Bengaluru: Ponzi schemes have a long history where fraudsters always find a way to fool people, especially the middle class and hoodwink regulatory bodies by constantly changing their looks, place of operation and modus operandi.

Despite cautions from regulatory bodies like the Reserve Bank of India (RBI) against multi-level-marketing, chain-marketing, pyramid structure schemes so that investors do not fall prey to unscrupulous entities, people continue to be cheated.

Taking the issue seriously, the Karnataka Government is contemplating bringing a new law to keep a strict vigil on chain-link marketing firms that offer lucrative offers to attract investors only to vanish with the money.

Revenue Minister R. Ashoka told reporters in Bengaluru yesterday that Tamil Nadu has enacted a law that acts harshly on Ponzi scheme operators. “We also need such a law to stop these market chain-link operators. In the guise of marketing companies, they are running fraud schemes. Though Karnataka has several laws and provisions to curb these activities, these Ponzi operators continue to cheat gullible investors,” he said.

People, mostly middle-class salaried class or housewives hoping for quick returns, invest their life’s savings in such schemes. “People would want to make quick money and often put their whole life-savings to such schemes in the hope of doubling it in no time,” Ashoka noted.

“With a new law, we want to plug gaps in the existing laws, giving power to the Government to prohibit companies running Ponzi schemes from taking such funds from people. People running illicit deposit schemes can face jail term as well as stiff penalty,” he noted. Also, the Govt. will shortly set up a special monitoring cell in the Police Department which will keep a tab on all activities of chain-marketing companies, he said.

Income under such schemes majorly comes from enrolling more and more members from whom hefty subscription fees are taken rather than from the sale of products they offer. It is incumbent upon all members to enrol more members, as a portion of the subscription amounts collected is distributed among the members at the top of the pyramid.  Any break in the chain leads to the collapse of the pyramid, and the members lower down in the pyramid are the ones that are affected the most. Also, too low returns on public savings schemes and bank deposits — when compared with Ponzi schemes where the returns are promised double or more the money — encourage the people to embrace such fraudulent schemes despite knowing the risks.