.

The learned Senior Counsel further relied on a decision in “Abhayanand Mishra Vs. State of Bihar”[3][3] to substantiate his arguments with regard to preparation and an attempt to commit an offence.

In contra, the learned Public Prosecutor has submitted that the First Information Report discloses cognizable offences and in view of the order passed by this Court on 13.07.2011, the Investigating Agency proceeded with the investigation. He stated the following facts before this Court for consideration:

                i.                               i.            During the course of investigation on 25.06.2011 two franchises of Vijayawada by names (1) Devireddy Srinivasa Reddy and (2) Lanka Venkata Ayyappa Swamy were arrested as A.2 and A.3 and documents were seized pertaining to the bank accounts, agreements, cell phones and laptop from their possession and sent them for judicial custody. According to the confession of the statements of A.2 and A.3 that on attracting the advertisements of the petitioner company, with a view to earn more money in easy way by attending online simple surveys and also to enrol panellists, they joined as franchises to the petitioner company in Andhra Pradesh by depositing Rs.3 lakh each. The modus operandi of the company is if a person got registered in petitioner company, he should pay an amount of Rs.6,000/- for six months and Rs.11,000/- per annum. Further, the person required to furnish subscription code, personal details including bank account details. When he becomes panellist, once he completes the surveys, he will get Rs.500/- for each survey. The subscription is valid for 12 months. The method of survey is that the petitioner company will put a questionnaire to the subscriber about a product and its performance.

              ii.                             ii.            The I.O. visited the Registrar of Companies and caused enquiries about the registration of the alleged companies namely (1) Seamless Outsourcing LLP, Mumbai, (2) Kritanz Management & Allied Services, Mumbai, and (3) Tulasiyat Tek Pvt. Ltd., Mumbai and also addressed a letter to the Registrar of Companies for furnishing of certain information on registration of above firms.

            iii.                          iii.            On 08.08.2011 the I.O. received the information from the Assistant Registrar of Companies, Andhra Pradesh, Hyderabad in which he stated that no company in the name of “Speak Asia Online Pvt. Ltd.” is found to be registered in the Ministry of Corporate Affairs Registry.

             iv.                            iv.            The I.O. got served notices U/s 91 & 160 Cr.P.C. to (1) Manoj Kumar, CEO, (2) K. Charan Kumar, Regional Manager, and (3) Harender Kour, Global CEO of petitioner company through their advocate Sri S.S.R. Murthy to attend before him on or before 25^th July 2011. Manoj Kumar, CEO and Harendar Kour, Global CEO have not attended so far before the I.O.

The first contention raised by the learned Senior Counsel is that First Information Report can be registered only for commission of an offence. It is true that First Information Report is to be registered on commission of an offence, more particularly, for a cognizable offence. Once a cognizable offence is committed, First Information Report can be registered. But at the same time, some of the provisions in the law enable the Investigating Agency to register First Information Report for mere preparation alone, for example, Sections 120-B, 399 of IPC and 7(1)(a) of the Criminal Law Amendment Act. Further, whether an offence committed or not always depends upon the ingredients mentioned in the provision of law.

Some provisions in the penal laws made the preparation also as an offence. When the provision deals the preparation as an offence, the preparation itself is commission of offence.

In the present case, the offences alleged are under Sections 420 of I.P.C. and 4, 5 and 6  r/w  2(c) and 3 of the Act.

For the sake of convenience, Sections 2(c) and 3 of the Act are reproduced hereunder:

“2(c) of the Act: “money circulation scheme” means any scheme by whatever name called, for the making of quick or easy money; or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions.

Section 3 of the Act -  Banning of prize chits and money circulation scheme or enrolment as members or participation therein:- No person shall promote or conduct any prize chit or money circulation scheme, or enrol as a member to any such chit or scheme, or participate in it otherwise, or receive or remit any money in pursuance of such chit or scheme.”

          The said provisions, 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.

          The view of this Court is fortified by the decision rendered by the Apex Court in Kuriachan Chacko and others Vs. State of Kerala[4][4].

          As far as the offence under Section 420 of IPC is concerned, this Court is of the view that the said case is registered along with other provisions of the Act. Further, the investigation will disclose whether an offence is committed under Section 420 of IPC.  Wrong mentioning of any provision in the First Information Report itself is not a ground to quash the First Information Report and to stay the investigation.

The facts and circumstances in the 1^st cited case (supra) are totally different from the facts and circumstances of the case on hand. It is also observed in the said judgment, whether an offence is disclosed or not must necessarily depend on the facts and circumstances of each particular case and in considering whether an offence, into which investigation is made or to be made, is disclosed or not, the Court has mainly to take into consideration the complaint or the F.I.R. and the Court may in appropriate cases take into consideration the relevant facts and circumstances of the case. On a consideration of all the relevant materials, the Court has to come to the conclusion whether an offence is disclosed or not.

Further, in the said case, the firm namely Sanchaita Investments offered fabulous interest at 48% per annum to its members and later reduced it to 36% per annum. Such high rate of interest was being paid, even though the loan certificates receipts show that the interest was liable to be paid at 12% p.a. The Apex Court felt that the said facts do not disclose any offence under the provisions of the Act. It is true, in the said facts and circumstances of the case, the essential ingredients of Section 2(c) of the Act are totally missing. The Apex Court also elaborately discussed the said fact and opined that acceptance of money and periodical interest paid by a company do not come within the purview of Section 3 of the Act. But, the facts in the present case are totally different and the invitation made by the petitioner company in the name of “surveys” discloses an offence under the provisions of the said Act.

The learned Senior Counsel further contended that the complainant failed to inform as to how he gathered the material. The same need not be proved, at this stage.

Since there was no stay of investigation, the investigation so far conducted by the Investigating Agency discloses that 21 witnesses were examined and two persons were arrested.  The investigation further reveals that 24 lakh members were enlisted, more particularly, 30000 persons were enrolled in the State of Andhra Pradesh, the money transacted is Rs.2276 crore, Rs.467.17 crore was transferred to Singapore, and so many other incriminating materials are collected.

This Court is not inclined to go into all those things, because the question before this Court is whether the investigation to be proceeded or not and hence, it is not necessary to record the manner in which the investigation proceeded in this case which will cause prejudice to either parties.

In view of the foregoing discussion, this Court is not inclined to quash the First Information Report No.30 of 2011 on the file of the Station House Officer, C.B.C.I.D., Hyderabad, and the interim stay granted by this Court on 13.07.2011 is liable to be vacated.

        Accordingly, CRL.M.P.Nos.6459 and 7016 of 2011 are allowed and the interim stay granted by this Court in Crl.P.M.P.No.5698 of 2011 on 13.07.2011 is hereby vacated and the Criminal Petition is also dismissed. Miscellaneous petitions, if any, filed shall stand closed.

                    __________________                                      

RAJA ELANGO, J

30^th August, 2011

cbs

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[1][1] (1982)1 S.C.C. 561

[2][2] (2006) 6 S.C.C. 737

[3][3] AIR 1961 SC 1698

[4][4] (2008) X S.C.C. Page No.708

The mathematics: why MLM pyramid schemes cannot work!

The Pyramid Structure of Multi-Level Marketing - Why it IS a Scam

1. 
   

MLM's are described as having an inherent basis in a pyramid structure since, for most MLMs, the product is really a just window-dressing to divert attention from the real profit-making dynamic: joining fees selling product internally and distributorships. Now, the product or service may well be good, and, as we discussed in the previous page, it might oversaturate the market at some point, but  the product is not the incentive to join an MLM. If the product were really the focus it would ALSO be sold by other methods, including the traditional stores and online retailers.  In reality, the product is the excuse to create an appearance of legitimate business.

MLM-Pyramid schemes now come in so many forms that they may be difficult to recognize immediately. However, they all share one overriding characteristic:

They promise consumers or investors large profits based primarily on recruiting others to join their program, not based on profits from any real investment or real sale of goods to the public. Some schemes may purport to sell a product, but they often simply use the product to hide their pyramid structure.

There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: inventory loading and a lack of retail sales. Inventory loading occurs when a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company's distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements.

A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.

Remember, in order to avoid being classified as an illegal pyramid scam, the MLM MUST try to sell SOME product (or service).  By law, they must derive at least 51% of their income from product or service sales, rather than fees and distributorships in order to avoid being legally classified as a pyramid scam.  That's why each distributor must buy sales kits, trial kits, and sometimes, a certain amount of "product" each month themselves. All to prop up the illusion that the product is the real focus of the company, which is is not.

So in their presentations, they will tell you that there are two career paths: as a seller and as a distributor (or manager). The seller path is just a cover. Notice in their presentations how little time is given to the products, and  how often you hear, "If you can convince eight people to become a distributor and they can convince eight people, and so on, that's how you make the real money."

Of course, the fact that that few people needs this product or service and few people are presently buying similar products available in the market even at lower prices is ignored.  The uphill climb is two-fold.  You'd have to convince 8 people to become distributors, and in order to keep the scheme from being declared an illegal pyramid, everyone would have to sell overpriced product to people who probably aren't even buying much of the lower priced product that is already available in Wal-Mart.

The mathematics: why MLM pyramid schemes cannot work!

In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate version of a multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money. The chart below shows how pyramid schemes can become impossible to sustain:

This table shows how many new paying members must be recruited at each level for programs (schemes) that require each new member to recruit 4, 5, 6, 7, or 8 new members.

Level	Number of new members each level must recruit to be profitable. (columns indicate the numbers for requirements of recruiting 4, 5, 6, 7, or 8 new members)
	4	5	6	7	8
1	4	5	6	7	64
2	16	25	36	49	512
3	64	125	216	343	4096
4	256	625	1,296	2401	32,768
5	1,024	3125	7,776	16,807	262,144
6	4,096	15,625	46,656	117,649	2,097,152
7	16,384	78,125	279,936	823,543	16,777,216
8	65,536	390,625	1,679,616	5,764,801	134,217,728
9	262,144	1,953,125	10,077,696	40,353,607	1,073,741,824
10	1,048,576	9,765,625	60,466,176	282,475,249	8,589,934,592
11	4,194,304	48,828,125	362,797,056	1,977,326,743	68,719,476,736
12	16,777,216	244,140,625	2,176,782,336	13,841,287,201
13	67,108,864	1,220,703,125	13,060,694,016

You will notice that the reddish colored cells signify levels that are unachievable because there aren't that many people on earth (approximately 6 billion people)! The orange colored cells signify levels that are practically unachievable: there are no existing companies on earth with this many employees or members.  The yellow colored cellsindicate levels that are mathematically possible, but would mean that the company would be huge by most standards (7,000 to 1 million employees) and this is VERY unlikely. The uncolored cells are levels that are possible and maybe even practically achievable - by really good con men! This does NOT mean that we are recommending  them!!!!

You can see that for most "programs", you'd better have no more than 3 levels of members "distributors", etc.) above you!

For the sake of this example, let's assume that the scheme depends on each participant recruiting 6 new members into the scheme. The figure below shows how many people will need to have joined the scheme at each level, in order for those above to be paid. Since the current total population of the world is approximately 6 billion people, after only 13 levels there are not enough people on the planet to keep the scheme going!  this means if there are 11 or 12 levels of "distributors" or "representatives" (or whatever they call the participants) above you, you can not possibly make a profit!

If a plan offers to pay commissions for recruiting new distributors, watch out! Most states outlaw this practice, which is known as "pyramiding." State laws against pyramiding say that a multilevel marketing plan should only pay commissions for retail sales of goods or services, not for recruiting new distributors.

Why is pyramiding prohibited? 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 -- lose their money. For information about anti-pyramid laws, see this page.

Nothing irritates a die-hard MLM'er more than the preceding argument. If you point out the absurdity, for example, that if "the pitch" at an Amway meeting were even moderately accurate, in something like 18 months Amway's income would be larger than the Gross National Product of the entire United States.  If you point this out, they will shift their premise and say  "Well, that is absurd, of course. Not everyone will succeed, and so the market will never saturate."

Well, which is it? Are we recruiting "winners" to build a real business, or planning by design to profit off of "losers" who buy into our "confidence"?

During the initial pitch, they will emphasize that anyone can make it work, even if you have no previous experience selling.  "The product sells itself!  Just give them the trial kit!" (oh yes, you must purchase the trial kits, by the way!).  "It's the opportunity of a lifetime.", they'll tell you.

Slowed market expansion

Some modern incarnations of MLMs attempt to address this particular problem by limiting the number of people you can sponsor, say, to four. But the same geometric expansion problems exist; the failure mechanism has just been slowed down a bit. And now there is the added problem of even more unnecessary layers in the organization.

The claim that an MLM is merely a "common man" implementation of a normal real-world distribution channel becomes even more absurd in this case. Imagine buying a product or service in the real world and having to pay overrides and royalties to five or ten unneeded and uninvolved "distributor" layers. Would this be efficient? What value do these layers of "distributors" provide to the consumer? Is this rational? Would such a company exist long in a competitive environment?

The only people who make money in an MLM are the first 2 or 3 levels of the organization, and they do so at the expense of all of those who follow them into the company!

Multi-Level Marketing - Why it IS a Scam, 99.9999% of the time!

Multi-Level Marketing - Why it IS a Scam, 99.9999% of the time!

Multi-Level Marketing programs or MLM's, are a constant source of debate. They have their fanatical devotees, and often appear to behave in a manner much like a cult religion. How many times have you been approached by a neighbor, colleague, friend, or worse yet, a family member, who said "Let me tell you about an incredible ground-level business opportunity" and you are then invited to a house or to lunch for "a discussion."

Most people immediately have a bad feeling that there is probably a hidden agenda or deception.

"Is it a multi-level marketing organization?" you think or even ask. And what if they're honest enough to admit that it is? Should you trust your instincts? Is there anything wrong with MLM's?

Perhaps you know someone who, at one point in their life, sold Amway, Herbalife , Mary Kay, RCM,Nmart etc  or some other health or diet supplement or cosmetics, etc. Typically, they tell you how much money they spent, how little they made, how the meetings were like fundamentalist tent revivals, and how they were pressured to sign up new "distributors".

How does an MLM work?

Multilevel marketing plans, also known as "network" or "matrix" marketing, are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you will receive commissions -- for both your sales of the plan's goods or services and those of other people you recruit to join the distributors. Multilevel marketing plans usually promise to pay commissions through two or more levels of recruits, known as the distributor's "downline."

In a typical multi-level marketing or network marketing arrangement, individuals associate with a parent company as an independent contractor or franchisee and are compensated based on their sales of products or service, as well as the sales achieved by those they bring into the business. This is like many franchise companies where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager.

In a legitimate MLM company, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ("sign-up fees"). One must analyze 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 illegalpyramid or Ponzi scheme.

Some less legitimate companies produce revenues primarily by attracting new participants with the hope of reward and selling them products or services of dubious value at inflated prices, as opposed to selling products or services consumers would purchase at the given price without regard to the opportunity attached. One must evaluate the products or services and determine if a significant percentage of consumers would continue to purchase them if the participants do not make money from the underlying opportunity. If the products or services have dubious value or if the participants must purchase excessive quantities without reasonable intent to use or resell said items, then the company is likely a thinly veiled illegal pyramid scheme.

Multi-level marketing has a recognized image problem due to the fact that it is often difficult to distinguish legitimate MLMs from illegal scams. MLM businesses operate legitimately in the United States in all 50 states and in more than 100 other countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.

Ultimately, you will hear 4 major themes emerge as problems - see these pages for a detailed discussion:

1. Market Saturation,
2. Pyramid Structure,
3. Morality and Ethics,
4. Relationship Issues

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Compensation plans

Companies have devised various MLM compensation plans over the decades.

• Unilevel or Stairstep Breakaway plans are the oldest and most popular. They feature two types of distributors -- managers and non-managers -- and three types of pay:
  • Baseshop overrides are overrides of managers from their subordinate non-managers, collectively called a baseshop. This is the same as any other sales organisation.
  • Generational overrides are overrides of managers from the baseshop of managers who were previously their subordinate. Most plans compensate at least three generations of such managers.
  • Executive bonuses are commissions for managers who exceed a sales quota. For example, 2% of the total company sales revenue may go to a bonus pool that is shared monthly pro rata to managers who exceed $10,000 in that month.
• Matrix Plans limit the width of each level in a distributor's group, forcing strong distributors to pile ("spillover") their recruits over people who did not sponsor them.
• Binary plans limit the width of each level to two legs. Commissions are based on "cycles," where a distributor is paid a fixed amount whenever both legs achieve a certain number of sales units each. Commissions are paid incrementally when the sales volume in each leg matches.
• Elevator or Matrix schemes feature a game board or a list on which each distributor pays in one or more product units to participate. When a certain number of units have been paid in, the structure splits and the earlier participant receives consideration. The Matrix scheme article discusses the legality of this plan. You must do your own research as with any other investment.

Criticism of MLM

The FTC issued a decision, In re. Amway Corp. in 1979, which indicated that multi-level marketing was not illegal. In this case Amway was however found guilty of price-fixing (by requiring "independent" distributors to sell at the same price) and making exaggerated income claims.

Amway has been a target for critics because some high-level Independent Business Owners (IBOs) have setup separate companies for selling instructional and motivational materials to Amway IBOs. In some cases this generates more revenue for them than their Amway distributorships.

Fraudulent MLM schemes can usually be identified by high entrance fees or requirements to purchase expensive inventories. They often collapse quickly when the merchandise cannot be resold, leaving all but those at the top of the pyramid with financial losses.

The Federal Trade Commission advises that multi-level marketing organizations with greater incentives for recruitment than product sales are to be viewed skeptically. In April 2006, it proposed a Business Opportunity Rule intended to require all sellers of business opportunities—including MLMs—to provide enough information to enable prospective buyers to make an informed decision about their probability of earning money. FTC trade regulation rules usually take 1-1/2 to 3 years before a final rule is established.

Yes, money can be made with MLM. The question is whether the money being made is legitimate or "made" via a sophisticated con scheme. And if MLM is doomed by design to fail, then the answer is, unfortunately, the latter.

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If you already have joined an MLM or still plan to join an MLM...

If you're thinking about joining what appears to be a legitimate multilevel marketing plan, take time to learn about the plan before signing anything.  Here's what you need to know... and remember, you cannot trust the company's representatives to give you accurate, honest nor objective information - you want information from independent, objective sources:

1. What's the company's track record?
2. What products does it sell?
3. How does it back up claims it makes about its product?
4. Is the product competitively priced?
5. Is it likely to appeal to a large customer base?
6. What up-front investment do you have to make to join the plan?
7. Are you committed to making a minimum level of sales each month?
8. Will you be required to recruit new distributors to be successful in the plan?

Beware if a distributor tells you that for the price of a "start-up kit" of inventory and sales literature (and sometimes a commitment to sell a specific amount of the product or service each month) you'll be on the road to riches.

No matter how good a product and how solid a multilevel marketing plan may be, expectto invest sweat equity as well as dollars for your investment to pay off. There is no such thing as "passive residual income" - that phrase alone is a tipoff to a scam!

Warning about MLM's and friends that are waiting to loot you

                                   Warning about MLM's 

• Plans that promise profits mainly for recruiting new members are illegal pyramid schemes. In legitimate multilevel marketing plans, profits come primarily from selling goods and services to consumers.
• Be cautious about emails for money-making opportunities. Many unsolicited emails are fraudulent.
• Be aware that some pyramids are disguised as “gifting clubs.” New recruits give money to current members with the promise that they will receive money from future recruits.
• Know that all pyramids are doomed to collapse. That’s because it’s impossible to keep on getting fresh recruits who will pay to participate.
• Legitimate multilevel marketing plans only succeed if they offer products or services that customers want. All successful businesses depend on repeat sales. If there isn’t constant demand for the products or services, the business will fail.
• Sales to other distributors don’t count. Legitimate multilevel marketing plans aren’t based on sales to distributors. Profits should come from sales that you and any distributors under you make to the end-users.
• Be wary of big earnings claims. No one can guarantee how much you’ll make. That depends on how hard you work and whether consumers like your products or services. Many people who work in multilevel marketing do it part-time to supplement their other income.
• Check it out before you commit. Print out all the information, and contact your state or local consumer protection agency for advice. In some states, multilevel marketing companies must register with the government and comply with other requirements.
• Don’t buy more supplies than you need. Some fraudulent companies try to force distributors to pay for more products than they can reasonably sell.

How MULTILEVEL MARKETING companies destroy our social fabric and economy

How multilevel marketing companies are destroying social fabric & economy

For the last one decade, many fraudulent companies have been wreaking havoc on our economy by siphoning out of our country several thousands of crores of rupees every year. They not only loot our money but also out to destroy the social fabric of our society. They started multilevel marketing system in the country but actually indulging in money circulation schemes in the guise of selling products and services. We must avoid joining these fraudulent schemes and efforts should be made to remove the veil of products sales and services to identify the real mal-intention of these rogue companies.
There are umpteen numbers of companies operating on these lines all over the country and many have intruded at the local level looting the common man with inducement of get quick rich. These fraudulent companies introduce various products with the dubious claims of high quality and equally dubious claims of direct selling. There is neither high quality nor direct selling but only money circulation scheme.
People who are unto these schemes lose money ultimately and end up in strained relations with their friends and relatives. Just a quick glance around will reveal how many companies are plundering people’s money and lining their pockets. Beware of these dubious companies which offer easy and quick money, early retirement, deluxe house, luxurious life and travel abroad.
Kindly remember, there is nothing like free lunch. One has to work hard to earn it and save it judiciously. Then only anyone can become rich over the years. These fraudulent companies are becoming rich through such schemes and ninety per cent of people who joined these companies end up losing their hard-earned money.
Notwithstanding the monetary loss to our countrymen who joined these money circulation schemes, there is bigger trauma people face after strained relations with their friends, relatives and family members. Out of compulsion they might join some money circulation scheme or other. But later, they would never trust the person who forced them to join the scheme. Will they ever trust the friend who caused him monetary loss, mental pressure and physical torture in future? This is the biggest threat the country is facing today.
In order to hoodwink the provisions of Prize Chits & Money Circulation Schemes (Banning) Act, 1978, these companies took this strategy of product sales and services. The mother of all scams is Amway which started its operations way back in 1998, entering into the country with the promise of foreign direct investment. However, it has been siphoning out several hundreds of crores of rupees every year. The ex-factory price of all the products of Amway is very low and the selling price is very high. For instance, the ex-factory price of Glister toothpaste is Rs. 16 and the selling price is Rs. 120. Who is pocketing the extra amount and who is paying taxes on this amount? This is how they are cheating not only people but also the government.
There are a number of companies which indulge in such activities. It is pertinent here to name some of them. Amway, Herbalife, Tupperware, Hindustan Lever Network, Modicare, Nmart are only a few of them. Another company, GoldQuest International, which has been in existent in over 68 countries, is now closed in India thanks to the number of criminal complaints filed against the company.

MLM: LEGITIMATE OR SCAM ???????????????????????????

Multi-Level Marketing (MLM)

You see the ads all the time: "Make millions now, no manager" or "Work on your own, start $12,000 per week." Maybe you saw the ad in the paper, or maybe you received it by e-mail.

Yes, we're talking about Multi-Level Marketing, also known as "MLM"

MLM: Once Legitimate, Now a Scam

Once upon a time, multi-level marketing was a legitimate business which provided a way for small companies to get their unique products to consumers in small towns and rural areas which had no access to these products. At this time, the products sold themselves, and the multi-level aspect was a way of giving a small reward to those who had worked hard to build the organization. But the focus was always on the product.

Today, and especially with the growth of the internet, it is possible for consumer to get about whatever they want at competitive prices. There is simply no real need for distribution "systems" as there once was, and indeed the focus of all the programs is not on the products they sell -- which are usually either bogus or are available somewhere else to the public at the same or lesser prices. Instead, the focus now is solely on recruiting new people to either buy into the program or else to buy products that are grossly overpriced (i.e., a $1 bottle of "herbal shampoo" for $26), with the idea that those people will recruit additional people who will also buy into the program or themselves buy the grossly overpriced products.

Thus, today just about ALL of the multi-level marketing programs are scams. In today's internet economy, there is simply no need for multi-level marketing or the overpriced products that they sell -- meaning that the only thing they are selling are memberships in anticipation that future memberships will be sold in the future, which is the classic definition of a pyramid scheme, and thus securities fraud.

Because products are available over the internet to everybody at lower costs than ever before, claims that "Multi-Level Marketing will take over the World!" are completely bogus. Indeed, the fact that no MLM schemes sell significant product to anybody other than the people who bought into the programs is proof positive that MLM is a dinosaur in today's economy, and exists only by defrauding people to buy memberships in anticipation of being able to make a profit defrauding other people into the program.

Indeed, as is discussed elsewhere, many of these programs have been broken up for securities fraud and the people in them now have criminal records. So, save your Quatloos and avoid MLM schemes.

Stars! Stars!

Like many advertising campaigns, many MLM programs now attempt to associate themselves with celebrities. "Zig Ziglar goes MLM!" read one spam e-mail we received.

Note that the celebrities didn't make their money in MLM. Nor will you.

Buying Into the Program

So you are being "hired" to sell products, and you have to buy into the program? This is a sure sign that it is a scam. If the product is worth a darn, the company will make its money selling the product. No program that requires you to buy into the program is real, meaning that all our scams.

If you have to buy into the program, forget it! It is not a real program.

Sales Material

Often MLM scams have sub-scams within the main scam of buying Distributorships. One of these scams is the purchasing of advertising materials. Think about it: A company wants you to sell their product but they want you to pay for the advertising materials? Especially with the huge profit margins that the Top Guy makes with these programs, they should at least pay for your brochures and tapes. If a company requires you to pay for advertising or marketing materials, it is a sure sign that it is a scam. The very worst programs will even require you to buy the "samples" of the product that you have paid to be able to sell!

Training Seminars

A scam-within-the-scam is the "training seminars" offered (sometimes required) by the MLM programs. These "training seminars" offer little training, but are mostly rah-rah seminars to boost enthusiasm -- and to make big bucks for the promoters. We have often seen people encouraged to take out thousands of dollars in credit card debt to go to these seminars, with the promise that they will make so much selling the MLM program that they will quickly pay back the credit card debt (this is almost never true).

These training seminars can cost thousands although the company ought to be paying you to attend and learn how to sell its product. No company which requires you to pay for your own training seminar is a real program.

Only The Top People Make Money

The hard truth is that only the guy who sets up the program, i.e., the Big Cheese at the very top, makes any really good money with these programs. Everybody who is selling for the Promoter typically gets screwed.

Nonetheless, the promoters of these programs will often have pictures of themselves standing next to their mansion, yacht, executive jet, whatever, to show their success. Yes, these are real and they did make money by selling programs. Unfortunately, they made this money by cheating and defrauding the people under them to sell these programs for them -- you never see a distributor with anything other than a bunch of credit card debt.

The Drop Out Rate

The "Drop Out Rate" of MLM programs is enormous -- 98% will drop out immediately, meaning that only 2% will continue with the program over any long period of time. The Promoters will tell this 2% that they are the "successful" ones -- what this means is that they have become "successful" scamming other people (who will probably spend their money and then drop out, possibly a big personal loss to them but a profit to the Promoters).

The Promoters know the Drop Out Rate, and know that by far most people will buy in, but then never sell anything and quit, which is one of the reasons why MLM programs are criminal schemes.

The Promoters also tell those who stay in that they are the "well-motivated and lucky ones". This is 100% false. The people who never sold anything and dropped out are the lucky ones, since they will not be liable for securities fraud or any of the related criminal penalties that goes with promoting somebody else into the program. It is the people who stay in the program who are risking some prison time and a felony conviction for selling an unregistered security.

One of the biggest problems of MLM is that they are marketed to people who are down-and-out and desperate, and who can ill-afford to lose their money by purchasing memberships in these bogus programs.

You Gotta Believe!

Promoters tell prospective Distributors that to be successful "You gotta believe!" in the program. This is part of a brainwashing/programming effort to lead you to believe that you will fall into that (falsely) "successful" 2% if you believe in the program and the products that it sells. Thus, active Distributors will defend to great lengths their program and their products, to the point of slandering naysayers, spamming "negative" or competing sites with e-mail to shut them down, threats of physical harassment, etc., etc., not to mention often buying the products themselves in substantial quantity.

But the proof is in the pudding. It is an interesting phenomena of MLM that the hardcore and brainwashed Distributors who defend the products the hardest, almost always quit using those "great products" completely when they move on to the next program!

The point of this is that the 2% of "successful" Distributors have usually been brainwashed and programmed so that they really believe the junk they are saying about the junk they are selling. But that doesn't make it any less junk.

Building that Downline

The promise of MLM is that if you are "successful" (in defrauding others) that you will create this big "downline", i.e., multiple layers of sellers under you, which will quickly lead you to riches and allow you to retire forever with a never-ending stream of seven- or eight-figure revenue.

This promise is totally fraudulent, for at least the following reasons:

1. As discussed above, the 98% drop-out rate means that you probably will never build a significant downline.
2. None of these programs last very long (Amway seems to be the sole exception), meaning that as soon as the program croaks your revenue stops.
3. The odds of anybody in your downline making any money are incredibly small (smaller than yours!), meaning that they will probably "drop out" and be mad at you for getting them into a program where they lost your money -- the upshot being that these people will certainly not follow you to your next program (which will be necessary when your existing program finally collapses), meaning that you will have to build a completely new downline with every new program!

For all these reasons, your chances of long-term residual income with MLM is zero. Even if you are successful, the best you can hope for is a lot of hard work defrauding others to build your downline, some short-term profits until your program collapses or is shut down, and then a lot more hard work defrauding even more people into your next program, and so forth and so on until you get sick of it and drop out of MLM completely.

Buying Your Own Products

To the extent MLM programs sell any product, it is usually purchased by people who -- frustrated by their ability to build a downline and pressured by their recruiters -- will themselves buy mass quantities of the product as an attempted badge of "success". Thus, newbies on the lowest levels will max out their credit cards and buy lots of worthless product themselves in a vain attempt to move on to the next level. Usually, this works only if there is a "buy in" to the next level (more Quatloos for the promoters!) but never means success to the poor sucker buying the products, although he or she will end up with a closet full of vitamins, shampoo, phone cards or whatever -- and usually a lot of credit card debt too.

Fake It 'Til You Make It

Buying your own products is just one aspect of the MLM method of "Fake It 'Til You Make It", meaning that even if you are having zero success, you should act like you are very successful and have already made the Big Time. Many programs will tell people to start living a high lifestyle (on their own credit cards, of course), go lease a new BMW, etc., etc., so that people will believe that you are successful and they will then want to be in the program too.

The problem of course is that only a small percentage are successful in MLM, and these only for the short time until their program collapses. Their debts and BMW leases, however, are long term and require monthly payments to maintain. We have spoken with a few people who were encouraged by Promoters to lease expensive cars, and then were forced to actually live in those cars because they couldn't make the rent (and of course the cars were eventually repo'd from them too, leaving them homeless).

Additionally, the "Fake It 'Til You Make It" is just more fraud on the people you are trying to bring in. Acting like you are making the Big Bucks when you are not is blatanly dishonest -- but all part of the MLM scheme of cheating people.

Heavy-Hitters

A variation of "Fake It 'Til You Make It" is the "Heavy-Hitter" who bounces on the scene and seems very rich, and then acts as a "closer" of new recruits. Whether or not the "Heavy-Hitter" will actually have any money is subject to serious doubt: He may be one of the people living out of his leased BMW! More likely, he has been hired on a pure salary basis by the Promoters to act as a cheerleader and "closer" for prospective Distributors.

The "Heavy-Hitters" usually circulate from program to program, and are often the "Heavy-Hitter" in several MLM programs at the same time. A good way to identify these scam artists is to inquire as to what other programs they are in now, and have been in the future. If they have been in several other programs, you know that you are facing a "Heavy-Hitter", which when you get down to it is just a professional MLM scam artist (and, again, probably on a flat salary no matter what BS they tell you).

At seminars, you will frequently hear the Heavy-Hitter buildup: "Maybe Mr. Such-And-Such" will be here today!" The excitement is such that when Mr. Such-And-Such finally appears, you'd think Moses just came down from the mountain. It is all hype: The Promoters know exactly who will be at these seminars, and they plant people in the audience to make statement such as these, so that Mr. Such-And-Such finally does make his appearance, people attribute to him the credibility of the Messiah. Don't fall for this ruse.

For reference, the "Heavy-Hitter" is not unique to MLM. Casinos have for many years employed "Shills", being people who are hired by the casinos on salary and given a bunch of chips, and sent into the casino to mingle with the other gamblers and spin a few stories of the casino's big payoffs (which may or may not have occurred) -- and of course to gamble the (casino's own) chips and thus encourage others to gamble with the same enthusiasm and similar better levels.

The "Heavy-Hitters" perform the same function with MLM, often coming in to tell false stories about themselves hitting it big with the program. You can admire their gold pinkie rings, and their expensive leather shoes. But avoid these people, and just chuckle at the stories they sell. And be sure to ask them about the lease program on that BMW they are driving!

Fending Off Criticisms

You may see your program mentioned in an unfavorable light, such as on 60 Minutes or 20/20 or some other investigative news program. The Promoters will tell you something like "Their job is to bring down good companies . . .." Bull! Their job is to point out scams, and if your program has been featured on one of these program you can pretty much be sure it is one (if it is an MLM program it is a scam whether it is featured on these programs or not).

Survival Mode

After you have made big investments into the MLM program (or maybe several), are strung out on your credit cards, and the program isn't working out, then you will go into what is called "Survival Mode", where you finally give up the (false) dream of big riches with MLM and start trying to figure out how to hold off your credit card companies while getting back to a normal lifestyle.

Unfortunately, we don't have any special advice to offer. The only thing that we can say is that suicide shouldn't be an option (ex-MLM'ers unfortunately have a very high suicide rate), and that you should simultaneously seek credit counseling, and maybe adult education for re-education for a better job.

Refunds

The worst programs will promise you some sort of refund if it all doesn't work out. These are the worst programs because the refund programs are usually contingent on this-or-that, require long forms and long waits, often the refund is only 30% or so of what you spent, and usually the refunds are illusory (meaning that they company will never pay out the refund to you). The MLM programs which offer refunds do this to create the illusion that there is "no risk" to you -- and this is a 100% fraud because as discussed, you odds of actually getting your money back is infinitesimally small.

At least the companies which don't offer refunds tell you this up front so that you are not suckered into believing this nonsense