Multi-level marketing companies con many to benefit few: Study

NEW DELHI: Warning people against joining multi-level product marketing schemes, a government study said that such programmes are primarily meant to con individuals to the benefit of a few sitting at the top of pyramid.

The study conducted by the Ministry of Corporate Affairs concluded that "such schemes are inherently money circulation schemes and sale of products is only a camouflage...(and) voilative of the Prize Chits and Money Circulation Schemes (Banning Act) 1978."

Several multinational and Indian firms are operating multi-level marketing schemes in the country and require their members to bring in more members and also sell products.

According to the study, the products by multi-level marketing companies are "over-priced" to pay huge commissions to people sitting at the top of pyramid and earn exorbitant profits for the company.

"Such schemes enrich the company and the top of the pyramid participants at the cost of 90 per cent of the participants who are at the bottom two levels," it said.

The study added that in the pyramid or multi-level marketing schemes 'product' "is only a way to disguise the real intention" and such schemes are primarily "a variant of the earlier money circulation schemes without any products.

Such pyramid schemes of money circulation were common in 1960s to 80s but as the public, media and law makers became aware of the con game, the non-product pyramid schemes were abandoned by the conman. Pyramid schemes and chit funds are banned in India.

Most recently, multi-level marketing company Speak Asia Online and chit fund company Gold Quest International have come under the radar of investigation agencies.