Kerala police arrest Amway CEO Pinckney, two Indian executives3 min read . Updated: 28 May 2013, 12:14 AM IST
Accused face charges of duping members of direct sales network, overpricing products and fraudulent practices
New Delhi: Kerala Police on Monday arrested William Scott Pinckney, managing director and chief executive of direct selling consumer products company Amway India Enterprises Pvt. Ltd, for allegedly duping members of its direct sales network in Wayanad district.
The police also arrested two of his Indian colleagues, Sanjay Malhotra and Anshu Budhiraja, vice-president and director, and chief financial officer, respectively, at Amway India. The accused face similar charges of overpricing products and fraudulent practices in nearby Kozhikode district, too, police said.
“They were charging 10 times the value of their product. For instance, they sold product priced at ₹ 340 at anywhere between ₹ 2,700 and ₹ 3,400," crime branch superintendent of police (economic and offences wing) P.A. Valsan said over the phone. “Also, they were involved in money chain, which is prohibited under the Prize Chits and Money Circulation Schemes (Banning) Act 1978."
He added, “There is strong evidence against the accused, and Wayanad police will produce them before a city court on Tuesday."
Investigation against the company and its officials began in November following a complaint by a woman dealer of Amway products in Kozhikode district. She accused Amway of not returning the money she had invested in the company’s products as she had failed to sell these through the multi-level marketing structure. This involves sellers at the top of the pyramid recruiting others below them and so on down the chain.
The case was transferred to the crime branch while the Wayanad district police also registered three similar cases. The company’s offices were raided and police seized products worth ₹ 2.5 crore.
Valsan said his team is probing two cases, for which the accused have already been granted anticipatory bail by the Kerala high court.
“They had come to my office in regard to Kozhikode case, but we handed them to Wayanad police after the latter produced court warrant against them. There was apprehension that the accused might flee the country. Since the offence is bailable, we would request the court to impound their passports."
In an e-mailed statement, the Indian subsidiary of the American company, however, denied receiving any summons pertaining to the case it has been charged for.
“We would like to clarify that with respect to the 2011 case, the company or its officials were not issued any summons to join the investigation nor was any information sought by the police. The company management would have cooperated with respect to the 2011 matter as well, as we always have as a law abiding corporate citizen," Amway said.
Amway India sells personal care, nutrition and wellness products as well as cosmetics through a direct selling business model that allows people to become members of the company and sell products to other people directly instead of through stores.
The business model does not compensate people for growing the network. Compensation is driven by sale of products only. In India direct selling can be brought under the purview of the Prize Chits and Money Circulation Schemes (Banning) Act 1978 if the business encourages or is purported to promote money circulation or pyramid selling.
The business model often sees an overlap with pyramid schemes that compensate individuals for adding more people into the network without any realization of sales.
“Most multi-level marketing companies are today covered under the same law (Prize Chits and Money Circulation Schemes (Banning) Act 1978), so there is no distinction between companies and business models," said Arpita Mukherjee, a professor at the Indian Council for Research on International Economic Relations.
Amway said the Indian Direct Selling Association (IDSA), of which it is a member, has been seeking amendments to the Act to make the distinction clear.
“It is very disappointing and unfortunate that due to lack of clarity between direct selling business model and fraudulent pyramid schemes, harassment continues in the state of Kerala," said Chavi Hemanth, secretary general at IDSA.