Wang Gong-Tian, aka Easy Rich Industrial Company, violated the Fair Trade Act by selling goods such as jadeware through a multi-level sales organization in which the participants generated revenue primarily by introducing new participants rather than by generating revenue from the marketing or sale of the goods or services at reasonable market prices
Chinese Taipei
Wang Gong-Tian, aka Easy Rich Industrial Company, violated the Fair Trade Act by selling goods such as jadeware through a multi-level sales organization in which the participants generated revenue primarily by introducing new participants rather than by generating revenue from the marketing or sale of the goods or services at reasonable market prices
Key Words:
multi-level sales, investment
Reference:
Fair Trade Commission Decision of April 24, 2003 (the 598th Commissioners' Meeting); Disposition (92) Kung Chu Tzu No. 55
Industry:
Direct Sales（4812）
Relevant Law:
Article 23 of the Fair Trade Act
Summary:
1. Wang Gong-Tian established Easy Rich Industrial Company (Easy Rich) in 2001 and recruited members, declaring it to be a franchise of the overseas “Easy Rich group,” selling goods such as jadeware and angelica. Easy Rich successively launched plans “A,” “B,” and “C.” At the time of enrollment, “Plan A” members were required to purchase a unit product priced at NT$10,000, NT$3,000 of which was for purchase of merchandise, and the other NT$7,000 of which was to be remitted to persons whose names were listed on the Application Form provided by Easy Rich. In addition to Easy Rich, the names and account numbers of seven persons were listed sequentially in the order that they had joined the organization. The last name on the list was that of the person who recruited the new member. Once the member had joined, he or she could obtain new forms with his or her own name added to the end of the list and with the original second through original seventh names each advanced by one place and the original first name removed from the list. The new member could then use the forms to recruit further new members, who would likewise be required to remit funds according to the new name list, which would be adjusted in the same way, and so on. A “Plan A” member who successfully recruited three members was eligible for enrollment in “Plan B” under the same terms, conditions, and method of membership as for “Plan A.” Due to difficulty in promoting “Plan B,” Easy Rich launched a “Plan C,” in which the terms, conditions and method of membership were still the same, but all unit prices and amounts for remittance were doubled. In short, the participants of the sales organization paid a certain consideration at the time of enrollment to obtain the right to introduce other persons to join and to purchase products, and the participants were linked in a hierarchical relationship and entitled to receive a commission or bonus each time a new member joined for up to seven levels downstream. The organization thus met the statutory definition of “multi-level sales” in Article 8 of the Fair Trade Act.
2. Easy Rich packaged its multi-level sales system in the shell of a network company and international enterprise, under the slogan of charitable and benevolent undertakings, as well as mutual assistance and benefits. In fact, its main selling point was as an investment opportunity, and prospective members were also offered added incentives in the form of geomancy (fengshui) advice to improve their fortunes. The emphasis in recruitment pitches to prospective members lay almost entirely on how to earn money quickly, and enrollment was treated as a financial planning and investment opportunity, by which members were to get rich quickly through the geometric growth in the size of the organization. Under “Plan B,” it was even claimed that investors could earn a return of 25.4 times their NT$10,000 investment. Easy Rich repeatedly made claims that enrollees could earn substantial wealth and sustained income by joining, and supported its claims by presenting bank passbooks and testimonials of current participants. The result was that most participants joined as an investment, purchasing multiple units in their own names or the names of friends or relatives, spending sums from tens to hundreds of thousands of New Taiwan dollars in anticipation of returns on the investment. Easy Rich also claimed that, after joining, participants could purchase each unit of merchandise at a wholesale price of NT$3,000. In fact, however, almost all participants purchased from several units to several tens of units after joining. Their motive obviously lay purely in taking part in the money game rather than in purchasing or selling goods. The sale of jadeware and angelica was a mere formality. The source of participants' revenue was unrelated to selling goods, and was purely a function of growth of the organization and enrollment of new participants. So the enterprise constituted an unsound multi-level sales organization in violation of Article 23 of the Fair Trade Act.
3. After considering such factors as the motivation, purpose, and expected improper benefit of the unlawful acts, the degree and duration of harm to trading order, the scale, operating condition, and market position of the enterprise, the benefits obtained by the unlawful act, and remorse shown by the respondent for the act and attitude of cooperation in the investigation, the Fair Trade Commission ordered the respondent to cease the unlawful acts and imposed an administrative fine of NT$7 million.
Appendix
Easy Rich Industrial Company's Uniform Invoice Number: 13500577
Summarized by Chou, Pai-Wei; Supervised by Yeh, Tien-Fu