Experts warn investors to be cautious about pyramid schemes

By Shan Jie Source:Global Times Published: 2017/7/28 22:38:39

Chinese experts have urged investors to be wary of products that offer suspiciously high returns after an alleged pyramid scheme organization was broken recently.

"A principle is that if the rate of return is too high, that is to say several times the usual average, it must be a pyramid scheme," Hu Xingdou, an economics professor at the Beijing Institute of Technology, told the Global Times on Friday.

The Ministry of Public Security recently cracked down on Shanxinhui, a company suspected of organizing and leading a pyramid scheme, and detained 67 members.

The Xinhua News Agency reported on Friday that Zhang Tianming, the company's legal representative, and his company, have been breaking the law in the name of charity.

"Charity should not call for a reward, so how can anyone expect a high financial return from a charity organization?" a police officer investigating the Shanxinhui case said, Xinhua reported.

"The myth that anyone can get rich, made up by Zhang and his company, is just a pyramid scheme that pays existing members with the funds from new members," he said.

"They told us it was poverty alleviation. If I gave them 3,000 yuan ($444), they would give me 3,900 yuan back in 20 days," said Li, a farmer from Central China's Hunan Province.

Li was persuaded by a friend to join Shanxinhui and has lost all his savings, Xinhua reported.

"For many investors it is difficult to tell if investment projects are illegal pyramid schemes, especially because many of them are from the bottom rungs of society," Hu said.

Hu said that the government should protect the interests of investors, who are the victims.

Xinhua reported that since May 2016, Shanxinhui has registered more than 5 million members from all around China.

According to the police officer, most of the money from the members went into several personal bank accounts of Zhang, who gained more than 1 billion yuan in one year.

Zhang admitted that he gave a small part of the illegal income to charity work to create a philanthropist image, Xinhua reported.

Posted in: SOCIETY,LAW

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