Yuan Ji Financial Management and Planning Co., Ltd. violated the Fair Trade Law through engaging in a prohibited form of multi-level sales

Chinese Taipei

Case:

Yuan Ji Financial Management and Planning Co., Ltd. violated the Fair Trade Law through engaging in a prohibited form of multi-level sales

Key Words:

mass recruitment of members, investment in financial products on behalf of members, aboriginals

Reference:

Fair Trade Commission Decision of February 7, 2002 (the 535th Commissioners' Meeting); Letter (91) Kung San Tzu No. 0910001293

Industry:

Direct Sales Enterprises (4812)

Relevant Law:

Articles 23 of the Fair Trade Law

Summary:

1. Yuan Ji Financial Management and Planning Ltd. (Yuan Ji) claimed that its business involved investing in financial products on behalf of its members. Investors were recruited under Plan A or Plan B. Plan A sought mass recruitment of members. After paying an NT$1000 membership fee, members who recruited three down-line members (the first organizational level) would receive a benefits payment of NT$1500. Upon completion of the second organizational level of nine people, a benefits payment of NT$4500 was distributed. Upon completion of the third level of 27 people, a benefits payment of NT$13,500 was distributed. A benefit payment of NT$40500 was distributed for completion of the fourth level of 81 people, and finally, a benefit payment of NT$121,500 was distributed to members who had fully recruited the fifth level of 243 people. Plan B’s methods of investment in financial products on behalf of members were as follows: Each unit required an investment of NT$40,000 with 3-month, 6-month, one year, and two year terms available. Monthly profits, on average, were NT$26,800, NT$39,200, NT$49,280 and NT$63,8400 for the respective terms. Yuan Ji would also distribute an NT$5000 introduction bonus to members who recruited new participants for every unit of NT$40,000 invested. Between May and December of 2001 a total of 16,107 people applied for membership, and total membership fees collected exceeded NT$12 million. The total amount which Yuan Ji received between May and December 2001 from its members to invest in financial products on behalf of those members exceeded NT $247 million dollars.

2. Grounds for disposition: Yuan Ji engaged in a kind of multi-level sales in which participants were not required to market or sell goods or services. The purpose of joining was only to receive the substantial benefit payments, or to introduce others to join or to invest for the sake of obtaining substantial economic benefits through the various types of bonuses. Although Yuan Ji supposedly invested in financial products on behalf of their members, these services did not in fact exist but were an illusory product. In order for Yuan Ji to provide such high bonuses and other profits, participants needed to constantly introduce new members, or continuously raise subscriptions and inject capital to serve as the source of bonus payments. The Fair Trade Commission (FTC) found, therefore, that the commissions, awards or other profits received by the members were not based on the marketing and sale of goods or services at reasonable market prices, but rather, on the continuous addition of members and the subsequent expansion of the organization, in violation of Article 23 of the Fair Trade Law.

3. The FTC considered the motives, the anticipated illegal profits, and the damage to the trading order and its duration as a result of the violation, as well as the demonstration of remorse following the violation, the cooperativeness with the investigation, and other factors. Consideration was also given to the fact that these actions not only targeted a disadvantaged group such as the aboriginal tribes, but that the methods employed sought to defraud them economically and thereby seriously injured social stability. Hence, an administrative fine of NT$24 million was imposed on Yuan Ji for its violation of Article 23 of the Fair Trade Law, pursuant to the regulations of the fore part of Article 41 of the same law. In addition, by failing to file a report with the FTC regarding their multi-level sales, and failing to enter a participation contract with participants specifying statutory matters at the time of their participation, Yuan Ji violated Articles 5(1) and 12 of the Supervisory Regulations Governing Multi-level Sales. An additional administrative fine of NT$1million was therefore imposed for a total of NT$25 million, and Yuan Ji was ordered to terminate its operations.

Appendix:
Yuan Ji Financial Management and Planning Co., Ltd.’s Uniform Invoice Number: 12882014

Summarized by Wang, Horng-Shiuan; Supervised by Lin, Ching-Tarng