Menace of Illegal Pyramid schemes and Online betting apps
What are they?
In the labyrinthine alleyways of the internet, two shadowy figures lurk: illegal pyramid schemes and clandestine online betting apps. Both, adorned in the alluring garb of quick riches and effortless fortune, ensnare the unsuspecting with honeyed promises, only to lead them down rabbit holes of financial ruin and social disintegration. This article unfurls the nefarious tapestry woven by these digital predators, exposing their manipulative tactics, devastating consequences, and the pressing need for robust countermeasures to shield vulnerable populations and preserve the very fabric of society.
Illegal pyramid schemes are a form of investment fraud that involves recruiting new members to pay fees or buy products from existing members, who then receive a commission or a share of the profits. The scheme relies on a constant inflow of new recruits to sustain itself, as there is no real product or service being offered. The pyramid eventually collapses when the recruitment slows down or stops, leaving most of the participants with no return on their investment and often in debt. Illegal pyramid schemes are different from legitimate multi-level marketing (MLM) businesses, which have a genuine product or service to sell and do not depend on recruitment fees for their revenue.
Online betting apps are applications that allow users to place bets on various games, sports, events, or outcomes using their smartphones or other devices. Some online betting apps are legal and regulated by the authorities, while others are illegal and operate without any oversight or accountability. Illegal online betting apps often involve money laundering, tax evasion, fraud, cheating, and other criminal activities. They also pose a risk to the users’ personal and financial data, as they may not have proper security measures or encryption. Moreover, illegal online betting apps can have negative social and psychological impacts on the users, such as addiction, debt, stress, and depression.
One example of an illegal online betting app is Mahadev Book, which was banned by the government of India in November 2023 for money laundering and improper data storage. Mahadev Book provided online platforms for illegal betting in different live games like poker, card games, chance games, betting on cricket, badminton, tennis, football, etc., and also allowed placing bets on different elections in India. The app was running a franchise-type model in which the panel was outsourced in a 70-30% profit-sharing ratio. The app was making Rs 450 crore per month by offering illegal bets through a cache of online applications. The Enforcement Directorate (ED) seized assets worth Rs 417 crore in connection with the Mahadev online betting app in September 20232. The app was running its operations from Dubai and was involved in banking transactions of Rs 5,000 crore related to gaming applications that happened over a year across the country.
Why they are Harmful?
- Deprive the government of tax revenue and divert funds from legitimate businesses and sectors.
- Exploit the gullibility, greed, and desperation of the people and make them lose their hard-earned money and savings.
- Promote a culture of dishonesty, corruption, and crime and undermine the rule of law and social order.
- Damage the reputation and credibility of the country and its institutions in the international arena.
- Encourage gambling addiction and other mental health problems among the users and their families.
How they Operate?
- Cash gifting schemes: These are schemes that involve participants giving cash gifts to other participants, usually through online platforms or mobile apps. The participants are promised to receive multiple returns on their gifts from new recruits. However, there is no real product or service being offered, and the scheme collapses when the recruitment slows down or stops. These schemes are illegal in India under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.
- Product-based schemes: These are schemes that involve participants buying products from the parent company or the existing members, and then selling them to new recruits or customers. The participants are promised to earn commissions or profits from their sales and recruitment. However, the products are often overpriced, low-quality, or irrelevant, and the focus is on recruitment rather than sales. These schemes are illegal in India under the Consumer Protection Act, 2019.
- Investment-based schemes: These are schemes that involve participants investing money in the parent company or the existing members, and then receiving returns or dividends from their investments. The participants are promised to earn high returns or interest rates from their investments, which are claimed to be based on some business activity or trading strategy. However, there is no real income generation or distribution, and the scheme pays the earlier investors using funds from the newer investors. These schemes are illegal in India under the Securities and Exchange Board of India Act, 1992.
what are their types?
- Sports betting apps: These are apps that allow users to place bets on various sports events, such as cricket, football, tennis, etc. The users are promised to win money based on the outcomes of the events. However, these apps may not have proper licenses or regulations, and may involve cheating, fraud, or manipulation of the events. These apps are illegal in India under the Public Gambling Act, 1867.
- Casino betting apps: These are apps that allow users to play various casino games, such as poker, roulette, blackjack, etc. The users are promised to win money based on the outcomes of the games. However, these apps may not have proper licenses or regulations, and may involve cheating, fraud, or manipulation of the games. These apps are illegal in India under the Public Gambling Act, 1867.
- Lottery betting apps: These are apps that allow users to buy lottery tickets or participate in lottery draws, such as bingo, keno, scratch cards, etc. The users are promised to win money based on the outcomes of the draws. However, these apps may not have proper licenses or regulations, and may involve cheating, fraud, or manipulation of the draws. These apps are illegal in India under the Lotteries (Regulation) Act, 1998.
How to identify them?
- Unrealistic promises: These schemes often promise high returns, low risks, or guaranteed profits, which are too good to be true. They may also claim to have a secret or exclusive formula, strategy, or system that can generate income or winnings.
- High-pressure tactics: These schemes often use aggressive or manipulative tactics to persuade people to join or invest, such as creating a sense of urgency, scarcity, or fear. They may also use testimonials, endorsements, or referrals from celebrities, influencers, or friends, who may be paid or coerced to promote the scheme.
- Lack of transparency: These schemes often lack transparency or accountability, and do not provide clear or accurate information about their products, services, operations, or financials. They may also avoid or evade questions, complaints, or requests for verification or proof. They may also use complex or confusing terms, jargon, or acronyms to confuse or mislead people.
How to report or complain about them
- The Reserve Bank of India (RBI) has launched a website called Sachet (www.sachet.rbi.org.in), where you can get information about the companies that are allowed to accept deposits, and also lodge complaints and share information about the illegal ones.
- The Ministry of Electronics and Information Technology (MeitY) has issued a blocking order against some illegal betting apps and websites, upon a request by the Enforcement Directorate (ED). You can contact the ED or the MeitY to report any such apps or websites that are still operating.
- The Central Bank of Sri Lanka has a website called Resolution and Enforcement (www.cbsl.gov.lk/en/faq/resolution-and-enforcement), where you can report any pyramid type schemes that are operating in Sri Lanka or targeting Sri Lankan citizens.
- The Securities and Exchange Board of India (SEBI) has an online system for tips, complaints and referrals, where you can report any investment frauds or Ponzi schemes that are violating the securities laws.
- The Federal Trade Commission (FTC) has a website called Consumer Information (www.consumer.ftc.gov), where you can learn how to spot and avoid pyramid schemes and online betting scams, and also file a complaint online or by calling 877-382-4357.
- Your state’s securities regulator or consumer protection agency may also have the authority and the resources to investigate and take action against illegal pyramid schemes and online betting apps. You can find their contact details online or in your local directory.
How to seek legal or financial help?
- Consult a lawyer or a legal aid organization that can advise you on your legal options and represent you in court or arbitration.
- Contact a financial counselor or a debt management agency that can help you with your budgeting, debt repayment, and credit repair.
- Join a support group or a network of victims that can provide you with emotional, social, and practical support.
How to educate yourself and others about the risks?
- Read and watch reliable sources of information and news that expose and explain the modus operandi and the consequences of these scams.
- Follow and subscribe to the official websites and social media accounts of the relevant authorities and organizations that provide updates and alerts on these scams.
- Share and discuss your knowledge and experience with your family, friends, and community, and encourage them to do the same. You can use various platforms and channels, such as social media, blogs, podcasts, webinars, workshops, etc., to spread awareness and caution.
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