MML or Multi Level fraud?

Since 1995, a number of Multi Level Marketing [MML] companies have disappeared from the market cheating millions of Taka from the people. Amongst the fraudulent MML companies, GGN was the first ever company of such nature in Bangladesh, which according to information virtually looted more than 700 million Taka from the locals simply by befooling them with various alluring profit figures. There was never any investigation into this scam as some of the promoters of GGN were influential members in Bangladesh society.

Bangladesh government and Parliament are now actively considering putting strict monitoring of the activities of the Multi Level Marketing companies in order to safeguard public interest. Undoubtedly it is an excellent decision from the government, which was elected to power with massive mandate.

It is essential for people to have an initial idea about the very concept of Multi Level Marketing before putting any investment in such 'ventures':

Multi-Level Marketing programs or MLM's, are a constant source of debate. They have their fanatical devotees, and often appear to behave in a manner much like a cult religion. How many times have you been approached by a neighbour, colleague, friend, or worse yet, a family member, who said "Let me tell you about an incredible ground-level business opportunity" and you are then invited to a house or to lunch for "a discussion."

Most people immediately have a bad feeling that there is probably a hidden agenda or deception.

"Is it a multi-level marketing organization?" you think or even ask. And what if they're honest enough to admit that it is? Should you trust your instincts? Is there anything wrong with MLM's?

Perhaps you know someone who, at one point in their life, sold health or diet supplement or cosmetic. Typically, they tell you how much money they spent, how little they made, how the meetings were like fundamentalist tent revivals, and how they were pressured to sign up new "distributors".

Multilevel marketing plans, also known as "network" or "matrix" marketing, are a way of selling goods or services through distributors. These plans typically promise that if you sign up as a distributor, you will receive commissions - for both your sales of the plan's goods or services and those of other people you recruit to join the distributors. Multilevel marketing plans usually promise to pay commissions through two or more levels of recruits, known as the distributor's "downline."

In a typical multi-level marketing or network marketing arrangement, individuals associate with a parent company as an independent contractor or franchisee and are compensated based on their sales of products or service, as well as the sales achieved by those they bring into the business. This is like many franchise companies where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager.

In a legitimate MLM company, commissions are earned only on sales of the company's products or services. No money may be earned from recruiting alone ["sign-up fees"]. One must analyze the compensation plan to determine whether participants are paid from actual sales to customers and not from money received from new recruits. If participants are paid primarily from money received from new recruits, then the company is an illegal Pyramid or Ponzi Scheme.

Some less legitimate companies produce revenues primarily by attracting new participants with the hope of reward and selling them products or services of dubious value at inflated prices, as opposed to selling products or services consumers would purchase at the given price without regard to the opportunity attached. One must evaluate the products or services and determine if a significant percentage of consumers would continue to purchase them if the participants do not make money from the underlying opportunity. If the products or services have dubious value or if the participants must purchase excessive quantities without reasonable intent to use or resell said items, then the company is likely a thinly veiled illegal pyramid scheme.

Multi-level marketing has a recognized image problem due to the fact that it is often difficult to distinguish legitimate MLMs from illegal scams. MLM businesses operate legitimately in more than 100 countries, and new businesses may use terms like "affiliate marketing" or "home-based business franchising". However, many pyramid schemes try to present themselves as legitimate MLM businesses.

Ultimately, you will hear 4 major themes emerge as problems:

Market Saturation,

Pyramid Structure,

Morality and Ethics,

Relationship Issues.

Companies have devised various MLM compensation plans over the decades. Unilevel or Stairstep Breakaway plans are the oldest and most popular. They feature two types of distributors -- managers and non-managers -- and three types of pay:

Baseshop overrides are overrides of managers from their subordinate non-managers, collectively called a baseshop. This is the same as any other sales organisation.

Generational overrides are overrides of managers from the baseshop of managers who were previously their subordinate. Most plans compensate at least three generations of such managers.

Executive bonuses are commissions for managers who exceed a sales quota. For example, 2% of the total company sales revenue may go to a bonus pool that is shared monthly pro rata to managers who exceed TK. 500,000 in that month.

Matrix Plans limit the width of each level in a distributor's group, forcing strong distributors to pile ["spillover"] their recruits over people who did not sponsor them.

Binary Plans limit the width of each level to two legs. Commissions are based on "cycles," where a distributor is paid a fixed amount whenever both legs achieve a certain number of sales units each. Commissions are paid incrementally when the sales volume in each leg matches.

Elevator or Matrix Schemes feature a game board or a list on which each distributor pays in one or more product units to participate. When a certain number of units have been paid in, the structure splits and the earlier participant receives consideration.

In Bangladesh, the most prominent Multi Level Marketing company is Destiny 2000 Limited, which is now-a-days knows as Destiny. This company was formed in 2000 by Rafiqul Amin, who worked in Canada for many years before he came back to Bangladesh in search of better fortune. Before assessing the viability of this MML company, let us try to know certain things, which might have been still unknown or untold to Bangladeshi people and of course those who already put millions of Taka in this company.

Any business venture is surely destined in making profit. This is the priority for any business unless the initiators of the project have any ulterior motive. Destiny though is also continuing to collect millions of Taka from Bangladeshi people by showing their 'Tree Plantation Project' or similar other projects, it is extremely important now for everyone to assess what is going on with the public money this company has been receiving for years.

Destiny started a vernacular daily newspaper few years back with the investment of few million takas. According to latest information, each month Destiny is losing at least 10 million Taka in this newspaper venture. In other words, annual loss in this project is exceeding Taka 120 million.

The same group has recently purchased a satellite based television channel, which is again incurring loss of at least Taka 30 million per month. Annual loss in this venture will also cross Taka 360 million.

If someone will raise question as to why the promoters of Destiny are draining out public money in such losing projects, the reply will be simple! They want to use these media outlets as mere shields. Naturally the next question is, if Destiny is running legitimate business, why they need any shield at all?

Destiny collected money from the people with the promise of significant annual profit. Now the question is does Destiny make huge profit every month, so that they can afford to waste millions of Taka in media? The reply is NO! Since there is no government monitoring of the activities of the Multi Level Marketing companies in Bangladesh, no one really knows how much money any MML is collecting from the people and how much they are either investing or simply spending in bad projects.

Destiny has at least collected Bangladeshi Taka equivalent to US$ 500 million in past 10 years from the people, mostly by selling the idea of tree plantation at Chittagong Hill Track area in Bangladesh. If they have at least promised to give 10 per cent annual incentive to the investors against the amount of their investment then every year Destiny will owe Bangladeshi Taka equivalent to US$ 50 million to be paid to its 'Customers'. On the other hand, it is also important to investigate the size of land, Destiny might have already purchased at Chittagong Hill Track area. According to experts, less than 300 trees can be planted on a land measuring 1 acre. It is learnt that the company has so far sold more than 2 million trees. Now the natural question is, does Destiny own at least 6,666 acres of land at Chittagong Hill Track area? It is important to note that, average maturing period for a tree is minimum 12-15 years. So, even if Destiny starts paying incentives to the investors in the tree project from 2015, it will take at least few years finally to realize the fact of scam, if any. It is clear that, none of the investors of the tree plantation project were shown the documents of land purchase by Destiny, when the investors put their money in such alluring projects. It may also be mentioned here that, the agents of Destiny immediately received their 'commission' money from the company right after they succeeded in receiving any from the investor. And, as I said, any company, offering upfront payment of commission to its agents are at risk factor.

It is understood that, most of the MML companies are using the money in unauthorized money lending business against monthly interest of 2-3 per cent, while some of them are even engaging in illegal money laundering activities. It is even alleged that, some of the promoters of MML companies are putting their money in drug and arms dealings with the hope of making huge profit. I am not sure, if Destiny is also engaging in any such activities. But of course, one thing is clear. Destiny is wasting money is media projects for its own protection, which evidently give a wrong signal to everyone about the legitimacy of its activities as well as its very trustworthiness. What happens to those people who invested hundreds of millions of Taka in this company, if the promoters will simply disappear in one fine morning?

It is important for all those Multi Level Marketing companies in Bangladesh to publish their annual report with specific information of how much money they collected from people and under which project. Then it should also be shown, how and where this investment was used and how much profit was accrued in every year. The companies should also show clearly the amount they are wasting in various promotional projects including media etc. There should also be clear indication of current assets [liquid and solid] of the companies.

Unless Bangladeshi government enforces specific laws to strictly monitor activities of the MML companies as well huge public awareness is created, Multi Level Marketing companies can always stand as potential risk factors for the investors. It really does not matter, how big the MML looks from the front or how glamorous is its activities. It is extremely important to make the entire process totally transparent to the people, investors and the government.

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MML or Multi Level fraud?

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