MLM operators to face penalties worth three-times of profits
Moneylife Digital Team 27 August 2013

Operators of illegal money-pooling or MLM schemes will soon face penalties of up to three times the profit made by them as against the current provision of a fine of Rs1 crore

Market regulator Securities and Exchange Board of India (SEBI) has decided to increase the monetary penalty for those running unauthorised collective investment schemes (CIS), as the existing mechanism has not proved to be sufficient to deter such illegal mobilisation of money.


Operators of illegal money-pooling or multi-level marketing (MLM) schemes will soon face penalties of up to three times the profit made by them, as against the current provision of a meagre fine of Rs1 crore


A proposal to this effect has been approved by SEBI and the same would be notified soon, a senior official told PTI.


As per a SEBI memorandum in this regard, illegal mobilisation of funds within the existing legal framework falls within a provision wherein a maximum penalty of Rs1 crore may be imposed.


SEBI is of the view that this penalty “is very meagre compared to the money mobilised by unregistered CIS, especially considering that in certain cases the money mobilised is in multiples of thousand crore.


“Hence, adjudication under the existing mechanism may not be sufficient to deter such illegal mobilisation of money.”


Accordingly, SEBI has decided to amend the relevant regulations to provide for “a penalty of Rs25 crore or three times the amount of profits made, whichever is higher”.


To tackle the growing menace of investors being duped of their hard-earned money through various illegal investment pools, many of which are in the nature of ‘ponzi’ schemes, SEBI has been given the mandate to take action against all such money collection activities involving Rs100 crore and more.


A typical ‘ponzi’ scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.


Such activities came to be known as ‘ponzi’ schemes after Charles Ponzi, who became notorious in the US in 1920s for deploying this technique while promising 50% return on investments in 45 days and 100% within 90 days.


A large number of such schemes have come to the fore in India as well, while many of them have faced regulatory actions by SEBI in recent months.


However, SEBI in most of the cases has only asked the operators of such schemes to refund the money to investors and stop such unauthorised activities. The schemes that have faced action include those promising huge returns based on investments on potatoes, goat rearing, cattle and butter schemes, Emu farming, real estate and holiday memberships.


Tightening the noose on perpetrators of such investment pools, SEBI in its board meeting earlier this month decided that all unauthorised CIS activities be declared as ‘fraudulent and unfair trade practices’ and dealt with accordingly

vineeth kumar
1 decade ago
100% the management & people designing the product or service smartly utilizing the loop holes in Indian rules n regulations must be brought to book, but, I am not at all happy to see the SEBI penalty of 25 Cr or 3/5 times of looted profits (or swindled cash).
Anybody who understands the power of two/geometric progression or complete misuse and manipulation of power of compounding can calculate & see for themselves that this PENALTY is as STUPID as the Govt. Planners of Jurassic rules and regulation which needed amendments way back in 90's when these frauds like Amway/RMP/Herbalife/ many names that we can’t remember, were allowed to set up shop.
Where were the IO/MCA/RBI/SEBI and all those Public SERVANTS who are living on our sweat and blood, given the job to protect the MASTERS? Without the active support of corrupt public servants/ politicians lobby; unbiased complete background check would have eliminated & none of these elements would think of fraud. We are not fools not to understand that MCA/ROC/Excise/Vigilance etc are hand in glove with such companies.
How can MCA/ROC/ISO/RBI...ETC allow any criminal like Dr. Harish Madaneni, presently languishing in Trichur Jail for "nano excel" fraud? What were the LDF or UDF or BJP doing when a gang of people ABUSED THE NAME SOLAR. Really sad that these two cases has given bad publicity for state of the art, cutting edge tech. Of 21st century and beyond
My humble request kindly appoint a fast track court, TAT for Trial Justice and freeze the assets of all responsible Babu's, politicians & benami's. Arrest them and PUNISH them for life in jail without any parole or mercy.
What about those people Independent Distributors who call themselves leaders, there are so many of them, who became Millionaires by implementing the fraud marketing plan – heavily tilted to increase their size of wallet, so many people are victims, of the greed of the so called leaders, their life and family life gone mess. Why are the Public Servants/Judiciary afraid to attach their ill gotten massive property EARNED by feeding on the blood and sweat of Crores of people.
You may be afraid, but, there are many people like me, who have lost TOTAL RESPECT & FEAR of any Laws and stopped trusting any mechanism placed into protect peoples interest...this is a sad reflection of frustration & anger, of what I (we) see happening around.
“Fear the Fearless”.....I am not afraid anymore...what have you done with parasites like Sajeev Nair, some juice company, Abhilash Thomas, Dr. Shamsudheen of RMP (wonder if his Dr. Is on Fraudology) so many names...freeze each one of their earned income from MLM and let them face the MUSIC of TRUE LAW and ROT in jail.
Every Court, so many cases are orphaned 20/25 yrs...INDEFINITE excuse can be entertained even by the Supreme Court of India. Allow me ask Honorable Chief Justice of India, do you still believe that “JUSTICE DELAYED IS JUSTICE DENIED”...If so, are you not Guilty of the massive delays in final verdict...?
Sincerely, many times I have prayed, God let this be my last sleep – don’t want to see tomorrow because each day starts with a depressing note with front page reporting of Rape, SCAMS, me one positive DEVELOPMENTAL NEWS in TOI FRONT PAGE Specially with all others doing their best. Articles in the name of NEWS, Every media run and rerun the same...for their job is to enhance the profitability for the corporate owners.
At this rate, If proactive steps are further delayed ..Beware...time is not too far, if the masters take to the street across India, (or Humankind across the Globe)...NOTHING CAN PREVENT THE 2nd WAVE of REAL FREEDOM–the FREEDOM Dreamt by our beloved freedom fighters...totally got derailed due to the Tsunami of Colored Money....Beware of a UNIFIED HUMANKIND, you will not get an inch to hide or escape...I am positive of change, change for the better. Despite witnessing increase and enhanced ENTROPY (chaos)...this chaos will increase multiple times in future (an I pray that it happens soon). Because, Every Chaos, Leads To a New “WORLD ORDER”...of Collective Cooperation to build and EMPOWER AS MANY Families as possible.
Let’s leave the world slightly better than we found it...
Disclaimer: What ever written are purely my views. Every Rule has EXCEPTIONS. And I can prove with available evidence. I stand for what I said. I am not for SALE.
May Hope Happen...!
Replied to vineeth kumar comment 1 decade ago
well said sir...what u write is true every bit every bit
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