Beware of ‘get rich quick’ direct-selling schemes, victims warn

Do your homework before signing up to direct-selling plans, victims caution

Salespeople who were lured into direct selling with the promise of “getting rich quick” have urged others not to make the same mistake.

Sellers are given the chance to make money by hawking watches, holidays and jewellery, often in their spare time.

Promotional videos tell recruits how they can make hundreds of thousands of dirhams. But they face significant fees up front to establish themselves.

One building worker, an Indian who asked not to be identified, said he lost the Dh10,000 he paid to buy into a company.

He was also charged a fee for access to online video content with selling techniques and inspirational testimonials.

“I borrowed money on a credit card. I was convinced it would allow me to help my wife and children,” he said. The company for which he worked is not registered with the authorities.

Another seller said much of the focus was on encouraging others to sign up for bonuses, rather than actually selling goods to the public, in an echo of pyramid schemes.

“There was a meeting to discuss calling activity and techniques. I don’t want to con my friends,” he said.

Direct selling is a legal business model if the company is registered with the Direct Selling Association of UAE.

Ali Shabdar, its general secretary, urged recruits to avoid any company that was not a member of the association.

He said he was aware of at least one major global brand operating that is not registered and hosts open recruitment events that draw in hundreds.

“If a company is operating in recruiting rather than selling products, that is the first and biggest hallmark of a pyramid scheme. It is illegitimate, unethical and illegal,” he said.

Salespeople who bought into direct selling schemes have warned others to do their homework before handing over thousands of dirhams in joining fees.

Direct selling is built on a multi-marketing model, where buyers are recruited to become sellers and offered commissions to encourage others to become sellers too.

The businesses are often billed as an opportunity to supplement one’s income or often as a part-time job for mothers at home.

Sellers make money from their own sales and commission from sales by their recruits, known as their “downline”.

SK, an Indian construction worker who lives in Dubai’s Satwa district, said he was lured into direct selling with one company by a friend who said he could secure his family’s future.

“I was told I would get commission on the Dh10,000 payment I made,” SK said. “People said I would make 40 million rupees (Dh2.3 million) within three years. When I signed up, they gave me travel vouchers as an incentive, but I’m not sure where I can use them.”

He was also charged a fee for access to online video content with selling techniques and inspirational testimonials.

Investors such as SK earn commission from companies by selling items including lifestyle products, holidays, watches, jewellery and technological products.

Regular training seminars are held in Dubai, attended by hundreds of people encouraging others to join.

SK, who lost his Dh10,000 payment and has not made any money back, has since asked for a refund after realising he was not willing to introduce new buyers and risk them falling into debt.

“I borrowed money on a credit card. I was convinced it would allow me to help my wife and children,” he said.

“The man selling these schemes introduced himself as a billionaire and said he was sitting at home counting his money and earning more than $112,000 a week.”

Direct selling is a legal business model in the UAE, provided the company is registered with the Direct Selling Association of UAE.

The company into which SK bought is not registered with the association.

New investors are told to separate their contacts into three categories – hot, medium and cold – targeting first those they know well who are most likely to buy in.

SK’s friend earned Dh1,200 for introducing him to the scheme.

Industry experts say the key sign of a pyramid scheme is when distributors make more money from recruiting others than from actually selling to the public.

VK, another Dubai investor, said it was clear that the nature of the business was to get others involved.

He said it was clear that the company he visited, which was the same as the one that approached SK, was to sign up other sellers and get their joining fees rather than sell watches and holidays.

“There was a meeting to discuss calling activity and techniques. I don’t want to con my friends.”

Ali Shabdar, the association’s general secretary, said talks had been held to encourage companies with a questionable history abroad to register, but there had been a lack of co-operation until now.

“This company first came here many years ago and were the cause of many misconceptions about direct selling,” Mr Shabdar said. “They were shut down, left and then came back. We’ve been in touch with them and have similar concerns to those internationally.

“Different companies behave differently in different markets – whether intentionally from the top down, or at a local managerial level, it is not clear.

“The company may come to us and say they want to clean up their reputation, contribute to raising awareness in the market and be a role model here. Enemies of the past could become friends.”

With no direct selling laws, regulation is largely in the hands of the association, which has only 11 companies registered with it.

Registration takes about two months, with a stringent checking process to ensure good practice.

Companies must have a trade licence, with products and services registered with health authorities and municipalities.

The association also works closely with the Department of Economic Development and Chambers of Commerce and registered companies are monitored for the first six months.

Association members attend seminars and events in that time to speak with clients on their experiences.

“Consumers should know what a pyramid scheme is,” Mr Shabdar said. “A lot of these companies have a multi-level marketing model, which when drawn on paper looks like a pyramid but may not necessarily be a pyramid scheme.

“If a company is operating in recruiting rather than selling products, that is the first and biggest hallmark of a pyramid scheme. It is illegitimate, unethical and illegal.

“We are in touch with this company but a lot of changes need to be made to accept their application.”