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December 25, 2013

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Firm owner jailed for 13 years in city’s biggest pyramid sales case

The boss of a local company that created the biggest pyramid scheme in Shanghai involving more than 60,000 people and 1.09 billion yuan (US$180 million) was yesterday sentenced to 13 years in prison by the Huangpu District People’s Court.

Cao Jianhua, 63, was found guilty of organizing and leading pyramid sales activities along with 78 other defendants, including 10 staff members and 68 agents. They were sentenced from one month to 13 years and fined between 1,000 yuan and 10 million yuan in 51 different cases in rulings made by four local courts.

The Huangpu court heard that Cao’s Shanghai Jiadihao E-commerce Co Ltd swindled 1.09 billion yuan from 60,000 agents from 31 provinces and cities across the country in the past six years. Only 280 million yuan could be recovered during the investigation.

Cao began recruiting agents to promote an e-commerce website in 2007. The website required entry-level agents to buy at least 5,000 yuan or 10,000 yuan product packages. They could then earn rebates by inviting more people to become the agents.

In 2009, Cao was fined 800,000 yuan and ordered to correct his illegal dealings by industrial and commercial watchdogs.  However, Cao managed to continue his business by promoting a pension program whose mode was the same as the previous e-commerce website.

Customers were asked to buy products from an e-commerce website and accumulated points that could be redeemed as pension for customers in the future. To attract more agents to the pension program, Cao signed an insurance policy worth 2.6 million yuan with the Shanghai branch of Taikang Pension Insurance Co in August 2011 to assure agents that the accumulated points would be guaranteed. 

However, the insurance company soon caught up with Cao’s illegal dealings and withdrew the policy three months later. But Cao never told the agents that Taikang had pulled out.

Cao spent 40 million yuan  buying houses and transferred another 40 million yuan to his wife’s account. Only 280 million yuan were left in the company’s account after the rest were divided by the staff and agents.

The company was also fined 20 million yuan by the court.



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