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September 19, 2009

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Pyramid points to legal trouble

SHANGHAI commercial investigators said yesterday they will shut down a pyramid sales network that involved more than 100,000 people and generated over 1 billion yuan (US$142.8 million) in revenue.

The case will also be referred for possible criminal prosecution, the Shanghai Industrial and Commercial Bureau said yesterday.

The company behind the sales network, Dengkeyong Industry Shanghai, has been operating in 26 provinces on the Chinese mainland, selling pills containing an edible-fungi marketed as a cure for virtually any disease, officials said.

Although the company is registered in Shanghai, its business is mainly outside the city. The bureau started investigating the case in August last year after receiving a tip from undisclosed sources.

"Like any other pyramid company, Dengkeyong attracted consumers with bogus claims for its products and then lured them to work as sales agents and to recruit agents under them," said Sui Bo, a bureau official.

The company told its salespeople they could earn a 10 percent commission plus profit from any referrals they generated.

The medicine sold for 560 yuan (US$82) a bottle, according to the ads the company placed on the Internet. The products, however, were linked to health problems around the country.

In 2005, China Central Television reported that the medicine may have caused skin allergies. In the TV report, a Heilongjiang Province consumer named Yang Min complained that she suffered a severe skin allergy four days after using the medicine.

Yang said the company told her the rash on her face was "a reaction to toxin expulsion."

Other buyers complained on the Internet about headaches, loss of sleep, joint pain and perforated stomachs after taking the medicine.

The bureau also said yesterday it has dealt with 12 pyramid sales cases so far this year, referring five to police.

Officials explained that companies running pyramid operations usually sell low-quality -- and sometimes nonexistent -- products. Pyramid sales are illegal in China. At present, the country has only about 10 licensed direct-sales companies.


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