Wu Yi-fu convicted for fraudulent sales of health cards

Chinese Taipei

Case:

Wu Yi-fu convicted for fraudulent sales of health cards

Key Words:

repeated bonus, criminal fraud

Reference:

Chinese Taipei High Court Criminal Judgment (85) Shang Su Tzu No. 5601

Industry:

Other Retail Sales (5590)

Relevant Laws:

Articles 23(1) and 35 of the Fair Trade Law; Article 39(1) of the Criminal Code

Summary:

1. Defendant Wu Yi-fu (Wu) was the responsible person of P'u San Enterprise Co., Ltd. (P'u San) and Pai Shan K'ang Li Enterprise Co., Ltd. (PSKL). Though neither company's business scope included the sale of health cards, the defendant nonetheless engaged in such sales. With poor business performance and to increase sales, since 1995 the defendant falsely claimed with criminal intent that he held a number of well established companies, and that he had invested NT$30 million in the Ch'ang Sheng Clinic (CSC). Wu encouraged people to buy health cards from him and proposed a "N x 3 + 1" sales plan (See Note). Participants could earn a commission, bonus or other economic benefits merely for introducing others to join, rather than for promoting or selling products or services at reasonable market prices, which multi-level sales plan violated the Fair Trade Law and resulted in many people being misled to buy health cards to become members. However, most members did not collect the bonus money due to them, but instead bought additional cards in order to increase their bonus. Because the number of participants did not increase substantially, Wu announced he would stop paying the bonuses and refused to return the money for the health cards.

2. Participants each paid NT$30,000 under the "N x 3 + 1" health card sales plan operated by the defendant. Although they could pick up health cards or a NT$10,000 discount coupon [as a result of their membership fee], in fact, most members not only failed to pick up the health cards, but they also failed to receive any goods. This was a situation of profiting without promoting or selling goods or services at reasonable market prices. Based on the facts that (i) the two companies' membership is more than 200, (ii) only 57 sought treatment at the CSC, (iii) its business sales reached more than NT$30 million, (iv) only about one tenth of the cards were picked up, (v) most of the participants testified that they did not receive goods or engage in sales, but that not long after joining they could obtain a large amount in reward bonuses, it can be proved that the source of the participants' income evidently came not from promoting or selling goods or services, but from their and the entire organizational network's activities in continually introducing others to join the plan. In other words, the membership fees paid by later participants were distributed to earlier participants. These actions clearly violated the Fair Trade Law provisions on multi-level sales. The Fair Trade Commission had also rendered a disposition in which the defendant’s violation of Article 23(1) of the Fair Trade Law was fully established.

3. To obtain their confidence, the defendant misled investors by falsely claiming that he held a stable and profitable business group, and that he had invested NT$30 million in CSC. In fact, neither the defendant nor the two companies had invested in CSC. The defendant, as P'u San's representative, had only signed a cooperative agreement with CSC to promote discount health exams for members. Some members pointed out that the defendant had indicated that he had invested in CSC. For those who had not directly heard [about the defendant's alleged investment], they heard about it from the presenters at seminars. Obviously, the defendant released false investment information to gain investor confidence, misleading them to believe that his was a legitimate, stable operation.

4. The defendant sold health cards through a multi-level sales plan that violated the Fair Trade Law. The later an investor joined the smaller the chance to obtain reward bonuses, not to mention repeated bonuses, and because the company could not continue the plan, the investor ended up as the victim. The defendant should have been well aware of this point; however, to increase sales, the defendant relayed false investment information to investors. After the misled investors had already joined, there was no way to continue the plan given the insufficient number of participants. Bonus distribution and membership refunds became impossible. The defendant should have been able to foresee the situation. When the defendant implemented the plan, he had no intent to refund any money should the money intake situation be less than ideal. Misleading others through fraud to deliver their property to him, having the intent to retain such property for himself illegally, was very clearly a criminal act.

5. In conclusion, the defendant was convicted for violation of Article 339(1) of the Criminal Code and Articles 23(1) and 35 of the Fair Trade Law and was sentenced to imprisonment for one year and four months, with two years' probation.

Summarized by Hsu, Shih- Fen

Supervised by Chen, Hwei- Pin

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