Sunday, October 02, 2005

 

Will They Ever Learn?

(Under Construction) Mr Palackal Vakkachan Chacko leads the pack of idiots that is trying to weave the largest network of greedy investors in the thinly disguised Ponzy scheme called LIS Deepasthambham Project, a money-multiplying scheme that in reality is a moneyspinner for the Palackal family alone. They are all in a cocoon of the wrong notion that the scheme could be termed a legitimate trading business, or at worst, a multilevel marketing scheme. What follows is not for those idiots (whose eyes will only gleam more hearing the news that the Head of the Directorate of Non-banking Supervision at the Reserve Bank of India Regional Office in Thiruvanathapuram, Ms Parvathi Vairavasundaram, has anointed Mr Chacko a saint by declaring the business model legal) who will not see the light anyway.

LIS Deepasthambham Project is an Illegal Business in India
All schemes like LIS Deepasthambham Project, whether camouflaged as a trading business or as a multilevel marketing business -which itself is not exactly legal (even the much publicized Amway scheme is illegal. Details at: http://sify.com/news/fullstory.php?id=12352673)- are banned in India and even those who invest in them are bound to go to jail.In India, money circulation schemes are banned under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. Section 2 (c) of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 defines a money circulation scheme as any scheme, by whatever name called, for the making of quick or easy money, or for the receipt of any money or valuable thing as the consideration for a promise to pay money, on any event or contingency relative or applicable to the enrolment of members into the scheme, whether or not such money or thing is derived from the entrance money of the members of such scheme or periodical subscriptions

In the State of West Bengal Vs Swapan Kumar Guha (AIR 1982 SC 949) , the Supreme Court had done away with any ambiguity that might have been there by restating the definition of a money circulation scheme as (a) Any scheme for the making of quick or easy money contingent upon the enrolment of members into the scheme is a money circulation scheme (b) Any scheme in which money or any valuable thing is received and a promise is made to return the money on the event of enrolling members into the scheme is also a money circulation scheme. http://mandamus2.blogspot.com/

There's No Way Out for Chacko
Mr Chacko had propped up Prof MV Pylie, a self-styled constitutional expert, as the President of LIS Educational and charitable Trust, perhaps with a view to help him argue that the definition as per the Act is contrary to the assurance of freedom to carry on any occupation, trade or business as enshrined in Article 19 (I) (g) of the Constitution of India. But it will not be admissible, as can be seen from the judgment in the Srinivasa Enterprises Vs Union of India AIR 1981 504 where former Supreme Court Judge Justice VR Krishna Iyer had upheld the law. Justice Iyer wrote: "Can you save moths from the fire except by putting out the fatal glow?" (http://mandamus1.blogspot.com/)

The Supreme Court had further stated that these types of schemes are prejudicial to the public interest and that they also affect the efficacy of fiscal and monetary policy adversely.

A Fresh Round of Raids at LIS Offices Imminent
All the offences under the Act are cognizable. Under Section 7 of the Act, a police officer not below the rank of an officer in charge of a police station can enter, if necessary by force, by day or night, any premises which he has reason to suspect, are being used for purposes of conducting or promoting any money circulation scheme. He can search such premises and take into custody any person and produce before a Judicial Magistrate all such persons who have been concerned with the use of such premises connected with the promotion or conduct of any money circulation scheme. He can seize all things found in the premises, which are intended to be used, or reasonably suspected to have been used, in connection with any money circulation scheme.

In fact LIS Deepasthambham Project has already met such a fate and has not recovered yet. The Bangalore offices of the firm were raided on 20 July 2005 and were closed by the City Police. They are yet to be reopened ( Details of the raids at Bangalore offices of LIS at http://www.deccanherald.com/deccanherald/jul212005/city2311492005720.asp). A report in the Malayalam daily Madhyamam also indicates the possibility of raids at LIS offices.(http://www.madhyamamonline.in/news_archive_details.asp?id=4&nid=68965&dt=8/12/2005)

Twice Bitten, Yet to be Shy
It was based on the provisions under Section 7 of the Act that both the Bangalore City Police and the Kochi City Police had raided the premises of LIS (Regd.) earlier. In a similar incident, Japan Life Corp. had to close down its operations in the sate, causing the loss of millions of rupees to its investors when Police raided the company premises.

Chacko: A Conman on His Last Leg
LIS (Regd.) was forced to move its registered office to Bangalore following the ban on lotteries that do not pay tax in Kerala that made trading in lotteries of other states illegal. LIS (Regd.) has been collecting millions of rupees while the Bangalore offices stay closed. Simply put, LIS (Regd.) is trading in Karnataka State lotteries, which are banned in Kerala, by collecting money from people in Kerala through advertisements [However, the lotteries are not handed over to those who buy; they are kept in Bangalore for the members of LIS Deepasthambham Scheme. Lotteries bought in bulk are kept in unopened bundles. Each member is allotted the tickets he is entitled to and the numbers are chosen randomly from the list well before the draw. The serial numbers of lottery tickets allotted are intimated to the member through his dedicated webpage provided by LIS(Regd.). The members have no choice over what kind of tickets to purchase.]. The ban on online lottery ticket trading that is still in place in Kerala can be extended to the kind of trade engaged by LIS (Regd.) as the actual transfer of Tickets takes place online on the Net. Moreover soliciting to gamble (here, in more ways than one) is an offence in both India and the US. There is no geographical limitation for prospective members. The official website of LIS Deepasthambham Projec (http://lisdsp.com/ http://lisdeepasthambham.in/DSP/LISDSP/) itself is enough to attract the attention of the FBI (More on it follows).

It becomes apparent that LIS (Regd.) had been engaged in illegal trading in other-state lotteries even when the offices in Bangalore were functioning, in more ways than one.As no other state lotteries that do not pay tax are allowed to be sold in Kerala, LIS cannot engage in the business of selling Karnataka State lotteries in the state even if the courts in Bangalore allow the offices of LIS (Regd.) to reopen. The State can also demand LIS (Regd.) to pay taxes in arrears along with penalty.

Even the Investors are Punishable
Under Section 3 of the Act, no person shall promote or conduct any money circulation scheme, or enroll as a member to any such scheme, or participate in it otherwise, or receive or remit any money in pursuance of such scheme. So even a person enrolling himself as a member or participating in the scheme is an offender. The prescribed punishment under Section 4 is imprisonment for a term, which may extend to three years, or with fine, which may extend to five thousand rupees, or with both. A minimum punishment of imprisonment to the extent of not less than one year and fine not less than one thousand rupees have been provided.

LIS Under the Scanner of the FBI
The operators of such schemes are able to survive with the help of lacunae in laws even in the US. Mr Chacko has fooled even the Federal Bureau of Investigation of the United States by circumventing the Law that looks for telltale signs like the promoter asking the members to bring in more members. He does it by advertising heavily in the visual and print media. Members are NOT required to bring in more members, but the Terms and Conditions clearly mentions that more members need join the scheme for those who have already joined for the latter to get twice the amount they had invested (http://www.lisdeepasthambham.in/DSP/LISDSP/rules.html).
Mode of Functioning
*As more and more members join in the scheme, the purchase commission of lottery tickets and Thrikalam magazine will be shared to the member in such a way that each unit holder will be given double the entrusted amount as refund and share of commission thereby terminating his/her membership.
*New units are joined in a chronological way such that the unit joined first gets the commission first.
*When new units are joined , each unit is signed up as one after another and not as one under another.

The website also mentions clearly the condition to be met for the members to get what the promoters term "commission':
To Get Commission
Each unit holder will be qualified for the refund and commission when 14 units are joined under each unit as mentioned (earlier).

FBI has a section dedicated on its website to caution the public against the likes of Mr Chacko. As Mr Chacko demands that members must sign up and subscribe to a webpage provided by them on the Net, he could be pursued by the FBI which is the agency that is on a crusade against Internet crimes. (http://www.fbi.gov/majcases/fraud/fraudschemes.htm#ponzii). Mr Chacko had earlier tried in vain to float the scheme in the United States by registering it in that country.

The Media in a Mess
But printing, publishing, selling or distributing any materials relating to such schemes have been made punishable with imprisonment for term, which may extend to two years, or with fine which may extend to three thousand rupees, or with both, under Section 5 of the Act. Under Section 8 of the Act the State Government can forfeit any newspaper or publication containing any material connected with the promotion or conduct of money circulation scheme. Here also a minimum punishment to the tune of imprisonment not less than one year and/or fine not less than one thousand rupees have been provided (Is Malayala Manorama listening?).to be continued

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