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YMCA Seoul Citizens' Relay Station
YMCA Seoul asked the prosecution to investigate the DK Corporation, an unregistered illegal network marketing company.
In the wake of the JU scandal, the prosecution has been urged to investigate DK Corporation, which has engaged in illegal business activities based on point marketing.
1. The Citizens' Relay Station of YMCA Seoul has asked the Seoul Eastern District Prosecutor's Office to investigate DK Corporation on charges of violating the laws on door-to-door sales, based upon the complaints it has received in connection with the company, which has been found to be unregistered and engaged in the illegal network marketing business. DK Corporation (hereafter referred to as "DK"), a subsidiary of another network marketing firm, Dynasty International ("Dynasty"), registered as a door-to-door sales business in order to avoid the 35% commission ceiling imposed upon the network marketing business by the Door-to-Door Sales Act. However, like JU, it has been using the point marketing strategy and has engaged in unregistered, illegal network marketing business.
2. DK is a new door-to-door sales company with a 12,000-strong sales force that posted 519.5 billion won in sales in 2005. The term "new door-to-door sales" refers to a hybrid business of door-to-door sales and network marketing. New door-to-door sales companies register as a door-to-door sales business, but their sales organization is structured for network marketing. They say that Dynasty and DK are the same company and that they are legitimate businesses registered with the Mutual Aid Association. They add that Dynasty is prohibited by law from offering commissions exceeding 35%, but DK can award more than 70% commissions to recruit marketers.
3. The following is a summary of the testimonies of the victims: (1) These companies induced the victims to become marketers or invest money by giving false or exaggerated information to the effect that if they invested 1.43 million won, they would earn one point and the payout would continue everyday until it reached 2.5 million won per point, adding that they would exceed the break-even point within one year. (2) In order to do business as DK marketers, they had to first complete 3 steps (1~3) at Dynasty, which required an initial investment of about 6 million won. (3) Many of the products cost more than 1.3 million won. (4) Superior marketers told the subordinate marketers who purchased these goods that the "goods were not important because they're for investment purposes. So they would resell the goods for the subordinate marketers." As such, they resold about 3~5% of the goods purchased. (5) Marketers were forced to reinvest half of their commissions in restocking their inventory or in meeting their weekly performance targets. (6) Marketers experienced physical and psychological suffering, including being forced to convert their points into stocks to save the company.
4. According to Article 13 of the Door-to-Door Sales Act (the Act), a person who wishes to operate a network marketing business should have a capital stock of 500 million won or more and be insured for consumer compensation. Network marketing business is regulated by Article 23 of the Act on the prohibited activities. DK is an unregistered network marketing company that meets the key requirements as a network marketing business: Firstly, it has paid commissions in excess of step 2 and, secondly, its operations and sales organization have exceeded step 3. Article 51 of the Act stipulates that the agents of an unregistered network marketing business are subject to imprisonment of 7 years or less or a fine of 200 million won or less.
5. As with the JU scandal, the amount of damage caused by DK's employment of the point marketing strategy ranges from tens of million won to several billion won per person, with the total damages forecast to be extremely large. In addition, the extreme consequences include divorce for some and even the collapse of a community; the damages seem to be irreparable in some of the cases. For this reason, we urge the prosecution to thoroughly investigate the case and to sternly punish DK.
▶ For more information, call Oh Su-jin, manager, at 725-1146.
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Korea Federation of Housewives' Clubs
[Open Questions]
The Listing of Shares of Life Insurance Companies Should Be Reconsidered!
We, as powerless consumers in the market economy, find the recent discussions on the listing of the shares of life insurance companies rather disturbing.
Recently, the Advisory Committee for the Listing of Shares of Life Insurance Companies, which was set up with highly suspicious objectives, has determined that life insurers satisfy the criteria as a "stock company" rather than as "a limited liability company". Consequently, life insurers can now list their shares on the Korea Exchange and raise capital from numerous investors seeking gains from expected stock price increases. The legitimate listing is almost sure to create considerable profits.
The issue here concerns precisely who will benefit from the listing. Basically, the purpose of a stock company is to share the responsibility and obligations with investors who provide funds in exchange for ownership in the company and the future value they put in the company when the management responsible for running the business admits the limit set by the investment environment facing them. Most of the insurers in Korea have depended solely on premiums paid by policy holders to raise capital, while policy holders purchase their policies because they believe that the insurers will provide protection against any uncertainties that may arise in the future. In turn, insurers use the premiums received to provide protection to a smaller number of policy holders who are actually facing difficulties. This is how insurers make their profits. As a result, they have been profitable and provided a basis for potential investors' expectations for growth and a brighter future after the listing.
Then, who should get the profits from the listing? Should the profits go to the policy holders who paid all those premiums and made the biggest contribution to make life insurers what they are today? Or should the shareholders get all the profits? Or should it be the consultants (agents) who contributed most to getting all those insurance contracts?
It wouldn't really make perfect sense if policy holders were allowed to have all the rights as shareholders. Obviously, they did not purchase the policy for investment purposes in the beginning and never shared the risks of the company, unlike shareholders who were willing to run the risk of losing their money. So they are not so relevant to earnings or profits derived from the valuation of their insurer. In reality, they only bought their insurance to obtain the protection of the insurance company based on a fair valuation of their contract and to receive proper dividends in the event of a participatory insurance plan.
This is what makes the issue even more complicated. Of course, life insurance companies and other related organizations are talking about "giving back to society by setting up a public corporation", which makes no sense at all and is not remotely feasible. No one would believe at this point in time that insurers "will" give back to society when it is so uncertain as to how and when they will do so. In addition, it would not be fair if policy holders paid all the money and the insurance companies took all the credit.
But if the listing plan goes ahead as it is, it will certainly generate huge profits, and it will remain unclear as to just who the legitimate beneficiaries of the profits really are. We as insurance policy holders are very confused. Since we faithfully pay the premium every month, we deserve a very sound explanation about this preposterous situation in which the cart is being placed before the horse.
Question 1. Please clarify the organization and the nature of the Advisory Committee for the Listing of Shares of Insurance Companies.
Question 2. Please provide us with a clear, convincing and logical explanation as to why only insurance companies and not policy holders should receive all the profits from the listing of shares.
Question 3. Have all the policy holders ever agreed to the listing plan? (If not, wouldn't it be fair to get an agreement?)
Kim Cheon-ju and other members of the Korea Federation of Housewives' Clubs, January 10, 2007.
318,000 life insurance policy holders and members of Housewives' Clubs, and the representatives of the following 89 branches: Seoul, Busan, Incheon, Gwangju, Paju, Ansan, Goyang, Yongjin, Suwon, Yangsan, Gijang, Gyeongju, Pohang, Gumi, Asan, Yesan, Hongseong, Boryeong, Nonsan, Gongju, Dangjin, Yeonki, Cheongyang, Buyeo, Taean, Geumsan, Seosan, Cheongju, Chungju, Jecheon, Jeungpyeong, Dangyang, Eumseong, Jincheon, Boeun, Mokpo, Jangseong, Youngam, Gurye, Goheung, Wando, Suncheon, Naju, Yeosu, Hwasun, Muan, Gwangyang, Jeonju, Iksan, Gunsan, Namwon, Jeongeup, Gimjae, Jinan, Buan, Muju, Wanju, Gochang, Imshil, Jangsu, Gangreung, Wonju
▶ For more information, call Kim Sun-bok, general affairs managers of the Consumer Protection Team, at 02-752-4227. |
