Here's how the I-Buy-From-Myself fraud works in E-Commerce: Lets say you're the CEO of a VC funded e-commerce venture (lets call it FlashStarABC), dealing in apparels. You (or your family member) sets up a company (lets call it BestProcureXYZ) which procures unbranded apparel from a country where you can get it at a cheaper price than India, say, from China. BestProcureXYZ creates new labels, like Miss2795, for handbags. These are bought from China at Rs 100, and are still cheaper than branded goods on the flash sales site. Normally, unbranded bags would be bought by FlashStarABC for Rs 150, but BestProcureXYZ gets a friendlier rate of Rs 200, and they're sold in a flash sale for Rs 350. The investors of FlashStarABC are shown that the company gets better margins in case of unbranded goods, so they're happy with the sale, not knowing that the margin could be higher, and a relative of the CEO runs the company which is supplying goods. The CEO keeps quiet about who these goods are being procured from, and sometimes has multiple friends and family members importing containers of goods. Now if this happens across product categories, you can imagine that the amount of money that can be made using this modus operandi would run into multiples of crores. At the same time, consumers are buying and revenue is increasing, except that investors are being shortchanged. That is, until the company gets stuck with unsold inventory of unbranded goods, which it procured in the name…
