Pyramid Schemes

How Pyramid Schemes Work

You're outside cutting the lawn and your neighbor pulls up in a brand-new BMW. He's wearing a suit and carrying a briefcase. You've never seen this guy out of his sweatpants. Maybe a millionaire uncle died? After some small talk, you ask him what's up with the new car and the new suit. He acts all coy and says he just got lucky with a new type of business opportunity. You're curious, so you ask for more details. He says he's become a freelance distributor for a health supplement company. Turns out that there are tons of people out there who will pay big bucks for his products. And even better, the more salesmen he hires to work for him, the more money he makes. For a one-time sign-up fee, plus the cost of the merchandise, you could start doing the same thing tomorrow. "Hire 10 salesmen," he says, "And you'll have your own BMW in a month." Wow, you think, this is the real deal. No more office work, no more bosses, just managing a team of salesmen from home. You go for it. You hand your neighbor a check, collect your starter kit of supplements and start hitting the phones looking for potential salesmen. You call your buddy Bob to see if he's interested. But the weird thing is, Bob ran into your same neighbor yesterday at the grocery store and also signed up to be a distributor. What's worse, Bob's already been calling around, and it looks like your neighbor and his buddies have already signed up half the city. "Nobody's going to want to buy from us because we're all trying to sell!" cries Bob. "And we'll never make our money back on salespeople because there's no one left to recruit!" Looks like you've been suckered in by a pyramid scheme. Your neighbor and his buddies are at the top of the pyramid. They got in early and made money by recruiting people like you. But now you're competing with hundreds of other distributors for the same small pool of potential recruits. The odds of making your money back are worse than roulette in Vegas.

So who makes money and who loses it in a pyramid scheme? And what are some signs that a fabulous "business opportunity" is really a pyramid in disguise? Read on to find out. What is a Pyramid Scheme? The main characteristic of a pyramid scheme is that participants only make money by recruiting more members. There are many different kinds of pyramid schemes, but the two most basic are product-based and so-called naked pyramid schemes. In a naked pyramid scheme, no product is sold. Here's how it works: 1. One person recruits 10 other people to participate in a "no-fail investment opportunity." 2. The 10 recruits each pay the recruiter $100. 3. The recruiter now tells them to go out and recruit 10 more people to do the same. 4. If each recruit is successful, they'll all end up with $900 in profit from a $100 investment. Sounds simple enough, but here's the problem: Let's say the initial 10 recruits each find 10 more people. Those 100 new recruits will have to find 10 recruits each to make $900. That means they have to find 1,000 people willing to sign up for the program. And if they somehow find 1,000 people, that next level of the pyramid will need to sign up 10,000 to make a profit. Eventually, there won't be enough recruits at the bottom of the pyramid to support the level above it. That's when the pyramid topples and everyone at the bottom loses their investment.

How Qnet works:

In Qnet every IR independent representative who has been newly recruited must recruit 6 persons (3 at the right hand side and 3 at the left), whether he recruited them alone or they have been recruited by the downlines or uplines. So to see the big picture everyone had to recruit 6 persons in order to make 250$. Lets look at the picture below if the first IR recruited 6 persons and then each one of the 6 persons recruited another 6 persons (6x6=36) then each of the 36 persons recruited 6 persons (36x6=216), so if it goes this way at the 13th level thats more than the world population!!! And the worst part is that each lower level (the majority of people will not gain anything, they will only win the level before them

just 250$, the only people who really win are those the upper levels (ex.: 36 people are recruited to win 6 people 250$) Off course Qnet leaders and defenders will say that it never work this way because not everyone work the same and some people dont manage to recruit anyone under them (even though in their presentation they say that everyone can at least manage to recruit 2 persons as a minimum), thats right if you look at it from small prospective but looking at the big picture its going to take this shape in one way or another because in Qnet its all about recruitment, sooner or later there will be a market saturation and I dare who say that there will be no saturation because when you have like 50,000 sellers for products (who is overpriced and with no market presence or value) the chances that they will have any opportunity to recruit anyone is going down sharply. They say that if saturation exists no one will still be buying refrigerators or televisions, well the answer is so simple that if you count the places that sells these products (which are on the other side valuable and everyone needs them), they arent that many but imagine that everyone who goes to buy a refrigerator become a seller for that brand!!! In few months you will find thousands who sell it and the competition will be so hard for each one to sell.

Pyramid schemes (Qnet) quickly become unsustainable.

A product-based pyramid scheme is the same concept disguised as a legitimate direct sales opportunity. Here's how it works: 1. A distributor recruits 10 salespeople who each pay $500 for a starter kit of products to sell. 2. The distributor gets 10 percent of each starter kit that's sold. 3. The distributor also gets 10 percent of each product that any of his recruits sells, including more starter kits. 4. The recruits are told that the fastest way to make money isn't by selling products, but by recruiting more people to buy starter kits. 5. The people at the top of the pyramid get commissions from everyone in their downline, the many levels of recruits below them on the pyramid. The problem with most product-based pyramid schemes is that the products themselves don't sell very well, or have very slim profit margins. So the only way to make money is to find more recruits. Eventually (and surprisingly quickly), the market becomes saturated. There are too many people trying to sell the same unattractive product and there's no one left to be recruited. There are two tell-tale signs that a product is simply being used to disguise a pyramid scheme: 1- inventory loading and 2-a lack of retail sales. Inventory loading occurs when a company's incentive program forces recruits to buy more products than they could ever sell, often at inflated prices. If this occurs throughout the company's distribution system, the people at the top of the pyramid reap substantial profits, even though little or no product moves to market. The people at the bottom make excessive payments for inventory that simply accumulates in their basements. A lack of retail sales is also a red flag that a pyramid exists. Many pyramid schemes will claim that their product is selling like hot cakes. However, on closer examination, the sales occur only between people inside the pyramid structure or to new recruits joining the structure, not to consumers out in the general public.

It's mathematically impossible for everyone to make money in a pyramid scheme. For example, if each recruit needs to find 10 more people to recoup the cost of his or her initial investment, the eighth level of the pyramid would have to recruit a billion people to make back their money. And the next level would need 10 billion, nearly twice the population of the Earth.

In fact, pyramid schemes don't work unless somebody loses. Those at the bottom of the pyramid are essentially defrauded by those on top. It's a mathematical fact that no matter how many people join a pyramid scheme, 88 percent of the members will be on the bottom level and will lose their money [source: Pyramid Scheme Alert]. Pyramid schemes are illegal because people don't lose their money due to normal market forces, but because the system requires them to lose so that a few at the top will win. Studies show that in a naked pyramid scheme, 90.4 percent of people lose their money, while in product-based pyramid schemes, that number jumps to a shocking 99.88 percent. So what's the difference between product-based pyramid schemes and legitimate multi-level marketing (MLM) companies? Or is there even such a thing as a legitimate MLM? Read on for more info.

Multi-Level Marketing and Pyramid Schemes

Multi-level market (MLM) or network marketing is an American institution. Companies like Amway, Tupperware, Herbalife, Avon, Mary Kay and The Pampered Chef support huge networks of distributors and recruits who sell every type of product from dietary supplements to kitchenware to beauty products. Salespeople are called independent business owners (IBO) and generally work from their homes. On the surface, it's hard to tell the difference between a legitimate MLM and a pyramid scheme. That's because they're both built on the business model of "multiple levels" of distributors and recruits. Some critics of MLMs claim that all of them, even the supposedly "legitimate" ones, are pyramid schemes in disguise.

The Amway case: Amway required distributors to buy back any unused and marketable products from their recruits upon request. Second, Amway required each distributor to sell at wholesale or retail at least 70 percent of its purchased inventory each month -- a policy known as the 70% rule. Finally, Amway required each sponsoring

distributor to make at least one retail sale to each of 10 different customers each month, known as the 10 customer rule. The inventory buy-back policy, the 70% rule, and the 10 customer rule -- that were found acceptable in Amway. However, an appellate court decision pointed out that the Amway safeguards do not immunize every marketing program. The court noted that the "70% rule" and "10 customer rule" are meaningless if commissions are paid based on a distributor's wholesale sales (which are only sales to new recruits), and not based on actual retail sales. The court also noted that an inventory buy-back policy is an effective safeguard only if it is actually enforced. Amway stresses that the main difference between a legitimate MLM business model and a pyramid scheme is that a legitimate MLM is focused on selling products, not recruiting more salespeople. In a legitimate MLM, it should be possible to make money by simply selling products directly to customers. With that main criterion in mind, here are some other ways to identify product-based pyramid schemes:
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Pyramid schemes offer money for simply recruiting people. This money can come as a commission from the sale of a starter kit or as a recruiting "bonus." Avoid any MLM that puts much more emphasis on recruiting salespeople than selling the actual product. Pyramid schemes charge steep startup costs for joining, including mandatory training, a starter kit and a non-refundable membership fee. Beware of any MLM that allows five or more levels of distributors to collect commissions on a single sale. Make sure that the products being sold have real value and a competitive price. Are they reputable brands? Have the manufacturers been involved in recent lawsuits? Avoid signing up for an MLM as part of a high-pressure motivational event. Consider the information carefully and take it home to think about it. Be wary of anyone who tries to sell you on an MLM by flaunting their personal wealth. Realize that many of the people who claim to have made millions through MLM have actually made their money selling books and videos on how to make millions through MLMs. Bottom line: If it sounds too good to be true, then it probably is.

Albanias pyramid scheme

During 1996-97, Albania was convulsed by the dramatic rise and collapse of several huge financial pyramid schemes. The pyramid scheme phenomenon in Albania is important because its scale relative to the size of the economy was unprecedented, and because the political and social consequences of the collapse of the pyramid schemes were profound. At their peak, the nominal value of the pyramid schemes' liabilities amounted to almost half of the country's GDP. Many Albaniansabout two-thirds of the population invested in them. When the schemes collapsed, there was uncontained rioting, the government fell, and the country descended into anarchy and a near civil war in which some 2,000 people were killed. Albania's experience has significant implications for other countries in which conditions are similar to those that led to the schemes' rise in Albania, and others can learn from the way the Albanian authorities handledand mishandledthe crisis.

Evidence of pyramid scheme in Qnet:

1- The lack of retail sale. 2- Commissions based on recruitment. 3- Most of the meetings talk about recruitment, very few who talks about products and non talks about retail sale. 4- There is no real value of the products plus its overpriced.

5- Not listed among the top companies in any list. 6- Check the internet for the Bernhard H. Mayer watches you cant find it anywhere it got no history also all the resellers are Egyptians and Arabians. 7- Check for the energy products there is no real evidence that they work, the factory who produce it did not respond, and all the other labs can be fake its not a problem. 8- Check the vacation packages they are also overpriced and they are limited to special places, they price not including visa and some not including the breakfast or transportation, its much easier and more reliable to book from travel agency, also there is no guarantee for the timeshare. 9- Check the gold products which are way so expensive about 4 times the price this is so dangerous also and it affects the economy, and it has no numismatic value as said by all the resellers. 10Check the In-Voice QI com its also overpriced as you still have to pay for your calls which is relatively expensive when calling mobile phones so you only pay for the program. 11- Check the water filter which is so expensive and there is no real maintenance and spare parts are also expensive. 12- Check the courses which appear that this site is hosted in Hongkong and the courses are also expensive with regards to the place. 13- If we take a closer look to all the products they have no market value or the value is much cheaper than the initial payment, all the customers will never pay this amount of money if there was no business, so this company relies on recruitment which takes us to the pyramid scheme. 14- Its not a proof that Vijay Eswaran in Forbes as before Allen Stanford http://en.wikipedia.org/wiki/Allen_Stanford 15- You dont cash the 6th check, its turned into points that you use afterwards when collecting them to purchase items from the company, but no one tells you that before you sign up you will get confusedas they say. 16All the newly recruited people in Qnet face a great difficulty in recruiting others simply because they are selling worthless products at very high price and deep inside they are not convinced about it. 17They claim that Microsoft Is the technical support for Qnet and they show this link

http://www.microsoft.com/casestudies/Microsoft-Dynamics-CRM/QNetLimited/QNet-Enables-Growth-by-Building-Cohesive-Global-CustomerService-Capabilities-with-Microsoft-Dynamics-CRM/4000008787 for people who dont understand this is a Case study it doesnt proof anything and it doesnt in anyway says that Microsoft is they technical support or they support them in any way!! 18Go to www.alexa.com this site you can search for domains owner and full statistics about every website, by typing www.qnet.net the statistics shows that most of the countries that log into this site is developing countries Sudan, Egypt, Burkina Faso, Iraq, Kuwait,. Please check this site which contains also a valuable and importand facts about Qnet: http://www.iricvalley.com/search/label/Network%20Marketing

The brain-washing:
1- There is a plan that is activated every while and then which is called Act 48 as every IR should work his best in 48 hours to recruit at least 2 persons dont mind the product just focus on the business and recruitmenthuh!! 2- Another strategy which is called Rule number 3 which insists that the only way to succeed in this company and in network market is to make at least 15 presentations per month. 3- The way they ask you to recruit your relatives and close friends and use their trust in you you are helping them to reach financial freedom with youyou are an angel!! 4- The system itself depends on 24/7 follow up on the downlines people you recruit or people who are under you in the network to keep controlling them by making them watch special videos made by the company leaders and reading special articles and news made only by them. 5- You are not allowed to watch or read anything other than they tell you because as they say the world is full of distracting, unreliable and negative things but we give you the most reliable and truth information.

6- The way they turn people into hunters and annoying, making them always looking for victims by searching through every contact they know and every single person they meet. 7- Please look around you for the people in Qnet how many of them really earned good money? What is the percentage of them from the whole number of people who joined? Who is actually didnt earn that much profit but he/she has to fake it as not to spread the negative thoughts?? A very few who really earned a good amount of money and soon they will be the only people who will ever earn!!

Sources
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Federal Trade Commission. FTC Consumer Alert: The Bottom Line About MLM Plans http://www.ftc.gov/bcp/conline/pubs/alerts/pyrdalrt.shtm Haekal, Reem. "What is a Pyramid Scheme?" Investopedia. http://www.investopedia.com/articles/04/042104.asp New York State Office of the Attorney General. "Affinity Fraud." http://www.oag.state.ny.us/investors/affinity.html The New York Times. "Made Millions by Trick in Exchange." July 27, 1920. http://query.nytimes.com/mem/archive-free/pdf?res=9802E6DB1E30E 633A25754C2A9619C946195D6CF Pyramid Scheme Alert. "Missouri Attorney General Sues "Original Dinner Party" Scheme Perpetrators." http://www.pyramidschemealert.org/PSAMain/pyramids/dinner.html Pyramid Scheme Alert. "New Wrapping for Old 'Gift'" http://www.pyramidschemealert.org/PSAMain/pyramids/newwrap.html Pyramid Scheme Alert. "The Penny-Stock Pyramid Scheme (and Its Similarity to Multi-level Marketing Pyramids)." http://www.pyramidschemealert.org/PSAMain/pyramids/investscheme.html Taylor, John M. Consumer Awareness Institute. "Which Does the Greater Harm?" http://www.mlm-thetruth.com/AveMLMvsNPSvsVegasvsDirSales6-6.pdf Very important article as well http://entrepreneurs.about.com/cs/multilevelmktg/a/toogoodtobetrue.htm

http://www.ftc.gov/speeches/other/dvimf16.shtm

http://www.iricvalley.com/2010/10/why-developed-1st-world-countriesare_07.html http://www.ftc.gov/speeches/other/dvimf16.shtm http://www.iricvalley.com/2010/10/do-u-still-want-to-join-network.html http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm http://ar.wikipedia.org/wiki/ _

http://observers.france24.com/content/20100504-questnet-pyramid-scheme-dropsanchor-africa-burkina-faso http://www.fraudsandscams.com http://money.howstuffworks.com/pyramid-scheme.htm/printable http://www.enidhi.net/2008/05/11-reasons-mlm-companies-go-bad.html http://www.enidhi.net/2008/04/questnet-reopens-as-lotus-marketing-in.html http://en.wikipedia.org/wiki/In_re_Amway_Corp.

The Rise and Fall of Albania's Pyramid Schemes http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm http://www.crimes-ofpersuasion.com/Crimes/InPerson/MajorPerson/albania_ponzi.htm