Tens of thousands snared in HK$750m alleged pyramid scheme

Four locals and one American are suspected of being involved in luring tens of thousands of mainlanders into investing in Hung Hom firm

PUBLISHED : Friday, 08 November, 2013, 4:07am
UPDATED : Friday, 08 November, 2013, 4:07am

More than 30,000 mainland investors are believed to have been cheated of a combined HK$750 million in an alleged pyramid scheme run by a company in Hung Hom, police sources say.

Officers raided an office on Wednesday and arrested five people, including an American.

Documents and computer records seized suggest a pyramid scheme that, if confirmed, will be the largest the force has uncovered in recent years, according to police data from 2010.

Investigations found the company targeted mainlanders and turned away Hongkongers, a police source said.

Investors were lured with the promise of lucrative returns and told the company had investments in information technology in various countries and plans for a public listing, the source said.

"Initial investigations showed each of them was required to pay a HK$25,000 membership fee to join the company, which in return would give them lucrative dividends when the firm was listed on a stock market," he said.

They were also asked to introduce relatives and friends to join the scheme so that they themselves could generate more earnings, he added.

The Commercial Crime Bureau began looking into the company after more than 400 potential investors queued outside the office on Metropolis Drive on October 31 to join the scheme.

Bureau officers moved in a week later, picking up four local employees and the American, 53, on suspicion of breaching the Pyramid Schemes Prohibition Ordinance. They also seized HK$180,000 in cash.

The American is understood to be from another firm. Investigators are checking if the two companies are linked and are searching for executives of the Hung Hom office.

Another police source said the victims involved in the alleged scam were estimated to number in the tens of thousands.

"We are checking the total amount [of people] involved and … how long the company had been in operation," he said.

In December 2011, the Legislative Council passed a bill clarifying the definition of and prohibiting pyramid schemes.

The ordinance took effect in 2012, with stiff penalties for anyone who tried to recruit others to join such a scheme. Offenders face up to seven years' jail and a HK$1 million fine. Courts are also empowered to order perpetrators to compensate victims.

In pyramid schemes, participants have to pay membership fees and must recruit more members to profit. Any reward is entirely or substantially based on the expansion of the membership network, and any product or service offered has no real value. The scheme crashes when organisers abscond with the money.

But the law still allows multilevel marketing operations under clauses that permit direct marketing. Genuine multilevel marketing involves the sale of a legitimate product or service, such as insurance. Salespeople receive a share of the sales achieved by the people they recruit.

In the first half of the year, police received one complaint of pyramid selling involving HK$19 million. Last year, the force handled two complaints that involved a total of HK$45 million.

Yesterday, the five suspects were being held for questioning and none had been charged.

Police are appealing to anyone who may have conducted business dealings with the firm to contact officers on 2860 5012.

According to the company's website, it was founded in 2003 and is headquartered in the United States. It also has an office in Taiwan. It says the company provides unique cloud-based internet productivity and communications applications.

Police have issued the following warnings to the public: beware of get-rich-quick schemes; beware of anything that sounds too good to be true; and ignore persuasion and implied threats.