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Ringleader of major pyramid scam gets 15 years

THE mastermind behind Beijing's biggest pyramid scheme was sentenced to 15 years in prison yesterday for swindling 1.68 billion yuan (US$246 million) from more than 22,000 victims by promising high returns on an investment in trees.

Ringleader Zhao Pengyun, 39, was also fined 300.3 million yuan, the Beijing No. 2 Intermediate People's Court ruled yesterday.

Another 27 suspects, all legal representatives and general managers from Zhao's company, Beijing-based Yilin Wood Group, received sentences ranging from one to 15 years.

The scam used a pyramid structure under which one salesperson recruited others, who in turn recruited even more people to sell the purported investment products.

New participants were required to invest cash to join the operation, and the early investors even received commissions to make the scam look legitimate.

Zhao planned the fraud with two other inmates while he was in jail in early 2004 after being sentenced to a year and 10 months for another pyramid scheme in 2002.

After he was freed from that prison term, Zhao set up subsidiaries of the Yilin Wood Group in Beijing, Chongqing, Inner Mongolia and Guizhou and Liaoning provinces.

The company promised investors they would earn 6,000 to 7,000 yuan per mu (0.07 hectares) of forestry land after the timber was harvested in seven years.

Zhao devised sales plans in which he used advertisements and fake award certificates to lure investors, the court determined.

In a bid to expand the operation, the company set aside 25 percent of its revenues for sales commissions and operational costs, and salespeople were promoted according to their performance, the court said.

The judges said the culprits made illicit gains and their operation severely disrupted the economy.

The conspirators used company revenue to purchase houses, cars, jewelry, watches and antiques. One even spent the proceeds to release his own music album and for cosmetic surgery, according to the court.

The court said that it will work out a compensation plan for investors, but it did not reveal the amount.


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