Hung Sen International Co., Ltd. and Liang Sheng International Co., Ltd. violated the Fair Trade Law and Administrative Regulation Governing Multilevel Sales
Chinese Taipei
Case:
Hung Sen International Co., Ltd. and Liang Sheng International Co., Ltd. violated the Fair Trade Law and Administrative Regulation Governing Multilevel Sales
Key Words:
Multi-level marketing, pyramid scheme, inappropriate multilevel sales
Reference:
Fair Trade Commission Decision of June 15, 1994 (the 140th Commission Meeting), Disposition (83) Kung Ch'u Tzu 060
Industry:
4020 Retail Industry
Relevant Laws:
Article 23(1) of the Fair Trade Law; Article 3(1), Article 4(1) and Article 4(2), Article 5, Article 7(1)(i) and Article 7(1)(v) of the Administrative Regulation Governing Multilevel Sales
Summary:
1. According to successive complaints lodged to this Commission, Hung Sen International Co., Ltd. and Liang Sheng International Co., Ltd. ran some classified ads in the name of business consulting firms to recruit employees. After brief pre-recruitment seminars in the two companies, the applicants are notified that they were hired with the condition that they should participate in the potential maximizing training program organized by the two companies before they can become formal employees of these two companies. As a result, the complainants paid a fee of NT$28,000 or NT$29,000 to enroll in such program and went to work in these two companies the following day, only to learn that there was no base salary for their positions, and that the employees were required to recruit other people for the training program in order to be entitled to a commission derived from the training fees paid by those new recruits. Therefore, they became suspicious of false advertising and inappropriate multilevel sales engaged by these two companies which first recruited employees in the name of business consulting firms and then used commissions derived from training fees to remunerate employees who promoted the training programs.
2. According to the investigation, Hung Sen and Liang Sheng run some classified ads in which they falsified base salaries, which misled the applicants into believing that they would be hired merely by paying a training fee of NT$28,000 or NT$29,000 for their enrollment in the so-called "potential maximizing" training program. After enrollment in such program, these two companies induced enticed the applicants to pay additional NT$60,000 out of their own pockets for promotion to a higher position. However, these two companies had never offered any products for the new recruits to sell. As a result, the new recruits who could not bear their own losses began to introduce the program to others who were subsequently talked into joining the program by the staff of the companies. This fact is sufficient to support the finding that these two companies fraudulently induced people to participate in the potential maximizing program, made profits from the training fees paid by the trainees and paid the commissions out of the training fees as received. Hence, this Commission finds that the business activities of these two companies have violated Article 23(1) of the Fair Trade Law.
3. In addition, Hung Sen and Liang Sheng also violated the provisions set forth in the Administrative Regulation Governing Multilevel Sales.
(1) These companies violated the provisions set forth in Article 3(1) of the Administrative Regulation Governing Multilevel Sales by failing to report their multilevel sales operations to this Commission.
(2) None of these companies executed with participants of their programs any agreements that contain explicit terms and conditions for the participant's withdrawal from the program or the organization and provisions governing the rights and obligations arising from such withdrawal. Therefore, such companies violated the provisions set forth in Article 4(1) and Article 4(2), and Article 5 of the Administrative Regulation Governing Multilevel Sales.
(3) By jointly charging NT$ 28,000 or NT$ 29,000 for the potential maximizing program, these two companies violated Article 7(1)(i) of the Administrative Regulation Governing Multilevel Sales, which prohibits any request made in the name of training for payment of fees incommensurate with the cost.
(4) These two companies convinced the participants to pay NT$60,000 for promotion to the position of a "director," which will enable the participants to receive a commission at 25%, instead of the previous 15%, of the training fees paid by the new recruits. These two companies also falsely stated that the NT$60,000 would be used to purchase three cosmetic sets with value of NT$20,000 per set. However, such cosmetic sets were never delivered to the participants. Therefore, such act has violated provisions set forth in Article 7(1)(v) of the Administrative Regulation Governing Multilevel Sales which prohibits any agreement whereby the participant is required to pay an obviously inappropriate price in exchange for better benefits.
4. Because these companies have received unjust profits in the amount of tens of millions NT Dollars since April, 1993 through the above-mentioned fraudulent sales operations and have caused injury to thousands of people, thus constituting a serious violation of the Fair Trade law, Hung Sen is fined NT$400,000 and Liang Sheng NT$300,000 in accordance with Article 42 of the Fair Trade Law. In addition, these two companies are hereby dissolved by the decree of the Commission.
Summarized by Hu, Peng-nien
Supervised by Tsuo, Tien-liang
Appendix:
Hung Sen International Co., Ltd.'s Uniform Invoice No.: 86903301
Liang Sheng International Co., Ltd's. Uniform Invoice No.: 84751574
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