The deaths that sparked China’s crackdown on illegal pyramid schemes
People who join the schemes can be beaten and intimidated if they try to leave and the deaths of three members prompted the authorities into action
China’s latest crackdown on pyramid schemes was prompted by three shocking deaths – one young man who was beaten, another found dead in a pond and a third left to die on a road.
Like elsewhere in the world, the scams have proliferated in China as fraudsters trick people into thinking they can become rich quickly. Members are charged a joining fee and required to recruit new investors with promises of high returns.
But the three deaths in July put a spotlight on more extreme tactics used by some organisations in the world’s second largest economy, where the schemes can raise tens of billions of yuan.
Warning that pyramid schemes have become “more rampant”, four government agencies responded in August by launching a three-month crackdown that targets misleading online job adverts designed to lure young people.
Many of those who sign up online to promises of easy riches discover a harsh reality in which they are faced with intense demands, harassment or even physical abuse.
Pyramid schemes in China were criminalised in 2005, but are still booming, with the authorities investigating more than 2,800 cases in 2016, a 20 per cent increase from 2015.
An official from the government’s anti-pyramid scheme department acknowledged that there were “too many” scams and investigating them requires a lot of resources.
“Especially nowadays, many pyramid scheme organisations move their base to the countryside and develop members through the internet, making it harder to monitor them and obtain evidence,” the official said.
In a surprising additional challenge, hundreds of members of a pyramid scheme in July held a rare demonstration in Beijing to protest against an investigation into their group, known as Shanxinhui or “philanthropic exchange”. Scores have been detained.
Many pyramid schemes operate in cramped spaces where people eat together and sleep on the floor, according to Li Xu, the founder of an organisation that rescues people who become trapped.
The organisations that resort to violence do so to intimidate members into not reporting them to the police, he said, noting that the crackdowns have made it more difficult to recruit people.
“They are also afraid that newcomers will call the police. So they take away their mobile phone, control the newcomers by illegal detention and other violent means, in order keep more people,” said.
Li formed the China Anti-Pyramid Promotional Association after he was fooled into joining one himself more than a decade ago.
“Pyramid schemes in China target people who desire to change their life at a low cost,” he said.
He Linkun, however, came to a tragic end after disobeying his recruiters in northern Shanxi province. After refusing to recruit people of his own, the 23-year-old was “beaten to death”, according to police. Three people were arrested.
In northern Tianjin, the body of Li Wenxing, a university student, was found in a pond. Five people who confessed to depriving him of his “personal freedom” were arrested and the cause of death is under investigation.
Another student, Zhang Chao, joined a different scheme in Tianjin on July 10. Three days later, he was afflicted by heatstroke and members of the pyramid organisation decided to take him to a train station.
But when his condition worsened they abandoned him on a road, police said. His body was found on July 14 and three people were arrested on charges of negligent homicide.
Police are investigating the case of Zheng Quan, a recent graduate found bruised and unconscious in the coastal city of Hangzhou in August.
Zheng had joined an organisation that promoted calcium tablets in the town of Shangrao, a few hours from Hangzhou. When he tried to leave, he was beaten.
“They beat me almost every day, each beating lasting about three to five minutes,” Zheng, who was hospitalised, said.
A hospital doctor, Lou Boshang, said: “It will take a while for him to fully recover both physically and mentally.”
Police broke up the pyramid scheme, accusing it of robbery and illegal detention and arresting 32 people, including eight connected to Zheng.