Friday 24 January 2014

PYRAMID SCHEME ALERT dissects MLM scam

PYRAMID SCHEME ALERT has received reports of people joining and then quitting as many as 60 MLMs over a 2-decade period. Some start joining in high school and continue off and on though adulthood. Some had parents that dedicated time and money (unprofitably) to MLM and they followed the parental example. Belief in MLM defies actual experience. One reason is simply the related belief that if many or most MLMs were pyramid recruitment schemes, the government would close them down.Unfortunately, this is not true.
Looking for the "good" MLM has become the modern day search for the Holy Grail in America. Millions do it every year and lose billions in their quest. Our government regulators look the other way as pyramid schemes hijack the American Dream.
So this edition tries to summarise and address the basic points about what is "wrong" with multi-level marketing. We have not examined every single MLM but, among the hundreds we have examined, we have not found one yet that met the simple test of legitimacy. The test does not require years of analysis or evaluating the MLM product or pricing. It does not require a legal opinion. Legal or not, the test determines whether the MLM is a valid direct selling income opportunity. (this does not include "party plan" companies, which require some different tests, though some of the following analysis will apply.)

1. Not Direct Selling
We have not found a single MLM in which the majority of distributors (sometimes called IBOs, coaches, associates, etc.) makes a sustainable profit just from retailing the MLM's product to the general public. We haven't found one that can therefore be considered "direct selling." We ask every inquiring consumer to find out if the current distributors are making a profit from selling the goods to people,without also having to sign up new salespeople (to make money off their purchases and sales)? If not, then what is the real business, selling or recruiting? Recruiting salespeople who cannot make a profit from "selling" but must also recruit is not a business. It is a pyramid scheme.
If few or none of the salespeople earn sustainable profits from retailing alone, what is the actual value of the "distributorship"? Why are the salespeople recruiting more salespeople who presumably become their competitors? If you must recruit more "distributors" to make your distributorship have value, and all others must do the same, you are in a Ponzi scheme.
We have not found one MLM in which retail sales levels, average retail sales income, average retail profit margins, or the average tenure (turnover) of salespeople - the normal factors for evaluation - are disclosed during solicitation. This  makes due diligence impossible. There is a reason for this.  The only people in the MLMs that we have looked at that make any profit - usually 1-4% or less of the total distributors per year - are those at the top of the recruiting chain.
2. Paid to Recruit
All the MLMs we have examined pay a "commission" or "points" leading to a commission on the salesperson's own purchases or on the purchases of the salespeople they recruit, or both, whether the products are ever resold to the public or not.
When the MLM company pays commissions or awards "points" that lead to commissions based on what the salesperson or his/her recruits buy - the pay plan directly rewards endless recruiting. The MLM's revenue base depends on getting the salespeople themselves to buy as part  of the "income proposition." Since 99% normally lose, these purchases add to the recruits' losses. 
Additionally, it is obviously unethical and a conflict of interest to "manage" or "coach" a recruit whose personal purchases translate into commissions for the "coach" and other upline managers. The upline "coaches" make money, whether or not the persons being managed do, and they make it directly out of the pocket of the persons supposedly being "trained and supported"!! Even if some retailing occurs, if it is not sustainably profitable, then it is unfair to profit from those "failed" salespeople.
If commissions were only paid on retail sales, at least no one would make money upline until a downline person made some money in the legitimate open market. The focus would be on sales, not extending the sales chain.  We have not seen one case of a true retail-based MLM pay plan. As a result, we see only a few recruiters at the top making money, and all else losing.

3. Recruiting as the Only Viable Path to Profit
The sustainable profits in the MLMs we examined, even if some amount of retailing is occurring, comes only when a person reaches the higher levels - executive, gold, president, or some other high position on the chain. To get to that profitable position, all the MLMs that we examined required volume purchase quotas that could only be reached if one had a large "downline." Why is the MLM person required to maintain a high quota or a specified level of recruits in order to benefit from past recruiting? Two reasons: (1)to keep everyone buying and recruiting and (2)because when they don't meet their quotas (and nearly all will not), all their accrued payments go to those above them - to the top. The quota and "structure" rules induce buying and recruiting among the salespeople, and when that ends, the requirements serve to transfer accrued rewards lost by the "quitters and losers" upwards to the top.
Where MLMs have specified recruiting requirements the MLM participant must have specified numbers of recruits in specific configurations, e.g., to be "gold" one must have five "silvers"  and those five "silvers" must each have 3 qualified "aluminum foils" in the level below them, etc., the so-called "building structure" method of moving up.  The higher one goes up the ladder - by recruiting, not personally selling - the higher the commission rate on all the purchases he/she makes plus all those made by the entire downline. So the incentive to recruit is compounding!
When the volume quota is not met or the "structure" breaks due a lower level person not meeting his/her own quota, then the commission amount is drastically slashed, even to the point of losing everything that has been built up.
Because the volume quota and structure requirements can only be maintained by those at the very top, the bottom and middle levels "fail" and quit at rates as high as 80% or more per year.
The quota, the recruiting requirements and the constant turnover of recruits put the MLM participant on a relentless, desperate recruiting treadmill to shore up his "downline." Some spend all their waking hours and weekends recruiting and hyping.
None of this has anything at all to do with "part time" or "home-based" "direct selling." It is all about building a recruitment pyramid and maintaining recruit purchasing. This is the system in every MLM we looked at.

4. Profit Reserved only for those at the Top
This is hard to explain to people who are blinded by dreams of wealth and happiness that the MLM scheme has promoted. But it is otherwise obvious to see. If profit comes from building a "downline", then only those at the top of the downline can ever be profitable. For there to be a "winner" at the top, there must be "losers" below. The ratio of losers to winners is pre-determined, usually 100 to 1. It takes a hundred recruits who are losing for one to win anything. This ratio is built into the pyramid "business model." No matter how large the MLM gets, the percentage of losers and winners remains constant.
Since there is no sustainable profit from just retailing (costs and time outweigh income), but only from recruiting, and the recruiter must have a "structure" with a large "group volume," there will always be just a tiny few winners. The MLM is not an opportunity "for everyone", as the MLMs always claim, but only for a very few. We have not found a single MLM in which more than 1 in 100 made any profit at all in a year, and a much smaller percentage made sustainable incomes when all recruits are included over a longer time. This success rate does not qualify as an "opportunity." Gambling at a casino offers better chances.

5. The trick, the delusion and the fraud of the "endless chain"
Those blinded by "unlimited income" promises made by the MLM and the testimonials of "$10,000 per month" have a hard time seeing the "endless chain" trick. That's why it works!
All the MLMs we have examined play this trick on the recruits. They offer "unlimited" income based on a chain of recruits that never ends. The last person to join is offered exactly the same incentives to recruit as the first people were when the company was started, as if the market size never reduces. It is always "unlimited." This promise is inherently deceptive and is at the root of why MLMs cause huge failure rates.
The endless chain trick claims everyone can make "unlimited" money even though the money on which the income would be based is the participants' own money! An obviously limited amount of money is said to have the potential to generate "unlimited" rewards. This truly is the miracle of the loaves and fishes performed by MLM magicians. If 1,000 people all buy  $1,000 of products on average, there is $1 million in revenue. That's all there is to pay rewards from. So how could everyone make more than they paid in? Obviously, some of the money from many of the 1,000 will be transferred to a few in that group. Why would some get more? Because they are at the top of the chain or joined earlier than others, that's all. Reward depends on "position" and timing.  Most must therefore lose (receive less than they paid in). If some are making large incomes, then nearly all the others have to lose.
Hold on, what if some put in more or did some retailing? It doesn't matter. The total is still a fixed amount. For anyone to get out of the MLM more than they put in (including their retail profits gained from personal selling) requires taking money from some of the others. It is a money transfer scheme.
But, wait, even if it is a transfer, can't the losers at the end of the chain make money by increasing the size of the chain beyond 1,000, that is by becoming the "upline" to new recruits who would become their "downline"?
Yes, that is, in fact, the only actual way they can make money. The problem is that  expansion cannot go on forever. Markets are limited. And for whatever time it continues, the money for rewards will still always be the money that everyone inside the chain paid in. The ratio of the winners to losers will be the same and the only way for anyone to make money will be by transferring "losses" from most to the few winners.
So the promise of money for all or even the chance for money for all could only be true if the MLM scheme could expand into eternity. If a person falls for this trick, they have joined the MLM cult in which the leaders are seen as super-humans and the followers are told they are  special people who will go to financial heaven (wealth beyond your wildest dreams), but only as long as they follow all the rules exactly as prescribed by the leaders. And indeed, it is impossible not see that some MLMs are cults, with members who worship the leaders, stop thinking for themselves and sacrifice their whole lives for the scheme.
The MLM cult rules always require continued paying of money to the MLM's and free marketing work for the MLM. Doubting the rules or the promise is an MLM sin. Questions are MLM heresy. Criticism of MLM is treated as evil. Even associating with non-believers in MLM is discouraged. This is not business.
Since every MLM we have examined is designed exactly on this same impossible model of "endless expansion", we must conclude they have based their promise on a lie.
So, for these reasons - lack of retail profit opportunity, commission paid on recruits' purchases, recruiting/volume quotas, profits based on pyramid recruiting and the "endless chain" lie - we inform consumers to avoid  schemes that have these characteristics. And all the MLMs we have looked at have them! 
Sincerely,
PYRAMID SCHEME ALERT

Thursday 16 January 2014

QNet scam: Cops freeze Danesh Irani's bank account




In spite of these arrests and freezing of bank accounts with illegally made huge funds, QNet with a straight face demands that there should be rules governing direct selling. What a deceitful people are these? What direct selling these fraudulent company is making? It is just like Amway. It is high time, the activities of such crooks should be nipped in the bud when public-spirited organisations like Corporate Frauds Watch file complaints.

Mumbai Police, probing the alleged role of Danesh Irani, son of actor Boman Irani, in the Rs 425-crore scam allegedly spearheaded by a multilevel marketing firm QNet, has frozen his bank account, blocking his Rs 25 lakh, a senior police officer said. 
The bank account of Danesh has been frozen, the officer said adding that, "Two fixed deposits were linked to his bank account. Cash and FDs collectively valued at Rs 25 lakh were found in the account." 
The scrutiny of Danesh's bank account revealed that about Rs 40 lakh had been received from QNet (over a period of time) in 2013, the officer added. "We are verifying to ascertain as to what sort of job he had performed, for which the QNet paid him about Rs 40 lakh," the officer said adding that Danesh would be summoned soon. 
Complainant Gurupreet Singh Anand, who had filed an FIR against the QNet in August last year, has recently approached the probing agency, Mumbai Police's economic offences wing (EOW), with a two-page complaint giving the details of alleged links of Danesh. 
Gurupreet has also alleged that Boman Irani and former world billiards champion Michael Ferreira had participated in the promotional events. Gurupteet had claimed that he shared Danesh Irani's QNet membership details with the investigators and his account had shown that he carried out Rs 18 crore worth transactions and because of which he received substantial amount of commission. The EOW has already issued a look out notice against Ferreira (75), QNET founder Vijay Eswaran and his three business associates after they did not turn up for questioning despite the summons served to them. 
The EOW has arrested nine team leaders of QNet so far for allegedly duping investors by selling products like magnetic disks, herbal products and holiday schemes through fraudulent practices. 
QNet has also been accused of using the banned binary pyramid business model for their multi-level marketing (MLM) schemes to entice investors. The accused were charged with cheating and forgery under relevant sections of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. 


The Malaysia-based MLM firm has denied any wrongdoing. The lookout notice is a circular issued against a person when he/she is wanted by police either for questioning or for the purpose of arrest in any case. 
It is circulated at all immigration checks at international borders (like airports/sea ports) and as soon as the person is spotted, the authorities concerned are notified.


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