As in Ponzi schemes, the money collected from newer victims of the fraud is paid to earlier victims to provide a veneer of legitimacy. In pyramid schemes, however, the victims themselves are induced to recruit further victims through the payment of recruitment commissions.
More specifically, pyramid schemes[ MLMBUSINESS] —also referred to as franchise fraud or chain referral schemes—are marketing and investment frauds in which an individual is offered a distributorship or franchise to market a particular product. The real profit is earned, not by the sale of the product, but by the sale of new distributorships. Emphasis on selling franchises rather than the product eventually leads to a point where the supply of potential investors is exhausted and the pyramid collapses. At the heart of each pyramid scheme is typically a representation that new participants can recoup their original investments by inducing two or more prospects to make the same investment.Promoters fail to tell prospective participants that this is mathematically impossible for everyone to do, since some participants drop out, while others recoup their original investments and then drop out.
Tips for Avoiding Pyramid Schemes:
MLM BUSINESS IS THE FRAUD BUSSINESS IT IS NOT LEGAL BUSSINESS FRAUDULENT PERSON ARE SPOILING THE LIFE OF UNEMPLOYED YOUTH AND CHEATING PUBLIC IN MANY NAMES EITHER INVESTMENT ,PRODUCT PURCHASE, GOLD PURCHASE , REAL ESTATE , THE LIST IS ENDLESS..
ØBe wary of "opportunities" to invest your money in franchises or investments that require you to bring in subsequent investors to increase your profit or recoup your initial investment.
ØIndependently verify the legitimacy of any franchise or investment before you invest.
PUBLIC DEPOSIT BY MLM COMPANY
LAW IS AS :-
As per Sec.3(1)(iii)(d) of the Act private companies are prohibited from accepting deposits from persons other than its members, directors or their relatives. As per Explanation to Sec.58A(11) "deposit" means any deposit of money with and includes any amount borrowed by a company but shall not include categories of amount specified in Companies Acceptance of Deposits Rules 1975. As regards unsecured loans, Rule 2(b)(xi) provides for conditional exclusion as under:
(a) the loans are brought in pursuance of the stipulation imposed by the financial institutions in fulfilment of the obligation of the promoters to contribute such finance;
any amount brought in by the promoters by way of unsecured loans in pursuance of stipulations of financial institutions subject to the fulfilment of the following conditions, namely :
(b) the loans are provided by the promoters themselves and/or by their relatives, not from their friends and business associates; and
(c) the exemption under this sub-clause shall be available only till the loans of financial institutions are repaid and not thereafter.
Explanation : For the purpose of this sub-clause, the term ‘financial institution’ shall mean :
(a) a public financial institution specified in or under section 4A of the Companies Act, 1956;
(b) a State Financial, Industrial or Investment Corporation;
(c) the State Bank of India or a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959);
(d) a nationalised bank, that is to say, a corresponding new bank as defined in section 2 of :
(i) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970); or
(ii) the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980);
(e) the General Insurance Corporation of India established in pursuance of the provisions of section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972);
(f) the Industrial Reconstruction Corporation of India; or
(g) any other institution which the Central Government may, by notification, specify in this behalf;]