Negative news is always bad for the company that is the subject of the news. It is also bad for the reputation of the industry as a whole. The question is, how bad. That depends on what actually took place. Were the arrests caused by activities unique to one particular company? Or were they an attack on the model in general.
This first quote is bare-bones so you can’t tell much. Courtesy of NDTV.com:
Kalpetta, Kerala: Network marketing firm Amway’s India Chairman and CEO William S Pinckney and two company directors have been remanded to 14 days judicial custody by a local court here.
Pinckney and directors Sanjay Malhotra and Anshu Budhraja were arrested by the Wayanad Crime Branch (Economic Offences) wing from Kozhikode yesterday in connection with three fraud cases registered in Wayanad district.
Kalpetta Judicial First Class Magistrate N Ravishankar last night remanded them for 14 days.
They were booked under the Prize Chits and Money Circulation Schemes (Banning) Act based on complaints filed by two persons in 2011.
Last year the Crime Branch (Economic Offences wing) had conducted searches at the Amway offices at Thrissur, Kozhikode and Kannur districts as part of its crackdown on money chain activities.
The company’s godowns in these centres were also closed and goods seized.
It appears that the activities alleged were not typical of those practiced by MLM companies. International Business Times added these details [emphasis mine]:
The arrests were made on a warrant issued in three different cases registered by Wayanad district crime branch in 2011 on charges of violation of the Price Chits and Money Circulation Schemes (Banning) Act, Press Trust of India, or PTI, reported, citing police sources.
The arrests were made based on the complaint of a woman who claimed she had incurred losses, due to the company’s fraudulent practices. Four cases have been registered in two districts — three in Wayanad and one in Kozhikode — against Pinckney, a U.S. national.
Amway India Enterprises has been accused of selling low-priced products at inflated rates in the state. Last November, police raided Amway warehouses in various districts of the state and seized products worth 24 million rupees (about $450,000), following complaints that the firm was taking huge sums in advance from customers and representatives. The company’s Kerala state manager Rajkumar was arrested and warehouses were sealed.
Investigators found that the company had forced distributors to buy products at higher prices in violation of the guidelines and the police were working on leads that millions of rupees collected fraudulently from dealers were invested in the insurance business, according to some media reports.
This report from DNAIndia.com is more typical [again, emphasis mine]:
A top official of Economic Affairs Wing (EOW), Kerala, who was part of the operation that led to the arrests, said: “With the call of easy money, they have been luring people to invest. The new members in turn had to get more people and this was leading to illegal money circulation. We had received several complaints against the company.”
There was another case filed by an ex-Amway distributor in 2012, charging the company with cheating. The company officials had received bail in that case. While probing the 2012 case, the police found that goods were being sold at overpriced rates. A product worth Rs37 was being sold to consumers at Rs395.
The EOW had also conducted raids at Amway’s godown in Kozhikode, Thrissur and Kannur and seized goods worth Rs2.14 crore last year.