Gyeonggi Special Judicial Police Crack Down on Illegal Multi-Level Marketing Organizations and Unregistered Prepaid Funeral Service Operators

[Suwon Ilbo=Park No-hun] Illegal multi-level marketing operators who generated 5.8 billion won in illegitimate sales and unregistered prepaid funeral service operators have been caught by the Gyeonggi Province Special Judicial Police investigation.

Kim Young-soo, head of the Gyeonggi Province Fair Competition Special Judicial Police Unit, held a press conference at the Gyeonggi Province Government Building on the 19th, stating, "Due to an increasing number of victim reports and tips from relevant agencies regarding illegal multi-level marketing and improperly operated funeral service companies, we determined that residents' damages were severe and launched an investigation." He added, "From June last year through April of this year, we conducted investigations and arrested a total of 14 suspects, of which 7 were referred to the prosecution."

The special judicial police identified three unregistered multi-level marketing organizations and arrested 11 individuals for violating the Door-to-Door Sales Act, of which 4 were referred to the prosecution. Additionally, three unregistered prepaid funeral service operators running two prepaid funeral service companies that failed to maintain legally required deposit ratios were identified for violations of the Installment Sales Act and all were referred to the prosecution.

Among these, Company A was incorporated in January last year and registered as a direct sales business to sell underwear and cosmetics, but actually established and operated an illegal multi-level marketing organization. The company illegally recruited 3,270 sales representatives and generated 4.4 billion won in illegitimate sales while systematically conducting multi-level marketing operations by establishing centers nationwide in Bucheon, Busan, and other cities.
Company A committed violations of the law regarding direct sales by ▲submitting false documents to register as a sponsored direct sales business ▲coercing sales representatives to register and purchase products, and engaging in deceptive practices such as making false statements and sending content certified mail to obstruct withdrawal requests by sales representatives ▲illegally transferring and receiving sales representative status ▲illegally registering minors under 18 years of age as multi-level marketing sales representatives.

Other multi-level marketing organizations, Companies B and C, which were registered as direct sales businesses selling health functional food, actually established illegal multi-level marketing organizations and illegally recruited 711 sales representatives in Goyang and Seoul and other areas, selling 1.4 billion won worth of products before being discovered.

Operators of prepaid funeral service companies who failed to maintain legally required deposit ratios also could not escape the special judicial police's investigation.
Under the current prepaid funeral service system, 50% of consumer prepaid amounts must be deposited with financial institutions in accordance with consumer damage compensation insurance contracts. However, funeral service company representative L established Company D, an unregistered prepaid funeral service company, in 2010 and deposited only 31%, or 622 million won, of the total 1.999 billion won in advance payments received from consumers with financial institutions. Subsequently, after establishing Company E in 2011 and operating it, L deposited 55 million won, or 45%, of the total 122 million won in advance payments received from consumers. Representative L did not comply with rectification recommendations from Gyeonggi Province and was referred to the prosecution for violations of the Installment Sales Act.
Additionally, even after Companies D and E's prepaid funeral service registration was automatically canceled due to insufficient capital, L deceived consumers by claiming Company D was a postpaid funeral service company, issuing "postpaid membership certificates" to numerous consumers and receiving advance payments in the form of contract fees up to a maximum of 1.84 million won, effectively operating a prepaid funeral service business.

Under the current system, those who establish, manage, or operate unregistered multi-level marketing organizations may face imprisonment of up to seven years or fines of up to 200 million won, while those operating unregistered prepaid funeral service companies may face imprisonment of up to three years or fines of up to 100 million won.

Director Kim Young-soo stated, "Illegal multi-level marketing is conducted secretly and systematically, and particularly when economic conditions are unfavorable, it has speculative characteristics that create great risk and damage for consumers." He added, "Since prepaid funeral service companies carry high risk and potential consumer damage depending on capital soundness, we will strengthen our response by expanding investigations," urging residents to actively report violations.

Reports of damage related to illegal multi-level marketing and prepaid funeral services can be made through the Gyeonggi Province Government website (www.gg.go.kr), Kakao Plus Friend (Gyeonggi Province Fair Competition Special Judicial Police Unit), or the Gyeonggi Province Call Center (031-120).