RBI Red signals to MLM companies

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RBI FLASHES RED SIGNAL AT MLM COMPANIES

Sep 17, 2009

The operations of shady multi-level marketing (MLM) companies — which operate what are popularly known as pyramid or ponzi schemes — have come under the regulatory scanner with shady MLM companies mushrooming across the country and duping investors. Many firms posing as MLM agencies for consumer goods and services have been actually mobilising large amounts of deposits from the public with promises of ridiculous returns of 120 per cent and repayment of prinicipal within a year.

In a circular, the Reserve Bank of India has alerted banks that in cases where accounts have already been opened in the names of the marketing agencies, retail traders and investment firms, the banks should undertake quick reviews. “Wherever large number of cheque books has been issued to such firms, the relative decision may be reviewed,” it said.

With many MLM companies recently using the banking technology to dupe investors, the RBI said, “banks should be careful in opening accounts of the marketing/trading agencies etc. Especially, strict compliance with KYC (know your customer) and AML (anti-money laundering) guidelines issued by the RBI should be ensured in the matter.”

The banking regulator also named seven MLM companies (Fine India Sales Pvt Ltd, Lakshya Levels Marketing, Eve Industries, Trident Advertising & Trade Links Pvt. Ltd, Super Life Link Distributors, Lue Brain Education Society and Manya Mantra Marketing). “These firms and their agents had reportedly promised very high returns on deposits and lured common people to part with funds in the name of certain investment/deposit schemes,” the RBI said.

ASKS BANKS TO TIGHTEN FRAUD RISK MANAGEMENT

MUMBAI: The Reserve Bank of India has asked banks to tighten the internal policy for fraud risk management and fraud investigation function as the incidence of frauds in Indian banks has been showing an increasing trend, especially in housing and mortgage loans, credit card dues and internet banking. “It is a matter of concern that instances of frauds in the traditional areas of banking such as cash credit, export finance, guarantees, letters of credit etc remain unabated,” the RBI said a year after the surfacing of the global financial crisis. 

30th Mar 2010.

RBI OFFICERS FELL FOR CITY LIMO’S EMPTY PROMISES

Mumbai: The Reserve Bank of India alerts public about nonviable deposit schemes that lure investors with hugely attractive rates of interest. Now, some officials of the RBI itself have fallen prey to the investment scheme floated by City Limouzine and its sister concern City Realcom that offered an astonishingly high 48% interest rate.

According to sources in the city police’s economic offences wing (EOW), at least 15 lowerlevel officials in the RBI unit that monitors the functioning of non-banking financial companies (NBFC) have lost their money in the scheme. One of these complainants was related to a senior official of the apex bank.

EOW sources said that among those who lost money, approximately 6,000 are policemen, 200 from the incometax department and 300 from the Mantralaya. “There are also several from the defence services who have lost their hardearned money. Most invested as some of the companies’ branch offices across the country were headed by former defence personnel,” an official said.

The police arrested {une’s regional director, retired captain Prakash Nambiar. The Andheri office was headed by Shehla Khan, wife of retired wing commander Humayun Khan. In Jaipur, the regional director was retired air force personnel Mohan Lal Verma. In Delhi, the office was headed by former air vice marshal Naiyyer Razzaki.

Interestingly, the RBI itself has expressed helplessness in curbing the activites of fly-bynight operators that lure public with quick-rich schemes, saying they do not fall under the definition of an NBFC. The money collected by these companies cannot be termed as deposits to be treated as an NBFC, says the RBI. EOW sources said the number of complaints has crossed 30,000. “We continue to receive complaints every day.

We believe at least 500 NRIs from the US, Canada, UAE, Australia, Germany and Singapore lost their money,” a source said. Investors from rural areas send complaints by courier.

Meanwhile, a local court on Monday remanded S M Masood, chairman of the companies, and his second wife Seema Razzaki to police custody till March 31 in connection with an FIR registered at Bangur Nagar police station.