According to an additional commissioner of police, the EOW has frozen six bank accounts of QNet that have Rs46 crore as balance, and their teams would soon visit Bengaluru and Chennai to arrest some suspects
Economic offences wing (EOW) of Mumbai police, which is probing Hong Kong-based controversial multi-level marketing (MLM) operator QNet has so far frozen six bank accounts related with the company.
According to a report from the Times of India, these bank accounts have a balance of Rs46 crore. In addition, Manjunath Hegde, arrested in this cheating case, has been sent to judicial custody, the report says.
"We have asked the firm to submit all documents. Some office-bearers have approached the Sessions Court for anticipatory bail," the report says quoting, Rajvardhan Sinha, additional commissioner of police, Mumbai.
Sinha told the newspaper that over 50 complainants have approached them in the QNet cheating case and the police will again visit Bengaluru and Chennai to arrest suspects.
Earlier this month, EOW registered a case against QNet, for allegedly duping thousands of investors by selling them plastic and glass products terming them miraculous objects for treating severe diseases like Cancer.
The complainant, Gurupreet Singh Anand, a computer consultant from Lokhandawala, Andheri in his first information report (FIR) stated that his wife was duped for Rs30,000 by some people who had introduced themselves as the independent representatives (IRs) of QNet. Anand told the police, “They (IRs) had said that one of the bio-products my wife bought could be used to treat my 12-year-old son's brain-related diseases.”
The FIR names five accused, including QNet's Hong Kong-based founder Dato Vijay Eswaran, a Malaysian by birth and an Indian by ethnicity, who is photographed hobnobbing with the Prince of Saudi Arabia, in order to enhance its credibility in the Gulf.
What is QNet?
QuestNet and GoldQuest, the MLM companies that had shut shop in 2009 following police action are back with a bigger bang. They now call themselves as QNet and are thriving in an environment where tens of thousands of Ponzis and MLM companies are able to lure people into believing that they have the formula to instant riches and a high growth career.
While QuestNet and GoldQuest, which mainly sold numismatic gold coins (they claimed they were limited edition coins that whose value would increase over time) in 2009 were forced to shut shop in India, their new avatar QNet offers a broader range of lifestyle ‘enhancing’ products (holiday packages, diamond watches, bio-discs, Chi-Pendants and herbal products for anything between Rs30,000 to Rs7 lakh), which promise fabulously high returns so long as new distributors are enrolled rapidly. Its product brochure says, “With 8 ways to earn and up to 50% of the sales paid out in commissions, QNET offers the most dynamic and innovative compensation plan in the direct selling profession.”
Like SpeakAsia, QNet is also registered in Singapore and has been banned in many countries, including Iran. In 2007, APLI, the direct selling Association of Indonesia, considered GoldQuest or QuestNet as a pyramid scheme.
According to Wikipedia.org, QNET has received a Fatwa by Dar al-Ifta that its business is not halal within Islamic law on the basis that it could harm the Egyptian economy. The company has also been accused of operating a product-based pyramid scheme.
At the end of August 2012, the Ministry Of Commerce and Industry of Saudi Arabia banned Qnet accusing it of stealing and falsification as well as not being registered with the ministry. Furthermore, a message was published on the official website of the Saudi Arabian Ministry of Commerce and Industry warning the Saudi Arabian people not to be involved in such schemes under any pressure of false promises, mentioning the company name 'QNet' specifically as one on those fraudulent schemes operating in the country.
The governments of India, Iran, Indonesia, Nepal, Rwanda, Saudi Arabia, Sri Lanka, The Sudan, Syria, and Turkey have at various points shutdown local offices of the company, arrested key members involved with the company, or pre-emptively banned the company from entering, Wikipedia.org, says.
According to Wikipedia.org, QNet's business model has been described as a simple pyramid scheme, where initial entrants to the scheme do make money, but as the number of independent representatives (IR) increases, finding more IR's becomes harder and harder, until those that join late are unable to recover even their initial outlay and the model collapses.
The compensation plan operates by the recruitment of customers by existing IR. An IR is provided with an ID that gives access to a 'tracking centre' (TC) in its computer system through which the IR's sales are tracked. A TC has a left and right customer group. Every customer owns a TC which is then placed on the left or right customer side of the IR's TC. A 'direct' transaction (a customer's personal reference or sale) is counted as one transaction. An 'indirect’ transaction (someone in the cusomer's TC buys/refers/sells) is also, counted as one transaction. The company pays $250 each time three product sales on an IR's left customer group are matched by three product sales on the right.
RYTHM foundation -derived from the acronym 'Raise Yourself To Help Mankind'- is a charity organization created by QI Group.
What QNet sells?
At Present, QNet mainly markets products made by other subsidiary companies of QI Group. The products are in travel packages, nutrition, personal care, home care, collectibles, fashion accessories and education.
One of the products being marketed by the company is the Amezcua Bio Disc (also spelled BioDisc and BioDisk) which the company claims can "redefine and harmonise the energy of water, greatly maximising its positive affect on the human body". These and other detailed claims of often miraculous properties have been widely denounced as fraudulent by various scientists, media commentators and watchdog organisations. Critics have noted that the claims are based on thoroughly debunked pseudoscientific concepts such as hexagonal water and that they have never been validated by a peer-reviewed process. QNet has stated in a document published to its representatives that there are no known test and approval bodies to date on such products, Wikipedia.org says.
You may also want to read…
It is unlikely that the entire benefit from rupee depreciation will flow to margins in the IT services industry, since market share shifts remain the big growth driver says Nomura
HCL Technologies and Tech Mahindra have until now shown rupee depreciation benefits in margins. Since they do not have near-term pressure on margins, they are likely to continue to show higher benefits of rupee depreciation in margins, says Nomura Financial Advisory and Securities (India) Pvt Ltd in a research note on Indian IT services industry.
Nomura says, both HCL and Tech Mahindra, followed by Infosys and TCS, will be gainers from the rupee depreciation in the forex market.
“Rupee depreciation theoretically benefits margins of IT companies as a large proportion of costs are in rupees, while revenues are largely in foreign currency. The theoretical sensitivity of US dollar and Indian rupee to margins is about 30 basis points (bps) for every 1% depreciation in domestic currency and about 1.5% on earnings for every 1% rupee depreciation,” the research note said.
The impact of rupee depreciation on specific software companies is shown in the table below:
However, it is unlikely that the entire benefit from rupee depreciation will flow to margins in the IT services industry, since market share shifts still remain the big growth driver. Rupee depreciation benefits are likely to be used for better revenue growth rather than margin improvement, Nomura said.
For HCL Technologies, in addition to improvement of existing business profitability, there will be gains from over $3 billion of deals signed over the last three quarters when the rupee was between 54 and 59. These deals will thus be more profitable under current conditions. Nomura sees upside to HCL Technologies’ guidance of 18.5%-19% margins at US dollar- Indian rupee rates of 55.
For Tech Mahindra, with pricing at a discount to peers and no salary hikes until fourth quarter of FY14, Nomura sees no major near-term fall in margins. The company has guided to keeping EBITDA margins stable at about 21% levels, if the currency holds at near 60 levels and will likely see the margins exceed these targets, in Nomura’s view, if current US dollar- Indian rupee spot rate sustains. The only near-term tempering impact would be on account of $115 million worth of forex losses in the balance sheet, which could bloat given the rupee depreciation.
Following table shows the impact of rupee depreciation on earnings per share in the IT services industry for select companies:
Just 11 entities, including seven individuals have registered as investment advisor with SEBI since the advisor regulations came into force. Is it too early? Or does it vindicate Moneylife’s stand that this regulation is irrelevant given the structure of financial services business?
The much-touted investment advisory regulations from Securities and Exchange Board of India (SEBI) have failed to enthuse registration. A SEBI release on 28th August reminded market intermediaries of this new regulation possibly because only 11 entities, including four firms have registered as investment advisors. The reason is obvious. No financial advisor wants to earn a living only out of advisory fee. There is no market for it. In any case, the advisor regulation applies to just one product that SEBI regulates – mutual funds. It does not apply to insurance, a major source of mis-selling.
While bringing advisory regulations, a well-intentioned SEBI wanted to make a distinction between selling financial products and advising about them. In the first case, the seller (distributor) is working for himself and the financial services company because he is driven by commissions. He is not working for the investor, necessarily. It creates a conflict of interest when he is ‘advising’. In the second case, the advisor is acting for the investor. He is advising for a fee about the best choices. SEBI has asked everyone to make a choice between the two.
You cannot both sell for commission and also advise the investor. Well, may be it is too early, but given a choice, it appears that everybody would want to sell for commission and not advise for fee. This is simply because there is no market of investors seeking pure advice.
Interestingly, the Financial Planning Journal, published by the Financial Planing Standards Board of India (FPSB) has names of over 1,750 financial advisors. These people are from the most likely category to register with SEBI as investment advisor. However, there are only seven individuals, who though it proper to get themselves registered with SEBI.
While drawing up regulations, SEBI did not take into account the actual situation on the ground – average to poor mutual fund performance, quality of advice and mis-selling by large distributors and investors’ attitudes.
SEBI has also enshrined in the advisor regulations that investors have to be profiled for risk including age, investment details, income details, risk tolerance, liability and others. Will risk profiling ensure that the lead will not be passed on to those agents who would share their commissions with the advisor friends?
While removing the so-called conflict of interest in selling, SEBI has also created difficulties for the honest distributor. Considering the actual situation on the ground, a financial advisor asked, “What is a distributor supposed to do when customers ask for advice? Is he supposed to not help the customer? Or what does he do when the distributor knows that what the customers is asking for is an inferior product? Should he allow the customer to make the mistake?”
The line between advisors and distributors is thin. When Moneylife spoke to a smart and ethical distributor of financial products, he said, “I will not be a surprised if (these) so-called investment ‘advisors’ work closely with ‘agents’ wherein the agents would give a pass-back of the commissions they earn to advisors who recommend customers to them. This currently happens as well, but it is more open as there is no restriction, where financial planners have tied up with agents of certain companies. Though the commissions are not disclosed, they earn enough for passing on a lead to an agent.”
What is happening in reality is that distributors sell for commissions but they also advice because customers ask for advice and without some advice and handholding, no selling can happen, especially financial products.
Moreover, the only mainline investment product that comes under SEBI regulation is mutual funds. Issues related to other financial products will be dealt with the respective regulators. As such, there would be no single body regulating investment advisors.
Investment advisor regulations have been discussed on and off for the past five years. In 2007, the SEBI published a consultative paper on “Regulation of Investment Advisors”. In 2008, the D Swarup Committee re-examined the issue and submitted its report in 2009. The report was revolutionary in its thinking prescribing all financial products have to become “no load”. Opposition to this report was vociferous. After much heat and dust, including dharnas and morchas by a section, the report was buried deeply and quietly. In September 2011, SEBI published another concept paper on the regulation of investment advisors, which led to much debate. Then in September 2012, SEBI come out with the draft regulation on investment advisors in India. Finally, in January, the market regulator came up with its regulations to oversee financial advisors, which came into effect from April 2013.
In short, post-April, anyone who wanted to provide investment advice had to register with SEBI and follow the rules contained in the new regulations. However, in the first five months, as per SEBI data, only 11 entities, including four institutions and seven individuals found it worth registering. Even, the institutions who have registered may have done the registration just in case to avoid problems in the future.
Here is the list of entities registered with SEBI as investment advisors...