The Serious Frauds Investigation Office in its ‘secret’ report on GoldQuest and QuestNet, the earlier avatars of QNet, warns that MLM or Ponzi schemes run by overseas operators, also nails the deception and huge claims of earnings used by MLMs to recruit more people
The Serious Frauds Investigation Office (SFIO) in its detailed ‘secret’ report on GoldQuest International Pvt Ltd and Quest Enterprises India Pvt Ltd has called multi-level marketing (MLM) schemes run by overseas operators as “a potential threat to national security”. The secret report (as it is labelled and not available in public domain) came out in 2012, but, there is no action taken for four long years to stop MLMs and Ponzi schemes like QNet from spreading. There have been some sporadic action and court cases going on at some places, but some determined individual victims, instead of government, are leading these efforts.
While investigating GoldQuest and QuestNet (previous avatars of QNet), the agency said twice it was provided wrong and fabricated data from the MLM operators. “The investigation did extensive and meticulous data analysis and has brought out clear cut falsification of accounts as both these data referred as old and new data do not match with the figures of the balance sheet. It seems the company has been paying the top of the pyramid promoters (TOPPs) by way of showing as the payments of commissions and getting the money from them apart from also making false entries in the payment of commissions. To avoid detection, the company has tried to mislead the investigations by playing with the data. Thus, the companies are not only conducting an illegal business contumaciously but are also keeping and submitting falsified documents to the regulatory agencies. Their business operations and conduct are thus totally unfair and prejudicial to the public interest. They are also a potential threat to national security as this scheme as well as such types of illegal schemes (eg. SpeakAsia) are being run by overseas operators…,” the SFIO report (seen by Moneylife) says.
As Moneylife reported in 2012
, QNet, the controversial MLM company, has been luring executives and professionals by promising a weekly income of Rs27.7 lakh. QNet claims that a Diamond Star can earn up to Rs27,73,800 (Rs27.7 lakh) per week while the same for a Platinum Star would be Rs22,39,050 (Rs22.4 lakh) a week.
However, the SFIO report simply trashes all such tall claims from the QI group. It says, “As per the data provided by the Managing Director, the GoldQuest and QuestNet sold products for a price of Rs806.15 crore to 2.39 lakh individuals. Out of these, about 50,000 people ever received any amount of commissions. Only about 20,000 were able to get more commission than Rs30,000, the initial amount of investment. So even though people were sold the concept and bought the products as a business opportunity, about 2.20 lakh people have actually lost money”.
In November 2012, Moneylife had asked similar questions to QNet about average earnings of its independent representative (IR) and how many IRs earn less than $1,000 as commission in a year. There still are no answers from QNet.
However, as per the SFIO report, which is based on data provided by the QI group companies, it looks like about 92% of the IRs who joined the MLM scheme lost all their hard earned money. Around 50,000 or 21% IRs ever received any commission after joining the scheme, while just 8.4% or 20,000 agents actually were able to recover their ‘investment’ of Rs30,000.
The SFIO report also exposes the true nature of MLMs like GoldQuest and QuestNet. It says, “The key point here, which is exploited by MLM companies is that they claim to be selling products through the mechanism of direct sales and are not doing enrolment and the commissions are paid for sale of products and not for enrolling members. Thousands of such schemes are rampant across the country as was discovered by Investigation (SFIO) during its work, research and investigation. To prove that a scheme is violating Section 2(c) of (Prize Chits and Money Circulation Schemes (Banning) Act, 1978), even though it is claiming that it is not encouraging enrolments, it the point of contention as the companies, in this case, GoldQuest and QuestNet, indulged in a lot of deception to circumvent the eye of the Law enforcement agencies and the Courts.”
“…in fact, deception is the key to propagate the pyramid schemes as the newly-to-be recruited person is to be convinced of buying the opportunity (i.e. of earning huge and life changing commissions) rather than of convincing him of buying the product. Here the business opportunity is sold, i.e. of earning huge commissions and the seller gains only through payment of commissions to him by sales to his down lines, which he makes by enrolling more members on his chain. As per maximum limits set by the companies, a person earn maximum of Rs6.90 lakh per week as per the compensation plan. This amounts to Rs3.42 crore per annum per qualified membership. This is the business opportunity on sale. This is hugely alluring and acts as a strong drive to recruit rather than to sell to non-recruits to earn maximum commission,” the investigation report from SFIO says.
Earlier, Robert FitzPatrick, President of US-based Pyramid Scheme Alert, while terming schemes like QNet or GoldQuest as “endless chain”, or a “pyramid scheme”, had told Moneylife that such a fraud, whether the products are soaps, gold coins, vitamins or air in a box, will always cause 90%-99% of the investors to ‘fail’. “Whether some of the people engage in retail selling or not, the income promise that relies on continued expansion is deceptive, that is, it is a lie. The financial harm to the vast majority is predetermined. Unless the regulators and analysts recognize and are willing to assert that this form of business is ‘inherently' fraudulent and harmful, it is rather difficult to stop any one particular company,” he had said.
QNet, the controversial, Hong Kong-based operator uses multiple names for its MLM scheme and GoldQuest, QuestNet, QNet, QI Ltd and QI group are some of its better known names.
The EOW of Mumbai Police, which is probing the case, had invoked the stringent Maharashtra Protection of Interest of Depositors (MPID) Act against QNet, which has denied any wrongdoing on its part. In February 2016, the special MPID Court rejected anticipatory bail applications of Srinivas Rao Vanka and Magaral Veervalli Balaji, both directors of Vihaan Direct selling (India) Pvt Ltd, Suresh Thimiri, director of Transview Enterprises India Pvt Ltd, Malcolm Nozer Desai, who is 20% stakeholder in Vihaan and Michael Joseph Ferreira, former world champion of billiards and 80% stakeholder in Vihaan.
In February 2014, the ED registered a case under the prevention of money laundering act (PMLA) against QNet, Vihaan Direct Selling, Ferreira and QNet founder Vijay Eswaran and three other independent representatives (IRs) of the MLM operator.
According to Gurupreet Singh Anand, a computer consultant from Lokhandawala, Andheri, who had filed a first information report (FIR) against QNet, the MLM scam may have cost the country about Rs7,000 crore since the money is being remitted abroad.
QI group units were actually banned in 2009 while operating under the names of GoldQuest International Pvt Ltd and QuestNet Enterprises India Pvt Ltd after a Police action. In India, it was registered as GoldQuest International India Pvt Ltd in 2001. Elsewhere, QuestNet Enterprises was registered in November 2004 in Chennai. Between them, they had offices at Bangalore, Mumbai and Hyderabad.
Moneylife Foundation, an NGO for spreading financial literacy has been repeatedly warning people about falling for MLM and pyramid companies with innumerable examples of losses incurred. Moneylife Foundation had also sent a representation to the Prime Minister
, Finance Minister, Governor of RBI and SEBI.
Former Expenditure Secretary EAS Sarma has also written to the PM and the Ministry of Corporate Affairs (MCA) about the need to check the proliferation of Ponzis and binary pyramids which are duping people. We have been specifically told by the Ministry of Consumer Affairs and the Ministry of Corporate Affairs that they are investigating these scams and plan action/tightening of legislation. Just because our regulators are sleeping and scams are always discovered too late, if at all, does not make an unregulated scheme legal.
We hope the SFIO investigation report on GoldQuest and QuestNet will at least wake up the authorities now and there would be some firm action against such MLM and Ponzi schemes since even the poorest of the people are not spared from this menace.