Individual Project

Ethical Issues in Management

FTMBA, Trimester 1, 2020-21

Ethical Issues related to: Executive Compensation, Sales Practices,

Deceptive Advertising

SUBMITTED BY: ARVIND SINGAL

D028
SAP ID: 80512100388
FACULTY: Prof. Anita Chouhan

1
 .Ebiz.com – A Get Rich Quick MLM Company Scam

Ethical Issues related to: Executive Compensation, Sales Practices, Deceptive Advertising

The prosecution agency said the accused ran a multi-level-marketing scheme for sale of
worthless products like computer education packages which were downloadable freely from
the Internet.

“These products were only for the name’s sake. The primary purpose of the members joining
the scheme was to get commission from the enrolments and not for the products. They
extensively advertised their commission model in which very high commissions were paid to
sponsoring members for enrolments of new members.
E-biz was in the business to provide false hope”

– Enforcement Directorate

2
 Case Facts

About E-Biz:
The company was started by Pawan Malhan who clamed to be a graduate from Indian Institute
of Delhi and held a doctorate in physics.
Ebiz.com private limited was started in June 2001 claiming to provide online self-development
training packages that included courses on computer language and operating system. The
package also included some of the modules on office tools like MS Office, Internet browsing,
and computer software and hardware. Some other courses included products like “Speak
English in 10 Days”.
Users were expected to learn online all the courses provided in the packages all by themselves
and at their own cost.

Pyramid Membership Model:

The company used to hold large conventions in which top earning members encouraged others
to join the company by enrolling into the membership, where after subscribing they were given
access to the educational material. Along, with this the key to the pyramid scheme was to
encourage to join people as associates when subscribed.
An associate would promote the sale of theses educational packages, as by inviting other people
to subscribe for the same. Whenever a new person becomes the associate, he had to pay a sum
of fixed money for the enrolment. A part of the subscription goes to the person who invited
and the rest 30% would go to the company. And that’s how the chain is build which leads
formation of a pyramid structure.

Problem with the Business:

The educational material provided in the form of CDs was of less use
The material which was provided by the company had animated tutorials which anybody can
create using resources which were available for free on internet. What was more surprising was
the fact that the educational modules which were provided by Ebiz was not registered with any
technical board or university. So, the certificate of completion of the course held extremely
small value.

Business advertised as a hope to become rich

The focus of the company was to get as many associates as possible so that more and more
commission is earned by the way of direct selling the educational packages. Associates usually
promoted these packages by the way of showing fabulous lifestyle of the top earners of the

3
pyramid and making people dream that they can become like them very easily if they become
a part of the company.

Company was registered but did not have a credible brand or Financial Backing
Though the company was successfully registered but the origin of the company and the
financial backing was still sceptical.

High Price for low quality educational Packages

The packages which were provided were not only of very low quality but were also provided
at a very high price. The price for the complete package was Rs. 10,880, since the course was
provided as a CD package, the course was outdated.

Extremely high level of compensation for the Executives at the top level and the bottom
chain remains poor
The system of pyramid scheme grows at a compounding rate and therefore the maximum
benefit is received for the top players who get commission for each sale that is made by the
people below them. Such systems collapse in the long run, since people at the bottom line are
not able to generate that much revenue.

No interview, training, or entry barrier to enter.

In this industry of direct selling, there is no entry barrier in terms of selection process, interview
or even training. Anyone and everyone who is willing to pay for the educational package can
become an associate and start working.
A huge chunk of young unemployed populations is lured easily, since they can be the part of
“A business with hope” with no efforts.

4
 Inherent Ethical Violations

Executive Compensation:
Executive compensation refers to substantial payment to the top executive levels. In the above
case Pawan Malhan being the director of the company had a yearly salary withdrawal of 25
crores, being a large part of the total revenue of the company.
Those who became the early associate of the company had the forever advantage of building
huge wealth, whereas those at the bottom had to work exceptionally hard to reach at that level,
and therefore most of the people tend to get dishearten with the time and money spent on
building their bottom chains.

Is such high compensation justified?

Clearly No. People realise with time that they don’t have the special advantage that the people
at the top have. People joined E-biz with the hope that will be able to earn good money, and
even after putting so much effort, there share of profits is given to the top-level executives
which does not justify the amount of money and time that they spend on building their bottom
chain which also suffers from the same situation, which is even worse.
The company was declared as a racket and was later busted by Telangana’s Cyberabad
Economic Offenses Wing. The total amount of defraud was over 5000 Crores and more than
17 lakhs people were cheated.
The compensation is not justified both at the organisation and the individual level.

Deceptive Advertising:
The main advertising of the business was done through mouth-to-mouth interaction among
those who were the associates and prospective subscribers.
The main target subscribers in this type of business are those who need urgent money, or those
who want to become rich quickly with less effort. These includes:
1. First year undergraduate college students.
2. Unemployed Students
3. Working people seeking to build a passive income
4. Working people who are planning to change their job
5. Stay home moms
6. People who need urgent money for
The direct selling MLM industry promises the following in general, which becomes the
pulling magnet and the company key advertising technique.
1. A passive income which will increase at compounding rate
2. Fame and Social Life
3. Higher standard of living and additional perks
4. A hope for a better and happy life.

5
All the above-mentioned things are usually communicated to the prospective subscriber by
inviting them to an event where top executives are projected as leaders and who narrate their
stories of success and fame.
Lured by the positive environment, crowd mentality and being brain washed, prospects usually
agree to sign up for becoming an associate and becoming a peg in their working system.

The way of advertising is legal, but is it ethical?

Encouraging people to opt for something which brings hope and helps them achieving their
goals seems to be far away from unethical, but it results to discouragement, waste of time and
money in the long run.
The probability that a new prospect will be able to achieve as what is promised is 0.005% given
the reason that the as the level of pyramids increases more and more people are at the bottom
level leading to huge competition.
Benefits which might be received to a prospect during the early stages of advertisement fall
shorts in the face of coming failures in this business.

Unethical Sales Practice

Being in the industry of direct selling, focus of the business remains to get more and more
enrolments rather than providing value through goods and services. The products that Ebiz
provided were of low quality and which were even available on the internet for free. Selling
them at a very high price indicated that company does not have a good alignment of their
actions as per the core values that they have.

Impact on Stakeholders Involved:

1. Directors
2. Associates
3. Bottom New Joiners
4. General Public

Directors
Pawan Malhan is the company's managing director. His wife, Anitha Malhan, is a director, and
his son, Hitik Malhan, is in charge of the business
According to the Cyberabad Economic Offenses, Pawan Malhan's son Hitik Malhan oversees
the company's business. While the financial racket was busted, the 62-year-old managing
director and his son were taken into custody.

6
Associates
When the case was busted, not only the last chain of bottom workers but the whole pyramid
collapsed. So the big network which these associates created was completely shattered and the
substantial income that they used to receive as a passive income was stopped permanently.

Bottom New joiners

These are those people who were lured in hope to have a happy life. Over more than 17 lakhs
such joiners were in loss of time, money and energy. The company did not provide what was
promised which not only led to shattering of dreams of lakhs of people but also caused a mental
frustration a huge chunk of these people were planning to consider this business as their main
source of income.

Government & General Public

When cases like these which are huge and show losses of thousands of crores, the trust of public
in the government and the regulatory bodies decreases. Government have to make expenditure
on settling the shocks that arise in the market. After the reveal of the Ebiz case government
planned to set up an additional policy for early identification of these schemes and the
companies which comes for the purpose to earn huge profits rather than providing the value.

Possible Suggestions, how things have dealt differently

For Directors:
The company could have successfully run the business if the company focuses more on the
value creation rather than collecting the profits. Rather than providing hope focus should have
been on providing such services which would have added value to their lives by providing high
quality training at reasonable price.

For Associates and New Joiners

New joiners and associate should more focus on long term goals rather than focusing on earning
huge money quickly through short run schemes.

7
References

https://timesofindia.indiatimes.com/city/hyderabad/ed-files-plaint-against-ebiz-com-for-mlm-
fraud/articleshow/81474703.cms
https://timesofindia.indiatimes.com/city/hyderabad/ed-grills-ebiz-com-md-son-in-rs-5000cr-
fraud/articleshow/70916824.cms
https://www.linkedin.com/pulse/ebiz-quick-rich-scam-bhaskar-anand/
https://www.indiatvnews.com/news/india-noida-based-firm-ebiz-busted-for-rs-5000-crore-
fraud-pawan-malhan-son-hitik-malhan-arrested-543934
https://www.moneylife.in/article/ebizcom-uses-mlm-route-to-dupe-students-with-it-package-
offer/11807.html

8
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PLAGIARISM SCAN REPORT

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.Ebiz.com – A Get Rich Quick MLM Company Scam
Ethical Issues related to: Executive Compensation, Sales Practices, Deceptive Advertising
The prosecution agency said the accused ran a multi­level­marketing scheme for sale of worthless products like
computer education packages which were downloadable freely from the Internet.
“These products were only for the name’s sake. The primary purpose of the members joining the scheme was to get
commission from the enrolments and not for the products. They extensively advertised their commission model in which
very high commissions were paid to sponsoring members for enrolments of new members.
E­biz was in the business to provide false hope”
– Enforcement Directorate

Case Facts
About E­Biz:
The company was started by Pawan Malhan who clamed to be a graduate from Indian Institute of Delhi and held a
doctorate in physics.
Ebiz.com private limited was started in June 2001 claiming to provide online self­development training packages that
included courses on computer language and operating system. The package also included some of the modules on
office tools like MS Office, Internet browsing, and computer software and hardware. Some other courses included
products like “Speak English in 10 Days”.
Users were expected to learn online all the courses provided in the packages all by themselves and at their own cost. 
Pyramid Membership Model:
The company used to hold large conventions in which top earning members encouraged others to join the company by
enrolling into the membership, where after subscribing they were given access to the educational material. Along, with
this the key to the pyramid scheme was to encourage to join people as associates when subscribed. 
An associate would promote the sale of theses educational packages, as by inviting other people to subscribe for the
same. Whenever a new person becomes the associate, he had to pay a sum of fixed money for the enrolment. A part
of the subscription goes to the person who invited and the rest 30% would go to the company. And that’s how the chain
is build which leads formation of a pyramid structure.
Problem with the Business:
The educational material provided in the form of CDs was of less use
The material which was provided by the company had animated tutorials which anybody can create using resources
which were available for free on internet. What was more surprising was the fact that the educational modules which
were provided by Ebiz was not registered with any technical board or university. So, the certificate of completion of the
course held extremely small value.
Business advertised as a hope to become rich
The focus of the company was to get as many associates as possible so that more and more commission is earned by
the way of direct selling the educational packages. Associates usually promoted these packages by the way of showing
fabulous lifestyle of the top earners of the pyramid and making people dream that they can become like them very
easily if they become a part of the company.
easily if they become a part of the company.
Page 2
Company was registered but did not have a credible brand or Financial Backing
Though the company was successfully registered but the origin of the company and the financial backing was still
sceptical.
High Price for low quality educational Packages
The packages which were provided were not only of very low quality but were also provided at a very high price. The
price for the complete package was Rs. 10,880, since the course was provided as a CD package, the course was
outdated.
Extremely high level of compensation for the Executives at the top level and the bottom chain remains poor
The system of pyramid scheme grows at a compounding rate and therefore the maximum benefit is received for the top
players who get commission for each sale that is made by the people below them. Such systems collapse in the long
run, since people at the bottom line are not able to generate that much revenue.
No interview, training, or entry barrier to enter.
In this industry of direct selling, there is no entry barrier in terms of selection process, interview or even training. Anyone
and everyone who is willing to pay for the educational package can become an associate and start working.
A huge chunk of young unemployed populations is lured easily, since they can be the part of “A business with hope”
with no efforts.
Inherent Ethical Violations
Executive Compensation:
Executive compensation refers to substantial payment to the top executive levels. In the above case Pawan Malhan
being the director of the company had a yearly salary withdrawal of 25 crores, being a large part of the total revenue of
the company.
Those who became the early associate of the company had the forever advantage of building huge wealth, whereas
those at the bottom had to work exceptionally hard to reach at that level, and therefore most of the people tend to get
dishearten with the time and money spent on building their bottom chains.

Sources Similarity

ED files complaint against Ebiz.com for MLM fraud ...

Mar 13, 2021 — The prosecution agency said the accused ran a multi­level marketing (MLM) scheme for sale of
worthless products like computer education ... 25%
https://timesofindia.indiatimes.com/city/hyderabad/ed­files­plaint­against­ebiz­com­for­mlm­
fraud/articleshow/81474703.cms

eBiz scam: ED files prosecution complaint against MLM firm

Mar 12, 2021 — The primary purpose for which the members were joining the scheme was to get commission from
enrollments and not for the products. 25%
https://telanganatoday.com/ebiz­scam­ed­files­prosecution­complaint­against­mlm­firm
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PLAGIARISM SCAN REPORT

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Content Checked For Plagiarism

Inherent Ethical Violations
Executive Compensation:
Executive compensation refers to substantial payment to the top executive levels. In the above case Pawan Malhan
being the director of the company had a yearly salary withdrawal of 25 crores, being a large part of the total revenue of
the company.
Those who became the early associate of the company had the forever advantage of building huge wealth, whereas
those at the bottom had to work exceptionally hard to reach at that level, and therefore most of the people tend to get
dishearten with the time and money spent on building their bottom chains.
Is such high compensation justified?
Clearly No. People realise with time that they don’t have the special advantage that the people at the top have. People
joined E­biz with the hope that will be able to earn good money, and even after putting so much effort, there share of
profits is given to the top­level executives which does not justify the amount of money and time that they spend on
building their bottom chain which also suffers from the same situation, which is even worse. 
The company was declared as a racket and was later busted by Telangana’s Cyberabad Economic Offenses Wing. The
total amount of defraud was over 5000 Crores and more than 17 lakhs people were cheated.
The compensation is not justified both at the organisation and the individual level. 
Deceptive Advertising:
The main advertising of the business was done through mouth­to­mouth interaction among those who were the
associates and prospective subscribers.
The main target subscribers in this type of business are those who need urgent money, or those who want to become
rich quickly with less effort. These includes:
1. First year undergraduate college students.
2. Unemployed Students
3. Working people seeking to build a passive income
4. Working people who are planning to change their job
5. Stay home moms
6. People who need urgent money for 
The direct selling MLM industry promises the following in general, which becomes the pulling magnet and the company
key advertising technique.
1. A passive income which will increase at compounding rate
2. Fame and Social Life
3. Higher standard of living and additional perks
4. A hope for a better and happy life.
All the above­mentioned things are usually communicated to the prospective subscriber by inviting them to an event
where top executives are projected as leaders and who narrate their stories of success and fame. 
Lured by the positive environment, crowd mentality and being brain washed, prospects usually agree to sign up for
becoming an associate and becoming a peg in their working system.
The way of advertising is legal, but is it ethical?
The way of advertising is legal, but is it ethical?
Page 2
Encouraging people to opt for something which brings hope and helps them achieving their goals seems to be far away
from unethical, but it results to discouragement, waste of time and money in the long run. 
The probability that a new prospect will be able to achieve as what is promised is 0.005% given the reason that the as
the level of pyramids increases more and more people are at the bottom level leading to huge competition.
Benefits which might be received to a prospect during the early stages of advertisement fall shorts in the face of coming
failures in this business.
Unethical Sales Practice
Being in the industry of direct selling, focus of the business remains to get more and more enrolments rather than
providing value through goods and services. The products that Ebiz provided were of low quality and which were even
available on the internet for free. Selling them at a very high price indicated that company does not have a good
alignment of their actions as per the core values that they have.

Impact on Stakeholders Involved:
1. Directors
2. Associates
3. Bottom New Joiners
4. General Public
Directors
Pawan Malhan is the company's managing director. His wife, Anitha Malhan, is a director, and his son, Hitik Malhan, is
in charge of the business 
According to the Cyberabad Economic Offenses, Pawan Malhan's son Hitik Malhan oversees the company's business.
While the financial racket was busted, the 62­year­old managing director and his son were taken into custody.
Associates
When the case was busted, not only the last chain of bottom workers but the whole pyramid collapsed. So the big
network which these associates created was completely shattered and the substantial income that they used to receive
as a passive income was stopped permanently.
Bottom New joiners
These are those people who were lured in hope to have a happy life. Over more than 17 lakhs such joiners were in loss
of time, money and energy. The company did not provide what was promised which not only led to shattering of dreams
of lakhs of people but also caused a mental frustration a huge chunk of these people were planning to consider this
business as their main source of income.
Government & General Public
When cases like these which are huge and show losses of thousands of crores, the trust of public in the government
and the regulatory bodies decreases. Government have to make expenditure on settling the shocks that arise in the
market. After the reveal of the Ebiz case government planned to set up an additional policy for early identification of
these schemes and the companies which comes for the purpose to earn huge profits rather than providing the value.
Possible Suggestions, how things have dealt differently
For Directors:
The company could have successfully run the business if the company focuses more on the value creation rather than
collecting the profits. Rather than providing hope focus should have been on providing such services which would have
added value to their lives by providing high quality training at reasonable price.
For Associates and New Joiners
New joiners and associate should more focus on long term goals rather than focusing on earning huge money quickly
through short run schemes.

Sources Similarity

Noida based firm eBIZ.com busted for Rs 5000 crore fraud ...

ꞏ While the financial racket was busted, the 62­year­old managing director and his son were taken into custody. The
company head office at Noida was … 3%
https://www.indiatvnews.com/news/india­noida­based­firm­ebiz­busted­for­rs­5000­crore­fraud­pawan­malhan­
son­hitik­malhan­arrested­543934