Amway Fraud: What is a pyramid scheme?
Well-known brand Amway has been accused of running a scam. The company's assets have now been attached by the ED for a multi-marketing pyramid scam. Know what the scheme is so that you can keep your money safe.
Amway, a company that sells products directly to its customers, has been accused of running a multi-level marketing (MLM) scam and is now under the watch of Enforcement Directorate (ED) of India. Assets worth Rs 757 crore belonging to Amway India Enterprises Pvt Ltd have been attached under the Prevention of Money Laundering Act (PMLA). These assets include land, factories, machinery, bank accounts, fixed deposits and vehicles.
"A money-laundering investigation by the ED revealed that Amway is running a pyramid fraud in the guise of direct selling multi-level marketing network," the ED said.
ED has provisionally attached assets worth Rs. 757.77 Crore belonging to M/s. Amway India Enterprises Private Limited, a company accused of running a multi-level marketing scam.
— ED (@dir_ed) April 18, 2022
THE SCAM:
Amway was selling its products through a pyramid scheme (we will come to this later). According to the statement given by the ED, Amway lured people into joining the company and buying their products at unreasonably high prices. People used to buy these expensive products not for use, but to become a member of the company.
“Reality is that the commissions received by the upline members contribute enormously in hike of prices of the products," the ED added.
The ED further explained that the main aim of Amway was to add more and more members to the company. The company wore a false mask of a direct-to-customer selling company, but, in reality, there was no focus on the products. The model was all about making old members rich by getting new members.
WHAT EXACTLY A PYRAMID SCHEME IS
We all know at least one aunty who sells Oriflame or Amway products and asks you to become a seller. That’s exactly what the pyramid scheme is.
A pyramid scheme is basically a SCAM.
A pyramid scheme actually looks like a business opportunity. People with less money or no money are more likely to fall for these schemes.
In a pyramid scheme, people at the top level recruit new members and get a commission.
The top-level will sell products and ask you to join as a member. These new members are then motivated to persuade more people to become members. The main aim is not to sell a huge number of products but add more and more members to the business. With every new addition, members at every level earn a commission and the topmost level is the highest earner.
People at the end of the chain, or the new members bear the cost. And these new members usually try to convince their family members and friends to either buy the products or become a member.
By now, if you think this is an excellent business idea and worth trying, let us tell you how you can lose all your money in this.
The pyramid scheme depends upon fees from new recruits. There is a need for a constant cash flow from recruits at every level. But this flow of cash is not continuous as the old members are either not able to sell that amount of products or are not able to recruit new members.
This breaks the flow of money and people at lower levels have to face losses. They often run out of money or lose everything they’ve invested. In this case, the members at top levels take away all the money left because they are eligible to receive a fixed amount of interest.
Also, in most of these schemes, people at different levels are liable to buy a certain amount of products at regular intervals. And, with the expansion of the pyramid, the price of the products goes up.
IN AMWAY’S CASE
Amway follows an MLM pyramid scheme. In this scheme, the company actually tries to sell products, but they will not necessarily close sales. Also, it is compulsory to recruit members to generate income.
Basically, they are pretending to be selling products, but in reality, they are just running a pyramid scheme.
SO, WHAT’S THE TAKEAWAY
The lesson learned here is: do not fall for such schemes.
Sellers of such schemes will often tell you that their business plan will change your life. It will help you earn enough money that you can easily quit your job. You will get rich and earn a higher position in the company. Well, all this is a lie.
Point to note: In December 2021, the Government of India banned companies that promote the pyramid schemes under the new Direct Selling rules. This initiative was aimed to restrict companies that sell products directly to consumers. Under the rule, the state governments were asked to monitor the activities of direct sellers and companies involved in this business.