San Fung Inc. failed to report to the Fair Trade Commission for recordation 30 days prior to commencing its multi-level sales activities, in violation of the Fair Trade Law
Case:
San Fung Inc. failed to report to the Fair Trade Commission for recordation 30 days prior to commencing its multi-level sales activities, in violation of the Fair Trade Law
Key Words:
multi-level sales, to file a report
Reference:
Fair Trade Commission Decision of July 26, 2001 (the 507th Commissioners' Meeting); Disposition (90) Kung Ch'u Tzu No. 100
Industry:
Direct Sales (4812)
Relevant Laws:
Article 23-4 of the Fair Trade Law; 5(1) of the Supervisory Regulations Governing Multi-Level Sales
Summary:
1. The Taipei office of the Ministry of Justice Investigation Bureau requested the Fair Trade Commission (FTC) to investigate alleged violations of the Fair Trade Law by San Fung Inc. (San Fung) with regard to its "one person, two friends" pyramid sales system selling Internet set-top boxes for connecting to the Internet through a television set. The FTC's initial assessment showed that San Fung's above-mentioned sales system could be considered a multi-level sales system. However, the company had not filed a report as required by regulations for such systems, and was under suspicion of violation of Article 5 of the Supervisory Regulations Governing Multi-Level Sales. 2. Findings by the FTC are as follows: In the "one person, two friends" pyramid sales system, each of the "consumer money managers" in the main extension line need only introduce one other person into the system. "Consultants" at the organization's top level receive an extension line bonus of 20% of member's product purchases and the calculation of bonuses is not subject to algebraic restrictions. Each "consumer money manager" within the organization is promoted to "consultant" upon introducing their first new member to the organization, but remains ineligible for bonuses. Upon introducing their second new member into the organization, however, they may set up their own branch organization system and begin collecting the above-mentioned 20% of their member's product purchases as unlimited extension line bonuses, as well as an unlimited sub-extension line bonus of five percent of the product purchases by members belonging to any new branch organizations that subsequently grow out of their own organization. All of the above facts has candidly acknowledged by San Fung and is evident by the company's charts diagramming the organization of its pyramid sales system and records of bonuses paid out. 3. San Fung's sales system and its actual mode of operation are entirely consistent with "multi-level sales" as defined in the Fair Trade Law. As such, San Fung should report to the FTC for recordation 30 days prior to implementation of its business plan as required by Article 5(1) of the Supervisory Regulations Governing Multi-level Sales. The FTC's investigation showed that the organization has grown to more than 100 members since San Fung began to implement its sales system at the end of 1999, and is evident by the records on commissions and bonuses paid out during the period from February through June 2000 provided by San Fung. However, San Fung failed to report to the FTC for recordation as required by the regulations. After considering factors such as the number of people in the organization, its operating status, operating revenue, cooperative attitude and the potential damage to the trading order caused by the organization's actions, San Fung was ordered to pay a fine of NT$300,000 in accordance with the provisions of Article 42(3) and the forepart of Article 41 of the Fair Trade Law. Appendix: San Fung Inc.'s Uniform Invoice Number: 70459824 Summarized by Kuo, An-Chi; Supervised by Lin, Ching-Tarng