KOCHI: The Hyderabad-based journalist Aruna Ravi Kumar would anchor a weekly TV programme on a regional channel where guests would discuss political and social issues. On one show the topic was about Multi-Level Marketing (MLM) firms. Participants included a representative from Amway, a multi-billion dollar company, a victim and a member of an NGO.
“At that point of time, a lot of these MLM companies were being busted in Hyderabad,” says Aruna, while on a recent visit to Kochi. During the channel discussion, Aruna was intrigued by what she heard. The business had impacted a cross-section of society: rich, middle-class and poor, the educated and uneducated, urban as well as rural. And yet, it had not been a major subject of discussion. So, when the TV channel closed down last year, Aruna decided to do research on the subject.
And this has resulted in a 166-page book called ‘Marauders of Hope’ (E299), which has been brought out by the publishing arm of Crossword Bookstore called ‘The Write Place’. It is a clear and lucid look at the subject. The topics include beginnings, causes (liberalisation), the anatomy of the schemes, the ruined relationships of the victims, precedents, landmark court decisions, and the way ahead.
What comes as a surprise is the companies that have been accused of exploiting people by Aruna include household names like Amway, Tupperware, Herbalife and Mary Kay.
The modus operandi of the firms is very simple. “Investor No 1 at the top of the pyramid recruits six new members at E100 each earning a profit of E600,” says Aruna. “These six recruits will then recruit six new members, each earning a profit of E500 (minus the initial investment of E100), and adding 36 people to the pyramid. Now, the 36 people, to earn any profit will have to recruit 216 people who subsequently must recruit 1296 people and so on.
This pyramid quickly becomes unrealistic. Practically speaking, anyone below the fourth and fifth level is likely to lose 100 per cent of his investment.”
In fact, the only investor who is guaranteed a return is the one at the top of the pyramid. Amway ‘Diamond Distributor’ Ashok Reddy, who is from Hyderabad, has over 2,000 people below him. But the people above him are only two Americans Bill Britt and Dexter Yaeger. “They make commissions on all recruitments and purchases of Ashok,” says Aruna. “So these Americans are getting an income from India, without paying any tax.” At this moment, there are more than four lakh Amway distributors, like Ashok.
Here is another example: In early 2000, a company called Frontier Trading started retailing Japan Life mattresses in India at E1 lakh a piece when the actual price was less than E5,000. The company representatives said that if you sleep on it, a lot of your ailments would be cured. It was an MLM scheme where buyers had to recruit new buyers. The company sold E800 crore worth of beds. Astonishingly, in a small town, Hubli in Karnataka beds worth E82 crore were sold in a single month, “Soon complaints began to pour in that the bed had no healing powers,” says Aruna. “And the scheme collapsed, but in the process, many people lost their money.”
However, these companies argue that they are different from pyramid schemes because members can earn by selling their high-priced products. However, the odds are high when you start selling their products. Each member is expected to buy a certain number of products every month. For every purchase, you get 50 PVs (Point Value). On every PV, you get a bonus. But you get a bonus only after you reach 200 PVs. So, the lower the quantity you buy, the lower is the bonus. As a result, those who are at the bottom of the network, in terms of purchase, make no money at all.
“The argument that these are not pyramid schemes has been put forth time and again, to arm-twist the judiciary,” says Aruna. “No one is fooled by this argument but it is bandied about, helping the companies to win lawsuits and explore newer markets. And continue their exploitation. The result: too many victims.”
Chakradhar, a village revenue officer, was induced to become an MLM distributor. So, to recruit people, he tried to cajole his friends, family and subordinates. Many did not join, so Chakradhar put up the money himself. But despite his investments, he did not get any bonus. People began to avoid him, as recruiting more to the network became an obsession. But eventually, the pressure got to Chakradhar and he committed suicide. Aruna says that stringent laws are in place, especially The Prize Chits and Money Circulation Schemes (Banning) Act, 1978. “But nobody has acted on it, thanks to the deep pockets of the MLM firms, even though the losses are pegged at E7 lakh crore,” she says. “The only way is to close the loopholes, but do governments have the will to do so?”
“Do not trust schemes that promise you very high returns. Do not join projects promising enrolment as they are all pyramid schemes in disguise. Don’t fall prey to marketing techniques employed by close friends and relatives as the ‘quick money’ bug can become lethal. When you become aware, the less are the chances of becoming a victim,” she concludes.