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Current Affairs

Pyramid scheme

Date: 25 April 2022 Tags: Miscellaneous

Issue

Direct selling company Amway India Enterprises Private Limited has been accused of running a fraudulent pyramid scheme.

 

Background

The Enforcement Directorate has attached property of the company worth Rs 757.77 crore for illegal business practices.

 

Details

  • Amway is a direct-selling FMCG American company that started in India in 1995 in form of Indian Direct Selling Association.

  • Its charity wing started seminars to bring in new members and finally a subsidiary was established. It made use of direct selling and multi-level marketing strategy.

 

Charges

  • Amway is facing multiple charges in Hyderabad and Kerala for fraud. The CEO of the company was arrested twice.

  • The ED has accused the company of running pyramid fraud under the guise of a multi-level and direct selling method.

  • They entice people with scheme that will make them rich and in turn they are asked to enroll more members into the scheme.

 

Pyramid schemes

  • In this scheme, a company or enterprise promises payments and commissions for enrolling others into the scheme.

  • No products or service is supplied but money is generated through new enrollment. This creates a pyramid or hierarchy, which is ever increasing.

 

Collapse of scheme

The scheme starts becoming unsustainable after members start increasing and money gets circulated amongst the group.

 

Laws against pyramid scheme

  • Direct selling companies have been brought under the consumer protection act through Consumer Protection (Direct Selling) Rules, 2021.

  • Direct selling companies are prohibited from employing pyramid selling scheme to bring new members.