Analysis of MLMs and Pyramid schemes – Focus on NovaTech and QZ Asset Management /QZ Invest In the long run, they win and you lose. What is an MLM? MLM stands for Multi-Level Marketing, a type of business model that operates by selling products through a network of individuals who are incentivized to recruit others to join and sell products. In an MLM, the compensation structure is built upon the sales made by not only the individual seller but also by the sellers they recruit, creating multiple levels of commission-based income. MLMs almost always need aggressive marketing in order to provide the liquidity (cash) to keep the operation going, further they often result in low success rates for the majority of participants, they are in their own way a form of pyramid scheme. The legality of MLMs varies by country, with some banning them outright and others regulating them closely. Read further - https://www.forbes.com/advisor/investing/multi-level-marketingmlm/ What is a pyramid scheme? A pyramid scheme is a fraudulent business model that promises participants large returns on a small investment, primarily by recruiting others to join the scheme. Participants are incentivised to recruit others to the scheme, with the promise of earning commissions on the new recruits' investments, creating a pyramid-shaped structure of multiple levels of participants. In a pyramid scheme, the only way to make money is through recruitment, not through the sale of actual goods or services. Eventually, the scheme collapses as it becomes increasingly difficult to recruit new participants, and many people end up losing their investments. Pyramid schemes are illegal in many countries and are considered a form of financial fraud. Pyramid schemes are illegal in South Africa, the United States and the European Union Read further https://www.law.cornell.edu/wex/investor_protection_guide_pyramid_scheme NovaTechFx NovaTechFx just like AWS Mining where the current founder used to be the VP, is operating illegally and cannot operate in the USA because it hasn’t registered its securities offering with the SEC. MLM crypto companies like NovaTechFx typically don’t register their securities offering because it requires them to provide hard evidence of external ROI (Return on investment) revenue. They have no proof it actually exists. Deutsche Bank, which has one of the world's best investment forex traders, requires candidate investors to have a 4-year finance/accounting degree, a level 3 CFA qualification (they have to achieve these results with at minimum an 80% in advanced mathematics) and they need 4 years training. These experts cannot even achieve the results NovaTechFx claims to achieve. By the way, Deutsche Bank has a revenue of around €20 Bn annually, which is R359 Bn. In practical terms, that is bigger than the South African education budget. Additionally, mathematically, the business model does not make sense. NovaTechFx claims to pay out 70% of its profits. So, if on average they pay 2.5% interest per week, that means they are making 3.6% returns a week. For example, they were annualised over a 10-year time frame and said they started the company with an initial $50,000.00. That would mean that NovaTechFx would have made $1.7 Trillion Dollars (an effective annual rate of 469.5%). Which is bigger than the GDP of Canada, Russia, Spain and South Korea. In fact, it would rank 10th in the world in terms of GDP. This, frankly, is not possible. It is pure fantasy Watch further - https://www.youtube.com/watch?v=vslyh9IJ6qI QZ Asset management/QZ Invest QZ Asset Management is essentially the same thing as NovaTechFx. Both are based on the same unethical and frankly ridiculous “investment” models. QZ Asset Management is an MLM company which claims to be based in China. According to themselves, they are headquartered in Shanghai. They target South Africans and other 3rd world countries to steal their money. The proof is that they are reportedly planning to open an office in South Africa if they have not already. In addition, to the one that is in China. QZ promises its potential clients two rates. They have this reward system called “U”. This is based on how much money you invest, the higher your investment the higher your “U” count and you get rewarded accordingly. Rewards are separated into packages such as Director, Executive Vice President, Senior Vice President, etc. These are all clever marketing tools to get you to give them more of your money. At the top rate, QZ promises returns of 7% a week. Once again, let us borrow the example used in the NovaTechFX case. With an initial investment of $50,000.00, say that they also pay their clients 70% of the revenue they make which means that their rate of making money on the market is 7%/0.7 = 10%. They are making 10% returns on investment a week! Let us use 10 years again. That would mean that QZ Asset Management would have made 208 Sextillion dollars in that time frame at an effective annual return rate of 7419.11%!!! If you don’t laugh, you’ll cry Watch further - https://www.youtube.com/watch?v=l8lru-mG1WY Why they inevitably fail – liquidity crunch Pyramid schemes inevitably fail because they rely on an unsustainable business model. New “clients” must be continuously recruited to pay the earlier investors and support the structure of the pyramid. At some point, the pool of potential recruits dries up and the pyramid collapses, leaving the majority of the clients at the bottom with significant financial losses. Additionally, pyramid schemes often involve the promotion of false or misleading investment opportunities, leading to fraud and deceit. The vast majority of people who participate in these schemes end up losing money, while only a small number of early participants profit at the expense of everyone else. A liquidity crunch refers to a situation where an entity, such as a financial institution, is unable to meet its short-term obligations due to a lack of available cash or other liquid assets. This can occur due to a variety of factors, including a sudden increase in withdrawals or a decrease in the value of assets that can be easily sold. Eventually, the contradiction of make-believe high-interest returns meets the reality of liquidity constraints. In the end, those that were not early adopters of the game end up losing – which is the majority of people. How to identify these “businesses” Initially, these types of “businesses” can be difficult to identify, but there are several red flags to watch out for. One of the key characteristics of fraud is that participants are encouraged to recruit new members, rather than selling a product or service. If the primary way to make money is through recruiting others, rather than selling a product or service, it is likely a pyramid scheme and a fraud. Additionally, the promise of high returns with little to no risk is another warning sign of a pyramid scheme. Be careful of investment opportunities that seem too good to be true and make sure to thoroughly research any potential investment before putting your money into it. Also, Google is your friend. It takes a few seconds to find out about a lot of these companies. Forum sites such as Quora, Answers.com and Yahoo! Answers have been posted by people that have had experiences with these types of businesses. There is always someone who knows. If these businesses were legitimately making the money that they claim to, there is no chance that you would have the opportunity to buy in. Goldman Sachs, BlackRock, Vanguard, Fidelity, UBS etc have strong regulations that these flyby-night companies simply do not. Tl;DR 1. High returns with little or no risk. ... 2. Overly consistent returns. ... 3. Unregistered investments. ... 4. Unlicensed sellers. ... 5. Secretive, complex strategies. ... 6. Issues with paperwork. ... 7. Difficulty receiving payments. Sunk cost fallacy The sunk cost fallacy is a cognitive bias where individuals continue to invest in a decision or situation because they have already invested a significant amount of resources (money/time/effort), regardless of the current or future potential outcomes. This bias leads people to persist in unprofitable or futile endeavours due to a perceived need to justify past decisions and avoid feeling like they have wasted resources.
