How to avoid 'get-rich-quick' schemes and scams

There are no free lunches, no easy money. Yet people often become victim of ‘double-your-money’ or ‘earn-lifetime-income’ schemes. Here’s how to identity and avoid such MLM schemes

Nothing comes free in this world, especially money. The universal truth is you need to earn your money by hard labour all the time and there are no shortcuts to double it in the shortest span of time. Therefore, even if your near and dear ones tell you he/she will double, triple, quadruple your money within a few days/months, politely reply to them that it is not possible and what they are advocating is a pure 'get-rich-quick' type of scam.

How does one judge whether a scheme is genuine or a scam? It's simple. Check the interest rate being offered by banks, especially public sector banks like the State Bank of India, Union Bank of India, Bank of Baroda, and so on. At present, these banks pay 4% interest a year on savings bank accounts. Second, check the interest rate on the public provident fund (PPF). Currently the Employees' Provident Fund Organisation (EPFO) controlled interest rate on PPF is at 8% and for the Employees' Provident Fund (EPF) it is 9.5% per annum. Many people consider investment in EPF/PPF as the best and safest debt instrument.

The interest rates offered by banks and EPFO are an indication of the viable minimum and maximum expected returns on investments. In other words, you could say that your investment should give you a safe return of a minimum 4% and a maximum 9.5%, at least in 2011.

Therefore, anyone or any scheme that offers you more than this must be looked at very carefully and a thorough scrutiny must be done before investing one's hard-earned money. Unfortunately, this happens rarely, as most of the time the person approaching you with a high-returns scheme is either your close relative or a friend, whom you find difficult to say no. Remember, all scams, frauds that have happened in the past are known to have spread through the link of near and dear ones.

The first rule on investments is that if you do not understand how the instrument works don't sink your funds into it. This applies to all schemes that promise 'guaranteed income' and 'fast and huge returns' within a short time. In financial investment terms all such schemes are huge risks.

Now let's see how a multi-level marketing (MLM) company operates. An MLM, or pyramid selling scheme, typically requires you to pay upfront charges for either joining the scheme or buying a product or service (like collector's items or software, training programmes, e-zine etc). As more and more people join the MLM scheme, a member hopes to recover the upfront charges and then earn sizable profit through binary income. However, history tells us that all such MLM companies have failed miserably and vanished with investors' money after running out of new recruits or investors (a new 'bakra'?). Most of the time, the person who recruited many others himself becomes a victim of the scheme.

First, the agents, distributors, panellist and customers of the MLM companies try to convince the new recruit with bogus claims about earning huge money. If the recruit does not seem interested, they introduce terms like lifetime income and royalty payment through binary activity. All MLM agents pretend to help you earn big money. Unfortunately, it is he who ends up with the money, leaving more than a few penniless. When the binary income plan fails, recruits have had to go into hiding from the newer entrants.

This has happened so many times before, that MLM operators have found it necessary to advertise in order to allay the fears of new recruits, often engaging sellable brand ambassadors in the popular media. This is the "Fake it, till you make it" system, that's common among MLM operators.

Another important aspect is that once someone gets involved with an MLM company, he begins to strongly advocate it, irrespective of whether he likes it or not, and even if his inner self says it is wrong. The reason is he doesn't want to come out as being fooled by someone, and will pretend to have made a 'smart' choice by buying into the MLM scheme. So most agents will tell you that they are always right and they know everything and all others (who are not joining his MLM) are morons.

In addition, MLM systems are a massive net loss for a country, as they distract people from doing real productive work. All products or services sold through an MLM network are either worthless, or not beneficial to common people. The products offered under the pretext of herbal medicine, cure from diseases, medicine or collector's items such as gold coins, are often useless. In fact, the medicines sold under the garb of herbal products may even harm you and endanger your life. It is the same with other products as well.

The Moneylife team decided to look for other MLM schemes that are proliferating across the country. We found that a large number of companies, with varying degrees of legitimacy, many of them with a global footprint, are raising money or selling obscenely expensive products, by creating a high-reward matrix that is built on luring new distributors/depositors/buyers into the scheme. More importantly, each of them grows by roping in people who enjoy high public trust, such as doctors, bankers, reputed sportspersons, government officers, senior corporate executives, or their spouses, and sometimes even god-men.(Read more Money Chain  )

Remember the GoldQuest scam?  It was a chain-marketing scheme that used to sell limited edition gold coins, figurines or watches for Rs30,000 to Rs35,000. According to news reports, in May 2008, after receiving 8,277 complaints of cheating from many people, especially from South India, the Chennai police arrested GoldQuest's managing director and six other employees. The company ceased to exist, leaving 2.66 lakh of its independent representatives without any commission. Finally, last year the Supreme Court appointed Justice KP Sivasubramanian as settlement commissioner of a one-man commission, for the GoldQuest case.

Unfortunately, there is no legal provision in India to curb MLM schemes. However, Singapore, the headquarters of Speak Asia Online Pte Ltd, which hit the headlines recently, does have strict laws on MLMs. Under the Singapore Multi-level Marketing and Pyramid Selling (Prohibition) Act, all persons who participate in multi-level marketing or pyramid selling are treated as offenders who had committed an offence. This is because the participants would have played an active but destructive role to attract others into the scheme. The Act believes that this is the best way to deter potential promoters of such schemes.

According to the Ministry of Trade and Industry, Singapore, a conviction under the Act will result in a fine of up to $200,000 or imprisonment for a term not exceeding 5 years, or both. The fines are for:
1. Promoting or participating in a multi-level marketing, or pyramid selling, scheme or arrangement.
2. Registering a business which is designed to promote multi-level marketing, or pyramid selling scheme or arrangement.
3. Registering a company which proposes to promote multi-level marketing, or pyramid selling, scheme or arrangement.

In addition, the Singapore Act empowers a Court that convicts a promoter or participant of a multi-level marketing or pyramid selling scheme an additional penalty of an amount not exceeding the amount or value of any benefit which the promoter or participant has received. This additional penalty ensures that the Act serves as an effective deterrent to potential offenders.

However, since the Indian government has not taken any stand on the legitimacy of such network marketing or MLM companies, such schemes get replaced with other schemes and the entire cycle is repeated because the allure of instant riches through such Ponzi schemes is everlasting. 

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1 decade ago
I started a blog on how difficult it is to make money using these SCAMS. Anyone who signs up for these programs after reading my break-downs of commission plans, deserves to lose all of their money!!!
1 decade ago
Speak Asia, Nano Excel, Tycoon International, Visarev & Unipay2u – biggest scam is on its way
1 decade ago
before investing in money chain companies one should read the judgement of supreme court in kuriachan chacko Vs state of kerala case. One must also read the press note issued by Andhra Police. Please also visit to see the complaints against money chain companies
Krishna Gopal Gupta
1 decade ago
It is very good indeed to learn that you are enlightening people not to fall into the trap of such MLM Schemes. But what about IRDA, under whose nose, Future Generalli insurance policies are being sold by Big Bazar, Max New York policies are being sold by Amway. LIC policies are being sold by many MLM companies. Bajaj Allianz policies are being sold by RMP infotec and the list is endless. The relevant insurers are in full knowledge. Since they need business, they are keeping silence including IRDA, who is also fully aware of all these and is waiting to happen a big scam?
1 decade ago
Its very simple to understand:
1. The MLM companies like SpeakAsia want you to make more and more members.
2. They use the money from new joinees to pay others ans keep the major part with themselves.
3. They pretend to give you some stupid survey, product etc and tell that this is what generates money (which they pay to you)

Now here are the validations:
1. Would any company like ICICI, Bata, Nestle etc pay Rs.500 for a survey to be done by a complete novice?
2. None of these companies are accepting of ever hiring Speak Asia's services.
3. No financial background of such companies.
4. Its operation is busted in other places like Bangladesh where they have reached ssaturation.
5. No operation in countries with strict financial laws like US,UK etc.

Rem one thing, you may like to join the ride, and it can be rewarding, but for how long, is the main question. This will go bust one day and majority of new joinees will be at loss.
So even if you want to join SA, use your leisure money, something you can afford to lose in a high risk and 'expected' high return...

Baaki koi nahi, sabko apna faisla lene ka poora haq hai. Also, MoneyLife is a very big name when in comes to warning investors, so their opinion should be taken seriously. Like me, I guess most of you too would have come across ML articles on SA by regularly visiting ML website. And we visit ML website because we have trusted it for long...

So guys, its a NO from me too, but you can take your pick
1 decade ago
In Kerala MLM (known as Money chain) business is mushrooming. Recently a company called NANO EXCEL; a Bangalore based company looted the Kerala People. They have reportedly amassed more than 600 crores from Kerala. Now their office in Kerala (Thrissur) has been closed. No telephone calls are attended. Inspector General of Police, Thrissur Range, Ms. Sandhya cautioned people against this company. But still nothing has happened. No arrests have been made so far. And it is surprising that the company is still functioning in Bangalore!!!!!! It is open secret that many politicians and policemen are behind this company. It is joke in Kerala that there are no petty criminals now in Kerala, they have all started an MLM – money chain Company and have become Managing Directors.
1 decade ago
Very informative article. Every internet marketer needs to read this!
1 decade ago
great work man. Hope people will now not lure the innocent relatives into such schemes.
Madhusudan Thakkar
1 decade ago
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