Ching-Yun Enterprise Co., Ltd.

Case:

Key Words:

multilevel sales, misleading, information to be disclosed to participants

Reference:

Fair Trade Commission Decision of January 11, 2012 (the 1053rd Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 101005

Industry:

Multilevel Sales (4872)

Relevant Laws:

Article11(1) of the Supervisory Regulations Governing Multilevel Sales

Summary:

1. The FTC received complaints forwarded by another agency as well as directly from private citizens about Ching-Yun Enterprise Co., Ltd. (hereinafter referred to as Ching-Yun) and participants of its multilevel sales schemes using improper marketing practices to recruit people to purchase prearranged funeral contracts.
2. Findings of the FTC after investigation: In addition to selling ash urns through its multilevel sales operation, Ching-Yun marketed prearranged funeral contracts through non-multilevel sales approaches. After receiving a written request from the FTC for related information and explanation at the FTC, Ching-Yun provided the text for the "speech of professional instructor trainees" used at presentations held by the company and participants. Most of the text was about the company's prearranged funeral contracts. Ching-Yun expressed the chief purpose of the presentations was to promote the concept of prearranged funeral contract establishment with the attendees while selling ash urns. The aforesaid text for the "speech of professional instructor trainees" did contain explanations about the incentive system for ash urn sales, but the same page also carried the wording that "prearranged funeral contracts are not just purchases; they can also help you build up connections and make a profit." Moreover, the description of prearranged funeral contracts also provided the information that "7. We are here today to be part of a channel business. What is channel? …Every who gets a spot now will be able to become successful and rich because of the channel Ching-Yun provides. Most certainly, many of you would like to purchase a prearranged funeral contract, right? (Right.) You really want to do it, right? (Right.) In fact, it is very easy to get in the business. Join us and you will become successful. Making purchases will put you at the top of the pyramid as a manager and make money for the rest of your life. There are only four things you need to know: 1) Put 75% in a trust: NT$75 of every NT$100 earned from the funeral service is placed in a trust under the supervision of the Ministry of Finance. Therefore, this is not a pyramid scheme. …4) There are two friends who would like to make some money." The above speech gave potential participants the impression that purchasing prearranged funeral contracts was a profitable undertaking.
3. Grounds for disposition:
   The investigation showed ash urns were the only multilevel sales products Ching-Yun marketed. However, the speech content gave listeners the impression that anyone joining Ching-Yun and bringing two customers (the incentive system being a dual track setup) could purchase prearranged funeral contracts and make a profit. Ching-Yun also confirmed that the ratio of people participating in the scheme and simultaneously sign the "Prearranged Funeral Contract Application" between January 1, 2011 and September 30, 2011 was 100%. There were 23,588 applications in total and partial payment was already made in 3,768 of these cases. No one did not sign the prearranged funeral contract at the time they joined the scheme and, as a matter of fact, those who signed a prearranged funeral contract were all participants. In other words, Ching-Yun also handed out the "Prearranged Funeral Contract Application Form" when recruiting participants. This all the more proved that Ching-Yun's marketing practice actually made people mistake the prearranged funeral contract as a multilevel sales product. Existing evidence confirmed that Ching-Yun had made a misleading representation with regard to quality of multilevel sales product or service when recruiting participants into its multilevel sales organization or scheme. The above conduct had been in violation of Article 11 (1) of the Supervisory Regulations Governing Multilevel Sales.
4. After assessing the motive and circumstances of Ching-Yun's violation, the company's business scale, as well as the number and patterns of past violations, the Commission acted according to the first section of Article 41 (1) of the Fair Trade Law, ordered Ching-Yun to immediately cease the unlawful act on the day after receiving the disposition and at the same time imposed on the company an administrative fine of NT$5,000,000.

Appendix:
Ching-Yun Enterprise Co., Ltd.'s Uniform Invoice Number: 28384055

Summarized by Lin, Yu-Ching; Supervised by Lai, Mei-Hua