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28 jailed for $245m pyramid scheme

By Wang Qian (China Daily)
Updated: 2009-03-24 10:53

A Beijing court yesterday jailed 28 people for illegally running one of the country's largest pyramid schemes, the Xinhua News Agency reported.

Zhao Pengyun, 37, from Shenyang, Liaoning province, was jailed 15 years and fined more than 300 million yuan ($44 million) by the Second Intermediate People's Court for masterminding the scheme. The others received sentences ranging from one to 15 years and were fined from 200,000 yuan to 70 million yuan.

The defendants from the Yilin Wood Company await verdict Monday at a Beijing court. [Xinhua]

A pyramid scheme involves receiving money primarily for enrolling other people in it, often without any product or service actually delivered. The court said Zhao's scheme, which promised clients high returns on sales of forest land, attracted more than 20,000 customers nationwide, with about 1.68 billion yuan defrauded from the victims.

The court is working out a compensation plan for investors.

Zhao and one of his accomplices, Tu Xiaobin, set up the Yilin Wood Company in April 2004 and subsequently opened up to five branches in Beijing, Shanghai, Chongqing and Shenyang.

In an ad for their scheme, the scammers promised that if a customer invested 55,500 yuan for a 1-hectare plot of forest, he or she would get 228,000 yuan within 7 years in line with the plot's rising value, for a 58.7 percent annual rate of return.

"Buyers" in Zhao's scheme who bought more than 0.67 hectares of forest land were promised sales representative positions and entry into the pyramid scheme. If 2 hectares were sold, the sales representatives were promised promotions to sales manager positions.

Four levels were included in the scheme. The higher the level one belonged to, the more money the buyers were promised.

After payments were collected, headquarters would return a quarter of the amount to the local branches for management fees and salaries. All salespersons in Zhao's scheme were paid according to their sales.

Five high-level managers in the company got more than 10 million yuan and 18 seniors got more than 1 million yuan in sales commission. Huang Jinhui, the senior manager from the training center, got more than 50 million yuan in sales commission in two years.

From April 2004 to May 2005, the company signed contracts to buy more than 64,400 hectares of timberland and sold more than 28,200 hectares of forest land involving 1.68 billion yuan, most of which was used to buy personal belongings and luxury items like houses, cars, jewelry and antiques.

However, when the payments failed to realize, some investors became suspicious and reported Zhao's company to the police at the end of 2005. In June 2006, Beijing police launched an investigation into the company.

Zhang Yong, deputy director of the Beijing municipal public security bureau, told Xinhua that although some forestland existed, it was impossible to deliver the dividends offered by Yilin due to poor location and management.

But other land could not support forestry or lacked maintenance and some was non-existent, the court found.

Zhao's company also failed to pay for the purchase of some property and for the wages of thousands of forestry workers, the court said.

There is no word yet whether they will appeal.

Pyramid selling was banned in China in 1998. Authorities said such schemes had become synonymous with cheating and fraud.