Twenty-eight people have been jailed after a Beijing court found them guilty of involvement in the city's biggest-ever pyramid selling case on Monday.
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All the people who were accused to be involved in the city's biggest-ever pyramid selling case stand in line at a local court of Beijing on Monday, March 23, 2009. [Photo: Xinhua]
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The accused, who all worked for the Yilin Wood Company, were alleged to have defrauded more than 22,000 investors of 1.68 billion yuan (246 million U.S. dollars) by promising high returns on sales of forestry plantations.
The case used pyramid schemes in which one salesperson recruited other sales people, who in turn recruit more. The new participants needed to buy to join the operation and the early investors received commissions.
The 28 accused were given jail terms ranging from one to 15 years, said sources with the Second Intermediate People's Court of Beijing.
Zhao Pengyun, the scheme's leader, was jailed for 15 years and fined 300.34 million yuan (44 million U.S. dollars). Other accused were fined from 200,000 to 70 million yuan and six were given suspended sentences.
The judges said the culprits made illicit gains and their operation severely disrupted the market economy.
The ringleaders used revenue to purchase houses, cars, jewelry, watches and antiques. One even spent the proceeds on releasing his own music album and cosmetic surgery, the court found.
The revenue was supposed to be spent on purchasing and maintaining forestry plantations, according to the contracts signed with investors from 11 provinces, municipalities and autonomous regions.
The company signed contracts to buy more than 967,400 mu (64,493 hectares) of timber land and sold 422,800 mu. But some of the land could not support forestry or lacked maintenance and some was non-existent, the court found.
It also failed to pay for some property purchases and wages to thousands of forestry workers, according to the court.
Those sentenced have yet to announce whether they will appeal, and the court is to work out compensation plans for investors.
While in jail in early 2004, Zhao, 39, planned the pyramid scheme with two other inmates. In 2002, he was sentenced to one year and 10 months in prison also for pyramid selling.
After he was freed, Zhao set up businesses in regions like Inner Mongolia, Beijing, Guizhou, Liaoning and Chongqing, all subsidiaries of the Beijing-based Yilin Wood Company, in April 2004.
He devised sales plans in which he used advertisements and fake award certificates to cheat investors. The company also promised that investors would earn 6,000 to 7,000 yuan per mu (0.07 hectares) of forestry land after the timber was harvested after seven years.
The court heard that Zhao told police: "In our sales promotion, we didn't mention investment risks. We also signed many contracts that couldn't be realized to cheat the customers."
In a bid to boost sales, the company set aside 25 percent of revenues for sales commissions and operational costs, and salespeople were promoted according to their sales results, the court said.
Although pyramid selling is allowed in some countries, it was banned in China by a cabinet regulation in 1998. Authorities said such schemes had become synonymous for cheating and fraud.