China announces four-month crackdown on pyramid schemes

For all intents and purposes, Chinese regulation of MLM pyramid schemes is of the winkwink, nudgenudge variety.

The last major MLM pyramid scheme bust we covered was Nu Skin back in 2014.

After announcing it
suspected Nu Skin was a pyramid scheme
, a few months later a paltry $781,000 fine was doled out and that was the end of it.

The fraud was far more costly back home. A civil settlement pertaining to its Chinese pyramid scheme activities saw Nu Skin
cough up $47 million dollars
.

In what might be a sign of changes to MLM regulation going forward, earlier this week the Chinese government announced a crackdown on pyramid schemes.

In a statement published on August 12th, the Chinese government expressed concern at the current state of the local MLM industry.

Recently, MLM activity is rampant (as well as) the use of various channels and means to lure the people into pyramid schemes.

(This has caused) serious damage to the people’s lives and property, (leading to) widespread concern in the community.

The announced crackdown will see Chinese authorities attempt to clean up the industry over three stages beginning August 15th.

August 15th to 31st – 
Compile a list of suspected pyramid schemes to investigate.

September 1st to October 31st – 
Conduct thorough investigations on companies and individuals who participate in suspected pyramid schemes.

“Severely punish” those found to be promoting pyramid schemes and “destroy” MLM companies conducting pyramid fraud and false advertising.

November 1st to 15th – 
Tie up loose ends and establish protocols and guidelines with a long-term goal of better regulating MLM pyramid fraud.

Whether anything comes from the crackdown remains to be seen, but back in the US shares in
Herbalife
,
Nu Skin
and Usana tanked after the announcement was made.

Typically I try not to read too much into MLM company stock market activity. But it’s a bit hard to ignore slumps across some of the biggest US MLM companies,
immediately
after China announces it’s going after pyramid schemes.

Winkwink, nudgenudge indeed.

🤖 Quick Answer

What enforcement action did China announce regarding pyramid schemes?

How significant were past penalties for MLM violations in China?
Previous enforcement was minimal; Nu Skin received only $781,000 in fines from Chinese regulators in 2014, though a civil settlement for pyramid scheme activities required the company to pay $47 million.

What pattern characterized Chinese pyramid scheme regulation historically?
Chinese regulation of MLM pyramid schemes was largely ineffective, with sporadic enforcement and minimal penalties that failed to deter fraudulent operations in the multi-level marketing sector.

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