China police crack country's biggest pyramid scam

BEIJING, Sep 22 (Reuters) Police in China have cracked the country's largest pyramid scam, a cosmetics-sales scheme involving hundreds of thousands of people across the country, local media today reported.

Police in Liaocheng, in eastern Shandong province, uncovered the 2 billion yuan network after a member provided a list of names that led to the arrest of three ringleaders and the discovery of a database of 326,000 salespeople and 400 ''senior members'', the South China Morning Post said.

The scam, which involved each member paying thousands of yuan for the right to sell cosmetics, was led by a 30-year-old Ph.D.-holder who had developed marketing models and software to manage the network, the paper said.

''The lower-level salespeople were brainwashed regularly and lived in a small room together,'' the paper quoted a police offical as saying.

Police had detained 50 senior members, but hundreds more were wanted, the paper said.

The six-month investigation into the Liaocheng case was part of a broader crackdown launched this year on illegal pyramid schemes, state media reported.

The plans generally seek to envelop an ever-widening network of people who pay to participate, with a share of each entrant's fees enriching those at the centre who began the scheme.

From January to August, Chinese police officials probed 2,441 pyramid selling cases and cut off ''sources of illegal work'' for about 420,000 people, the China Daily said today.

Pyramid selling is illegal in China and a seven-year ban on direct selling was overturned only in December last year.

In 1998, in a bid to curb pyramid selling, China controversially banned direct selling, sparking riots and looting in central China after thousands of people were left holding goods bought with their life savings.

REUTERS SY SND1158