All pyramid schemes are shoddy indeed

When I read Ruth Kang’Ong’Oi’s article in The New Times of august 7 about the closure of QuestNet’s operations in Rwanda, I could only sympathize with the unsuspecting victims. I was however also uneasy about the author’s approach on the issue, as she could not commit herself and describe the scam as just that: a scam. I was still pondering how to react about this when in The New Times of August 11; Business Times’ John Gahamanyi came up with an interview which he titled “Not all pyramid schemes are shoddy”. I would have expected that as a Business oriented journalist he knew better, and that he could educate the public about the dangers of such schemes, I mean scams, rather than advertise them among the unsuspecting individuals and economies where they are still new, however genuine they may pretend to be. Pyramid schemes are commonly marketing ploys that are aimed at unwitting consumers. According to Sarah S. Koech, the author of Pyramid Schemes and Multilevel Marketing, “pyramid schemes are illegal and very risky get-rich-quick schemes that can cost many people a lot of money”. Wikipedia, an internet encyclopedia, defines pyramid scheme as “non sustainable business model that involves the exchange of money, primarily for enrolling other people in the scheme, usually without any product or service being delivered.” Pyramid schemes often offer huge monetary payouts for a seemingly small buy in. Unfortunately, that huge payout that is often promised with a 100% guarantee does not ever happen. At present, pyramid schemes are targeting individuals in third world countries with little money to spare, but a great deal of hope that their lives could change for the better. Pyramid schemes cost the public upwards of millions of dollars each year. They capitalize on legal loopholes and play on psychological weaknesses in order to convince people to hand over their hard earned money. QuestNet scam works like most other pyramid schemes: It promises that you’ll make millions from selling their overpriced products – not so much on your own but rather through a stable of sales representatives who you recruit yourself – and who in turn go out and recruit even more sales representatives, who will ‘ultimately make millions for you’. The premise is that their so called numismatic products can make you a millionaire practically overnight. But according to what is known about this scam, so called products really have little or nothing to do with this scheme. It is really just the bait used to lure you in. The pyramid scam takes the typical approach of making an offer that sounds entirely plausible for the profit-motivated sales man/lady but at the same time is almost too good to be true. People are brainwashed into believing that they will never have to work again if they just agree to buy a highly overpriced (up to 300%) product provided by the company running the scheme. Moreover, the so-called products on sale are not value-for-money but rather an imported lot that only aims at hoodwinking people into spending on valueless products even at times at the expense of pretending to be dealing in medical products with super naturals powers-a field they know will work on many people’s psyches, particularly in the under developed world. QuestNet is a cleverly disguised Pyramid Scam that targets less developed countries with no advance laws to curb Pyramid Scams. They target these countries, because they know that they can easily get away when tensions eventually mount (a surefire happening of any pyramid scam). In the classic pyramid scheme, participants attempt to make money solely by recruiting new participants into the program and by marketing a set of valueless products that are aggressively marketed by hoodwinking those that are unprivileged to know about such schemes or the “undoubting Toms”. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same. In recent decades, pyramid schemes have become an insidious, pervasive and corrupting influence in the marketplace and community, causing financial and social harm on a global scale. Thus, in an editorial titled Pyramid schemes are illegal and should be closed, the Kenyan daily Standard sums up the problem in Kenya pretty well: “In response to what appears to be a rash of pyramid/Ponzi schemes to hit the African nation of Kenya, the authorities are beginning to take notice - and action. Kenyans, frustrated with long queues in banks and in stockbrokerage companies, have been withdrawing savings and selling shares to invest in the schemes. But investors should beware for they stand to lose heavily because the projects are not sustainable. Some of the schemes boast more than 5,000 members. Unfortunately, what Kenyans may come to find out (that is, if their government fails to act) is that pyramid schemes can take down an entire national economy The Standard goes on to say that the public should be warned of the inherent dangers of putting money in the schemes”. The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse any how; the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and it is the lower levels of the pyramid (majority of the unsuspecting individuals) that suffer. The scheme first starts with the richer sections of society and filters down to the poorer sections, with money flowing up the chain’ or ’up line’. Such pyramid shaped schemes, also known as endless chains, collapse when a country runs out of new recruits leaving the ’down line’ who outnumber the up line by ten to one or more with heavy losses. The number of layers of the pyramid increases new recruits who find it harder and harder to sell the product because there are so many competing salesmen. Those near or at the top of the pyramid make a lot of money on their percentage of the enrolling fees and on commissions for the supplied products, but those at the bottom are left with inventories of products they can’t sell. Concretely as in the case of QuestNet operations in Rwanda, new dealers had to pay enrolling fees of 10 US$ and were obliged to buy any of QuestNet’s products with a minimum total value of 630 US$. In addition to selling their products (some products such as the Bio Disc described in The New Times article displaying kind of magical powers), new dealers were also encouraged to become managers and to recruit more new dealers who also pay enrolling fees. A commission of 50 US$ was paid to a member who managed to bring two new dealers and when two new dealers brought four new recruits, the original recruiter of the very first two clients, also called the principle would get an extra 200 US $ and systematic payment of commissions in favour of those in higher echelons as the pyramid continued to grow. The Ugandan QuestNet representative interviewed in the August 7 The New Times could have been telling the truth when she said that “she already makes good money from the business”, probably as a result of her possible privileged position at the top of the pyramid as it appears that if you are highly placed in this chain and thus a good marketer for the scheme/scam “you are glorified in kind or paid highly for being a successful schemer” though you may also be ignorant of their real plot. And as it is the role of any government to protect its citizens from fraudsters, we strongly support the action taken by Government to henceforth banish these fraudsters. This being a relatively new global scheme for cheating the unsuspecting, those concerned in Government need to design appropriate laws to prevent such operations in future so as to in advance protect the innocent citizens from loosing their hard earned money. As for our media, efforts should be invested in educating our public as indeed exemplified by the author of the quoted Standard Article or even influence Governments to take appropriate and timely decisions of banning these scams rather than support or even possibly get involved in such schemes/scams. Email: muhetofe@gmail.com