No such thing as quick money

Even though pyramid scheme scams are an old business and illegal here, it is a thriving business for it still gets victims who obviously fall for its get-rich-quick offers.

Direct Selling Association of Malaysia (DSAM) states that the pyramid scheme companies use the conventional business pyramidal or hierarchical structure as a disguise.

In terms of structure, therefore, there are some similarities between pyramid schemes and all other organisations.

Says DSAM’s executive director Lawrence Cheah, the important distinction between pyramid schemes and direct-selling however, is in the operational area and the public must be able to know these distinctions.

“The difference between a pyramid scheme and direct-selling is that pyramid schemes make their profits from recruiting while direct-selling returns come strictly from the sales of products.

“Pyramid schemes often disguise high entry fees as part of the price charged for required purchases of training, product inventory and etc.

“They are known as get-rich-quick schemes. They prey on people’s greed.

“We always repeat this to people who are interested in direct-selling that there is no such thing as quick money. We always remind the public that there is no short-cut in making big money,” says Cheah.

This issue of pyramid scheme scams has once again come to the fore after the police cautioned th public from taking part in get rich quick business offers.

According to The Star, these investment schemes came under the spotlight especially in the Chinese press when three Malay­sians died after a gas leak at an apartment in Nanning last year.

“Apparently, they had gone there on a business trip under the Nanning investment scheme,” reported The Star.

Police have also said they have not ruled out that the recent killing of a mother of five may have something to do with a Ponzi scheme, which is similar to pyramid scheme scams, only that in ponzi schemes, the investor is made to believe he is getting profit from his investment and not by recruiting others.

Cheah of DSAM further points out that while pyramid scheme do have a display of products for sale, this is one of the ways the pyramid schemes use frequently to appear as legitimate direct-selling companies.

“They have products but they are not interested in marketing these products which are of dubious value.

“Instead, money is made in typical pyramid fashion from recruiting with new distributors being pushed to purchase high cost or large inventory when they sign up,” he adds.

In response to a recent report regarding a direct-selling company that has aroused suspicion of a scam, Cheah says there are laws that protect the direct-selling businesses and the community that is involved in these businesses.

“The government has put in place the the Direct Sales and Anti-Pyramid Scheme Act 1993. We work very closely with respective ministries including the Domestic Trade and Consumer Affairs Ministry (KPDNKK) and Health Ministry.

“Although there are direct-selling companies that are not registered with us, those that are registered have to abide by a Code of Conduct that is endorsed by the KPDKK. This Code of Conduct was introduced by the ministry in 2009,” Cheah says.

Cheah adds that DSAM and its member companies pledge to adopt a Code of Ethics based on the World Federation of Direct Selling Associations World Codes of Conduct.

“Each direct-selling company that is registered with us are certified legal.

“If a new member is looking for a legitimate direct-selling company to join, we would recommend the companies under our association as these companies have gone through a certain certification to ensure that their businesses complied with rules set by regulatory bodies (relevant ministries) in Malaysia,” Cheah adds.

He says that they usually forward complaints on scams to the Ministry of Domestic Trade, Cooperatives and Consumerism for further action.

“They can report to the police, to us or to the ministries, but because the scam victims refuse to share more details on the scam, the authorities can’t act. Most of them are not willing to lodge a formal report and testify in court.

“Yes there are pyramid scheme companies that have been shut down, but it is very easy to start another. That is why we have been working very hard to inform the public on how to detect a these scams,” he adds.

Cheah also says that all pyramid scheme companies are illegal and getting paid to recruit is strictly against the law.

“Direct-selling members can only earn from sales profits and commissions from the sale of products. As for the pyramid scheme, profits are made on volume sales to new recruits who buy the products not because they are useful or attractively priced, but because they must buy them to participate in the scheme,” he explains.

As a result, new participants are stuck with products that are way below the market value in relation to the high entry fees paid by them.

“When the pyramid scheme can no longer hold, it collapses. There is no way for the participants to recover their ‘investments’,” he adds.