Pyramid scheme in suburban Shanghai busted

A young man who escaped from a gang's den has led to 20 suspects being detained for allegedly running a pyramid scheme.

Shanghai police said on Tuesday that the scam had gathered over 100 members, aged between 16 and 31, within six months.

They were recruited from out of town over the Internet and then brainwashed or coerced to join the scheme after paying up to tens of thousands of yuan to buy cosmetics that never materialized, police said.

The cosmetics were falsely claimed to be products from a biotech company. On the surface, the gang ran a jewelry firm with its own store, according to police.

Investigation started this month when one of the members escaped from the gang’s den, which was rented apartments in a residential complex in suburban Jinshan District, and reported what was happening to police.

The young man surnamed Li, who is from Jiangxi Province, said he came to Shanghai a few months ago intending to meet a girl who had contacted him on social networks and with whom he had fallen in love, but he ended up being entrapped in the pyramid scheme, police said.

Li said he was coerced to buy 16 sets of alleged cosmetic products worth 2,800 yuan (US$420) each, using money borrowed from relatives, and then he was asked to bring his friends and relatives into the gang.

Similar stories were given by other members, some of whom were lured to Shanghai with the promise of “nice jobs," according to the police.

The pyramid allegedly had five levels, with a man surnamed Wang at the top of it as the “general manager.” Under him came four “managers,” then eight “leaders” on the third level,  and over 80 “salesmen” on the bottom two levels.

In a raid on the gang on August 9, when all members were told to meet in a karaoke bar for profits from the scheme to be distributed, police seized 101 suspects, and a total of 100,000 yuan in cash.