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Pyramid Schemes Go up the Ziggurat in China
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A company in northeast China raised three billion yuan (US$379 million) from gullible members of the public by spinning a profit-making scheme from a project to breed ants.


The Donghua Ecological Breeding Co. Ltd., in Liaoning Province, offered returns of 35 to 60 percent on investments in the bogus project.


The Ministry of Public Security (MPS) cited the case on Thursday as an example of the deviousness and imaginativeness of fraudsters.


Chinese police investigated 62,000 economic crimes in the first 10 months of the year, an increase of 9.1 percent year-on-year.


Economic crimes, especially those involving large numbers of people, such as pyramid selling or fund-raising frauds, "could trigger social instability and imperil the economic security of the country," warned Gao Feng, deputy director of the MPS economic crime investigation bureau, adding that pyramid schemes were being sold through the Internet.


A medicine pyramid scheme in Guizhou Province enrolled over 100,000 members online in Shandong and Henan provinces and illegally sold 126 million yuan (US$16 million) worth of medicine.


Police ferreted out 49,000 of the reported cases, a rise of 4.3 percent, and retrieved 12.94 billion yuan (US$1.65 billion), said Gao.


Totally, the police recovered a staggering 399 million yuan (US$50.7 million) in 507 cases involving the illegal pooling of public funds and 169 million yuan (US$21.5 million) from 501 cases of fund-raising fraud.


Pyramid selling first entered China in the 1980s, soon after the country reinvigorated its economic reforms. However, it was banned by a cabinet regulation in 1998 which stated that such schemes, though an accepted method of marketing in many other countries, "have become a synonym for cheating and hoodwinking in China."


"Pyramid schemes have never been 'dead ashes' in China," said Gao Feng, using a traditional Chinese phrase to emphasize their continued vigor despite repeated crackdowns.


In 2006, police in eastern Shandong Province dismantled a cosmetics-sales scam that took in about 500,000 people in nearly 16 provinces and involved two billion yuan (US$250 million).


Pyramid scams exist in both rich and poor regions across the country, Gao said.


On Thursday, police spokesman Wu Heping advised citizens to be on their guard when someone tried to sell them a "get-rich-quick" scheme.


"There is no such thing as a free lunch. You might have had one lucky experience, but don't think about trying a second time," warned Wu, adding that ordinary people don't need economics and marketing degrees to avoid being cheated.


All they have to do is to shun salespeople who wax lyrical about lucrative deals, he said.


The spokesman, himself an experienced police officer, blamed irresponsible ad campaigns in media, saying the fraudsters might take advantage of misplaced trust in the media to ensnare more victims.


According to Chinese laws, suspects convicted of economic crimes such as defrauding citizens of their savings, illicit businesses and racketeering may face three to ten years or even life imprisonment for exceptional cases.


Chinese laws recognize different types of pyramid schemes. The worst-case scenarios are punishable by a prison term of over five years and a repayment of five times the profits garnered by illicit business scams.


(Xinhua News Agency November 24, 2006)

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