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Caught in a Pyramid Scheme
Is the latest trend of networking used by QNet marketing merely a long-term scam? By Passant Rabie
10 August 2011, 5:45 pm
 

 I have a business proposition for you,” is the start of a sales pitch you’ve probably heard from a close friend or family member by now. The “business proposition” they are about talking about involves network marketing, which is also known as direct selling or the so-called pyramid scheme, spearheaded by a company called QNet.

 

 

The QNet craze took over the country less than a year ago, with just a few people promoting the business model. Now the network has expanded so much that gatherings and outings with friends mean at least one person will try to get you on board, selling the idea of making money without a 9–5 job. 
 
 
Signing up is a tempting offer at first, but several countries have banned QNet, describing the scheme as fraud. So, can QNet actually provide fast returns on your investment or is it simply too good to be true? 
 
 
 
Have you heard about QNet?
For its most devout investors, the answer is easy. Nadia Gamal el-Din is a born saleswoman. The 21-year-old American University in Cairo finance graduate uses phrases like “unbelievably smart,” “amazing” and “changes people’s lives” to describe QNet.
 
 
Gamal el-Din got involved with the company 10 months ago and now considers it a full-time job. “It’s the biggest industry in the world, all the big companies such as Coca-Cola and Ford, they are into network marketing right now and it’s booming all over the world,” she says. “This is why I’m in it.”
 
 
And she’s more than just “in it” — she teaches daily training sessions to others  who want to be involved as well. She says that even though no skill level is required to enter into the market, you still need to learn the “tricks of the trade.”
 
 
“It’s like when you want to become a doctor, you have to learn how through an educational program,” she says. “You can go in without any skills — but you learn.”
 
 
One person she brought into the fold is colleague Farah Badrawy. The 22-year-old was introduced to QNet in February by Gamal el-Din and has participated in several training sessions.
 
 
Both girls were adamant that any discussion about QNet involve an intense, 30-minute conversation explaining how it works that culminated in an aggressive sales pitch. Side-stepping the pitch, Business Today dug deeper to get to the bottom of the controversial business model.
As stated on QNet’s website, a distributor earns a commission by referring one of the company’s products to other customers. They also earn commission when distributors in their network refer products to others. Products vary from jewelry to water filters and vacation packages between $300–$6,000 (LE 1,785–LE 35,700).
 
 
In effect, investors start by purchasing products and then making referrals, earning commission on what they buy and on products people they’ve referred buy as well.
 
 
The get-rich-quick scheme has analysts questioning whether the system, which includes significant investment on the part of each participant, is a sound business decision.
 
 
According to Walaa Hazem, vice president of asset management at HC Securities and Investment, QNet’s model is by definition a pyramid scheme, whereby new investors buying into the deal provide the payoff for older investors. Investors make money as long as the network continues to expand, but once the company starts to lose momentum, the newest investors are at risk of losing their capital. 
 
 
“If the idea is illegal in [some countries of] the developed world, if it didn’t work well over there, why would it work here?” Hazem asks, although he admits that he is not an expert on the scheme.
 
 
 
A history
The company was established in 1998 with regional offices in Hong Kong and Malaysia as well as offices in Singapore, the Philippines, Thailand and the UAE. QNet describes itself as a “dynamic wellness and lifestyle company […] to enrich the lives of its customers worldwide.”
 
 
If that wasn’t vague enough, the website’s images are also confusing — the header includes children at some type of award ceremony, a crowd of people waving the Tunisian flag and three women in suits having tea.
 
 
QNet has been banned in the US, Canada, Syria, India and Rwanda and is currently under investigation in Turkey for charges of fraud and deception. Hazem believes that the company came to Egypt because it is considered an emerging market. “They’re trying to capture money from a new place, and we don’t have financially sophisticated investors,” he says.
 
 
This could explain why QNet is popular among young people looking to make fast, easy money on the side. A prime example is Aly Shaheen. 
 
 
A 23-year-old medical student in his sixth year, Shaheen is engaged and while he knows that his parents can help him out financially, he still feels the need to find a source of income that he can manage along with his studies. 
 
 
“QNet doesn’t need a lot of time, it’s extra income from a part-time job,” he says, adding that doctors don’t make nearly enough money in the first few years of their residency to support a family or buy an apartment, which is why he needs any help he can get.
 
 
“I get paid almost weekly [with QNet]. It’s a really good business opportunity,” says Shaheen, who claims the model is in no way, shape or form a marketing scam.
 
 
“I’m not the type of person to venture into anything without researching about it first,” he says. “I like to read up about everything and talk to people who have tried it; from what I have read, [QNet] is 100% legitimate.”
 
 
Top of the pyramid
While Hazem is certain that Shaheen wholeheartedly believes in the legitimacy of QNet, he says that the people getting scammed are further down the line.
 
 
“How is it sustainable? That is the big question with the pyramid scheme,” says Hazem. “The person who went in first will end up making more money, the sustainability will keep going but the people purchasing at the end lose.”
 
 
Hazem explains that as long as you were one of the first entrants, you are guaranteed to make money as your network continues to expand with more customers buying in, but as you go down to the bottom of the pyramid, newer investors will end up losing money on the purchase of the company’s products as their commission dwindles.
 
 
“It does work out for some people and they do make money but as you go down the pyramid and the network gets bigger and bigger, people at the bottom lose money,” he says. 
 
 
So, while Shaheen, Badrawy and Gamal el-Din are making money now, that will not necessarily be true for the unfortunate others down the line.
 
 
“I’ve made good money, can’t say exactly how much, but I know [in] the long run it will be substantial,” says Badrawy.
 
 
As sad as it may be, experts say money does not grow on trees, and if you happen to find some that does, then you’re probably getting scammed. bt
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3 Comment(s)
US ban
By: hany
31 August 2011, 6:38 am
Qnet is not banned in the US. Questnet Gold was what got banned. they are the same company but different names. Qnet stopped working in Europe & north america because the laws there prohibit their model of business and because these countries have a strong arm of the law that can reach them anywhere in the world
ENG. MBA
By: Karim
25 August 2011, 7:52 am
good article, but kindly allow me to clarify some points, Here's the Nexera Five-Factor Formula we used to evaluate a network marketing Website: Our business is based on 100% e-commerce…. Therefore, website is the backbone of the business. 1) The company must be a self-described Network Marketing, Multi Level, or MLM company. 2) The company must be in business for at least 10 years as of January 1, 2011.* 3) The company must have a Google Page Rank - GPR. A scale of 1 to 10 with 10 being best. 4) The company must have an Alexa Rank - AR. Here the smaller the number the better. 5) The company must show up in Google Trends - GT. All Regions. Last 12 months.** *Why 10 years? Because that amount of time really seems to matter. For example, according to research, since 1957 hundreds of different MLM, Multi Level, or Network Marketing companies have opened their doors; and to date only 50 +/- MLM companies have found a way to celebrate their 10th anniversary and still remain in business today. Now, to be completely fair, we should also point out that each and every company on our list was at one time a start-up company too. **For purposes of comparing Internet search term interest using Google Trends (GT). A score of 1.00 would indicate the same level of Internet search interest; anything above 1.00 more interest, anything below 1.00 less interest. moreover, regarding the business banned in some countries, that was simply cosed by fraud acts that used the name & reputation of the Company, as it was using hard copy application for new business partners, but now they start working again as it become 100% e-commerce.
Proof of ban in the US
By: Omar
18 August 2011, 3:08 am
Greetings, This is a really good article, and I would really appreciate if someone could provide me with the proof of having QNet banned in the US to shut those who are defending it.
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