INTRODUCTION:
According to U.S Federal trade commission:
If the money you make is based on your sales to the public it is multi level marketing.
If money you make is based on the number of people you recruit and your sales to them it is pyramid scheme.
A pyramid scheme is a business model where the top most level of the members recruit new members where they pay upfront costs up the chain, to those who enrolled them.
It is called as pyramid scheme as it resembles a pyramid structure beginning with a single point on top, and it becomes wider at the bottom.
CONCEPT:
Types of Pyramid Schemes:
1) Multi-Level Marketing (Multi-Level Marketing)
Multilevel marketing (MLM) is a strategy some direct sales companies use to encourage existing distributors to recruit new distributors who are paid a percentage of their recruits' sales. The recruits are the distributor's "downline." Distributors also make money through direct sales of products to customers.
2) Ponzi Schemes
A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers.
3) Chain emails
If pyramid scheme chain letters are sent through email it may constitute wire fraud. An email chain letter may contain trojans or another type of computer virus.
PROVISIONS UNDER VARIOUS LEGISLATIONS
Network Marketing is legal in India. But certain networking fraud strategies has been found by the Government of India as illegal to protect the consumers. Therefore, Govt. Of India enacted few laws which makes the pyramid schemes illegal. They are as follows:
1. Prize chits and money circulation schemes(banning act)1978.
2. Section 420 of IPC
3. Drugs and cosmetics act, 1940
The prize chits and money circulation schemes (banning) act,1978
Money circulation scheme means any scheme, by whatever name called, for making of quick and 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 enrollment 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 subscription
Section 3: Banning of prize chits and money circulation schemes or enrolment as members or participation therein.No person shall promote or conduct any prize chit or money circulation scheme, or enroll 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.
Section 4: on contravention of section 3, the person shall be punishable with imprisonment for a term which may extend to three years or with fine which may extend to five thousand rupees or both
MEASURES THAT CAN BE TAKEN
Step 1 - Send a legal notice to the concerned MLM company to return the money.
Step 2 - If the money has not been returned, file an FIR against such company. Or a complaint can also be filed against the company before Registrar of Companies as if that company violates any provisions of company law.
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