While the arrests of three company officials are moot, they should not surprise because no other state has had such a long brush with Ponzi schemes, although Amway's may not be one.The arrest of Amway India MD and CEO William S Pinckney and two other directors in Kozhikode, Kerala, on charges of pursuing an "unlawful business model and cheating" expectedly created a furore. Union minister for corporate affairs Sachin Pilot said he was disappointed at the way Kerala police treated the head of a "well-known company like Amway India". He said the incident would send wrong signals about the country as an investment destination (the three officials were in police custody for a day at Wayanad, a tourist hotspot in north Kerala, before a local court granted bail).The incident has also triggered a debate on the need for a fresh look at the policy regulating the direct marketing companies, pyramid schemes, Ponzi schemes and multi-level marketing (MLM) players in India. But anyone familiar with Kerala's experience with these players would be only a tad surprised at the turn of events.With its huge surplus of cash in NRI accounts, Kerala has always been a favourite hunting ground for shady players. Amway may have inevitably got clubbed with them. Thousands of people have long been lured into these schemes with the promise of doubling their money in the shortest span of time.In the 1970s and 1980s, it was private finance companies, or "blade companies" (so called because of the cutthroat interest rates they charge), that lured depositors with the promise of unrealistically high returns. Many people who deposited their hard-earned money lost everything when the companies went bust.In the 1990s, a spate of plantation companies cheated the public. Teak or cashew plantation companies lured people to invest in time share units. They were promised several multiples of their original investment in 15 or 20 years. Needless to say, investors lost their money. In the last decade, another company launched a mutual fund that invested in lotteries with the promise that the investment will double in two years. The company was raided and forced to down shutters by the police.Three years ago, the police received several complaints about the money chain companies like Nano Excel and LIS. A year later, the Kerala police launched an offensive against companies that offered Ponzi and pyramid schemes. The police received many complaints against companies that replicated the money chain model and cheated the public.In all these cases, police acted after receiving complaints from the public. They did the same with Amway, the top player in direct marketing. In Kozhikode and Wayanad, police received complaints against Amway India from people who bought the company's products but could not sell them. But the arrests were made based on three cases registered against the company in Wayanad in 2011."A case was registered against the company in Kozhikode based on a complaint received from a woman," superintendent of police in the Economic Offences Wing of the Crime Branch PA Valsan told ET. Company officials received anticipatory bail for this case, he said. However, the bails for the cases registered in Wayanad were pending.It was in this context that the officials of Amway were arrested. The charges against the company were that it violated the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. MLM companies like Amway sell products by enrolling new members. "The sales by members at the lower level will bring in returns for the members at the higher level, which is in violation of the Act", said Valsan.The company was also charged with steeply hiking up the prices of its products. Some times, the price increase amounted to around 10 times of the real value of the product, the police said. "For example, a product with a price of Rs 341 is sold at Rs 2,400," Valsan said adding that such a pricing policy amounted to cheating the consumer.Jacob Punnoose, a former director general of police in the state, said, "The police have to investigate when they receive a complaint." Nevertheless, Punnoose, who ordered the enquiry, said, "It is difficult to distinguish between an ordinary MLM company and an MLM company with a Ponzi scheme built into its business model." So the police should not act in the same way against all MLM players in general, he said.A spokesman for Amway said the company has always responded to complaints and followed the due process. "The arrests caught us by surprise because of the manner in which they happened. We didn't even receive a summons," he said, adding that the company will fight the case legally and follow the changes in legislation that the government is proposing."Indeed, there have been no complaints against the products of Amway India in the state. "We have not received any complaints against the products of the company," said A Rajesh, president, Ernakulam District Consumer Redressal Forum. Same has been the case in Kozhikode also, according to Yethunathan, president of the Consumer Redressal Forum in the district.Consumer rights activist Dijo Kappen was also sceptical of the police action against the company. "When the company conducts its business without any legal issues in other states, how can Kerala alone question its legal status?" he asks.A former distributor of Amway said the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was enacted when there was no concept of direct marketing. "The industry has been asking for the amendment of the act," he added. According to Amway, direct selling is a business model involving the sale of products. There are no deposits or promised financial returns, which was at the heart of the PCMCS Act.Now, the Indian direct selling industry has decided to fight the Act. In spite of the large number of regulations, the direct selling sector in India still does not have a clear policy framework. Chavi Hemanth, secretary general, Indian Direct Selling Association (IDSA), said, "According to survey report of IDSA with ICRIER the PCMCS (Banning) Act, 1978 is not applicable to direct selling as it is a trade and commerce activity wherein PCMCS (Banning) Act, 1978 was formulated with an aim to regulate financial schemes".The industry thinks the Kerala government is supportive and is enacting new policies to make direct selling guidelines all inclusive. At the same time, at the ground level the industry is still facing problems, which is dampening the spirit of the industry.Kerala has one of the highest levels of unemployment in India. The industry recruits its members from the large pool of educated unemployed estimated at around 40 lakh people. "If these companies are legitimately run, I do not see any reason why they should be targeted, especially when they offer a livelihood to our unemployed youth," says Kappen.