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YMCA Seoul
YMCA Seoul Citizens' Relay Station Publishes the Results of the July-August Survey on Network Marketing
- The 'jackpot syndrome' is sweeping through network marketing, with the average investment (damage) increasing to 31.95 million won per person
The survey found that the greatest damage amounted to 600 million won, with 8.9% of the cases involving more than 100 million won.
JU and other firms lure members with point marketing. Quasi deposit-taking schemes account for 29%. Companies operate like a financial pyramid scheme.
Many firms have deviated from the strategy of conventional network marketing business. 33.9% of the respondents were aged 40 or above.
Following the punishment imposed at the end of June against We Best International Co. Ltd, the second biggest network marketing company in Korea, and its CEO for illegal network marketing activity, the prosecution is stepping up its investigation into JU Network. YMCA Seoul Citizens' Relay Station analyzed and categorized the 223 damage claims filed in connection with network marketing that it received in July and August in order to assess the damages associated with network marketing, a phenomenon which has been growing recently.
According to the analysis, 64% of the cases involved women - about 1.8 times more than the number of men, who made up 36.6% of all network marketing victims. Young adults in their 20s - including minors who accounted for 55.8% of all claims - are still the main targets of the network marketing business. In addition, as network marketing firms using the so-called point marketing strategy and unregistered quasi financial network marketing companies intensified their expansion drive, the number of middle-aged or older victims increased sharply to 33.9%. As these companies turned increasingly into a financial pyramid scheme, offering a 250% return, they succeeded in luring more older victims.
The average investment (loss) was 31.95 million won per network marketer, with the greatest damage amounting to 600 million won, with 8.9% of the cases involving more than 100 million won. The average damage incurred by victims aged 20 or below was about 6 million won, while damages stood at more than 50 million won for those aged 30 or above, showing a huge variation in the level of damages between the different age groups.
The analysis found that registered firms were causing as much trouble as unregistered, as seven out of the top 10 companies against which complaints were filed were members of the Mutual Aid Association. 14% of all complaints were filed against Dynasty International - which also uses point marketing - and this is the largest number of complaints filed against a single company.
1. Survey Summary
1) Analysis Period: 3rd and 4th weeks of August
2) Respondents: 223 complaints were filed in connection with network marketing by those who called, visited or contacted via Internet the YMCA Seoul Citizens' Relay Station between July 3 and August 18, 2006.
2. Results
■ Young adults in their 20s including minors accounted for 55.8% of all cases, showing that young people are still the main target.
The number of victims aged 40 or above increased considerably as network marketing firms began to implement more speculative campaigns, such as offering a 250% return on investment.
Young adults in their 20s accounted for 55.8% of all cases, showing that inexperienced young people constitute the main target. In many cases, companies approached financially insecure young people by offering to find them a part-time job, or a regular job with a decent company, or a position with a defense company, instead of serving in the military. Those aged 40 or above made up 33.9% of all victims. Point marketing-based companies such as JU and unregistered quasi financial network marketing firms increased sharply in number and shifted their focus to financial investment, promising a 250% return, a practice which has led to a growing number of older victims.
■ Average investment (damage) won per network marketer is 31,95 million won. The investment amount ranges from 1 million won to 600 million won.
8.9% of the cases surveyed involved more than 100 million won in damages. The average amount was 6 million won for those in their 20s, but it rose steeply to 50 million won for those in their 30s or older.
The amount of investment or damages ranged from as little as 730,000 won to as much as 600 million won, with 8.9% of the cases involving 100 million won or more. The average amount was 31.95 million won. Those aged 20 or below incurred losses of about 6 million won on average, while the amount rose dramatically to an average of 50 million won or more for those aged 30 or above. The disparity in the amount invested between the two age groups is attributable to the different types of investment. Those aged 30 or above tend to be victims of quasi deposit-taking financial pyramid schemes involving around 100 million won, while younger victims are usually involved in traditional network marketing activities such as the sale of cosmetics and health products.
■ The majority of complaints were filed with a view to obtaining a refund; 20% involved the kind of quasi deposit-taking problems that are often associated with financial pyramid schemes.
Of all the complaints surveyed, refund was found to be the biggest motive for complaint, accounting for 44%. 29% of the cases were associated with quasi deposit-taking financial pyramid schemes such as JU, which was found to be involved in a major scam, indicating that a considerable portion of network marketing businesses have deviated from the traditional network marketing business and have turned toward financial pyramid schemes.
■ Seven of the top 10 firms - in terms of the complaints filed - are currently members of the Mutual Aid Association. The Association is failing to perform its function properly, thereby fuelling the explosion of illegal network marketing activities.
The largest number of complaints have been filed against Dynasty International, followed by JU Network, Bri & Per, Yatu, Wellbeing Tech, Joy & Buy, We Best International, and Fuon, Seven of these top ten companies are currently members of the Mutual Aid Association, while JU and We Best International were forced to withdraw from the Association. The majority of these firms have engaged in illegal business activities, which suggests that the association and the related laws are not functioning properly and are neither preventing damages nor helping victims of network marketing to obtain redress for damages incurred.
3. Recommendations
The analysis revealed four major problems with network marketing. First, young people aged 20 or below are still targeted most frequently, while older people aged 40 or above are increasingly falling victim to network marketing. Second, a financial pyramid scheme classified as a quasi deposit-taking business involving 50 million won or more is prevalent in the market, indicating that network marketing has practically deviated from its original business strategy. Third, as a result, the amount of damages incurred by individual victims has increased. Fourth, seven of the top ten trouble-maker companies signed a contract with the Mutual Aid Association, which means that registered companies well as unregistered firms are causing many problems, including involvement in illegal business activities.
Damages associated with network marketing are increasing due to the complete failure of the deregulation policy to achieve the goal of fostering a healthy network marketing market. The Door-to-Door Sales Act was revised in 2002 to abolish the provision requiring punishment for violations of the commission ceiling, and raised the product purchase limit to 1.3 million won for minor network marketers. As a consequence of the deregulation, there was a steep growth in highly speculative quasi deposit-taking business activities, such as those offering a 250% return.
The FTC should no longer spare its efforts to minimize the social damage caused by network marketing by: restoring punishment for violation of the commission ceiling to stop network marketing from becoming excessively speculative; tightening the requirements for network marketing businesses; reviving the regulation on minor network marketers; reforming the Mutual Aid Association; and stepping up its efforts to clamp down on unregistered network marketing businesses and new types of door-to-door sales businesses.
▶ For more information, please call Oh Su-jin, manager or Kim Hui-kyeong, head of the team, at 725-1146.
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