Thanks to supportive politicians and shirking regulators, MLMs continue to con millions with impunity
The con artists who scammed over Rs1,000 crore from gullible savers through Stockguru India were finally arrested on 14th November. Moneylife had warned about this scam in December 2010, well before the fraudsters absconded with investors’ money to evade the police for nearly two years by assuming different disguises and identities.
Immediately after, we received a flurry of questions about QNet, an international (Singapore registered) pyramid scheme that has been busy luring youngsters in dead-end jobs with the promise of extraordinary wealth. Moneylife first wrote about QNet, when it was hawking ‘numismatic’ gold coins for Rs30,000 through a company called GoldQuest (now operates as QI, QNet or QuestNet in different geographies). This was in 2009, well before SpeakAsia, a Singapore-based scam operator walked away with over Rs1,300 crore collected from around 1.2 million persons. GoldQuest, which boasts powerful political connections, was completely destroyed after a police action in Chennai in 2009, but has bounced back, bigger and stronger, this time with an array of ‘products’ priced between Rs30,000 to Rs7 lakh, depending on the gullibility of the victim. What should worry us all is that these are among tens of thousands of such schemes that are robbing naive people all over India.
Most big Ponzi schemes, like QNet, silence mainstream media with advertisements, build credibility by sponsoring events, recruit sports personalities through endorsement contracts and flaunt a charity to burnish their image. All this hides their dodgy legal status. Legally, every scheme that recruits new members falls foul of India’s ineffective (but tough-on-paper) Prize Chits & Money Circulation Schemes (Banning) Act, 1978.
How global direct-selling companies entered India with FIPB (foreign investment promotion board) by side-stepping the Prize Chits act probably merits an entire book. It involved deliberate obfuscation of rules by a deeply corrupt government. The ministry of corporate affairs (MCA) also issued a circular to give them questionable legitimacy.
Unlike many developed countries, India does not distinguish between multi-level marketing (MLM) companies and pure Ponzi operations or pyramid marketing companies. This means that MLMs such as Amway and Tupperware are lumped with shady operations such as QNet, NMart, PACL, SpeakAsia and others. Since SpeakAsia and QNet are global operations, they had deep pockets and could survive for years by moving money from one country to another. A quick Google or Wikipedia search would show that they repeatedly face arrest and legal action all over the world.
Indian operations of pyramid companies like QNet and SpeakAsia are possible purely because of the slothful bureaucracy of the MCA. These are Singapore-registered companies with no Indian presence. However, they quietly register several tiny entities all over India, which open bank accounts to collect money and quickly transfer it overseas. This was clearly revealed in the SpeakAsia case and seems to be the pattern in QNet as well.
Consider this. QNet claims to be in operation for 14 years although it was completely wiped out as recently as 2009. It asks its dealers or independent retailers (IRs), to deposit money in a company called Vihaan Direct Selling Pvt Ltd, incorporated only in October 2011 with a Rs10 lakh capital at a Bengaluru address. The MCA website shows no founders/directors and nobody knows how much of money it has collected or transferred. What is the due diligence done when such entities are registered to mop up funds? After SpeakAsia’s network of such collection entities was discovered, the RBI (Reserve Bank of India) gathered some information, only to discover that over Rs800 crore has already been transferred to Singapore. The RBI did nothing to stop other pyramid companies from using the same route to transfer funds abroad. Nothing. QNet is clearly following the same path as SpeakAsia, but who will investigate it? More importantly, Moneylife has been writing to the RBI governor and deputy governors (Usha Thorat) since 2009, but they claim lack of jurisdiction. Our question is simple. If the RBI pretends helplessness in checking scams that are looting millions of people why is the RBI governor heading the High Level Coordination Committee on Financial Markets? Is it only play referee when regulatory bodies break into unseemly public squabbles?
The con artists who scammed over Rs1,000 crore from gullible savers through Stockguru India were finally arrested on 14th November. Moneylife had warned about this scam in December 2010, well before the fraudsters absconded with investors’ money to evade the police for nearly two years by assuming different disguises and identities.
Immediately after, we received a flurry of questions about QNet, an international (Singapore registered) pyramid scheme that has been busy luring youngsters in dead-end jobs with the promise of extraordinary wealth. Moneylife first wrote about QNet, when it was hawking ‘numismatic’ gold coins for Rs30,000 through a company called GoldQuest (now operates as QI, QNet or QuestNet in different geographies). This was in 2009, well before SpeakAsia, a Singapore-based scam operator walked away with over Rs1,300 crore collected from around 1.2 million persons. GoldQuest, which boasts powerful political connections, was completely destroyed after a police action in Chennai in 2009, but has bounced back, bigger and stronger, this time with an array of ‘products’ priced between Rs30,000 to Rs7 lakh, depending on the gullibility of the victim. What should worry us all is that these are among tens of thousands of such schemes that are robbing naive people all over India.
Most big Ponzi schemes, like QNet, silence mainstream media with advertisements, build credibility by sponsoring events, recruit sports personalities through endorsement contracts and flaunt a charity to burnish their image. All this hides their dodgy legal status. Legally, every scheme that recruits new members falls foul of India’s ineffective (but tough-on-paper) Prize Chits & Money Circulation Schemes (Banning) Act, 1978.
How global direct-selling companies entered India with FIPB (foreign investment promotion board) by side-stepping the Prize Chits act probably merits an entire book. It involved deliberate obfuscation of rules by a deeply corrupt government. The ministry of corporate affairs (MCA) also issued a circular to give them questionable legitimacy.
Unlike many developed countries, India does not distinguish between multi-level marketing (MLM) companies and pure Ponzi operations or pyramid marketing companies. This means that MLMs such as Amway and Tupperware are lumped with shady operations such as QNet, NMart, PACL, SpeakAsia and others. Since SpeakAsia and QNet are global operations, they had deep pockets and could survive for years by moving money from one country to another. A quick Google or Wikipedia search would show that they repeatedly face arrest and legal action all over the world.
Indian operations of pyramid companies like QNet and SpeakAsia are possible purely because of the slothful bureaucracy of the MCA. These are Singapore-registered companies with no Indian presence. However, they quietly register several tiny entities all over India, which open bank accounts to collect money and quickly transfer it overseas. This was clearly revealed in the SpeakAsia case and seems to be the pattern in QNet as well.
Consider this. QNet claims to be in operation for 14 years although it was completely wiped out as recently as 2009. It asks its dealers or independent retailers (IRs), to deposit money in a company called Vihaan Direct Selling Pvt Ltd, incorporated only in October 2011 with a Rs10 lakh capital at a Bengaluru address. The MCA website shows no founders/directors and nobody knows how much of money it has collected or transferred. What is the due diligence done when such entities are registered to mop up funds? After SpeakAsia’s network of such collection entities was discovered, the RBI (Reserve Bank of India) gathered some information, only to discover that over Rs800 crore has already been transferred to Singapore. The RBI did nothing to stop other pyramid companies from using the same route to transfer funds abroad. Nothing. QNet is clearly following the same path as SpeakAsia, but who will investigate it? More importantly, Moneylife has been writing to the RBI governor and deputy governors (Usha Thorat) since 2009, but they claim lack of jurisdiction. Our question is simple. If the RBI pretends helplessness in checking scams that are looting millions of people why is the RBI governor heading the High Level Coordination Committee on Financial Markets? Is it only play referee when regulatory bodies break into unseemly public squabbles?
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