A cosmetics and skin care products company founded by married Taiwanese actors Zhang Ting and Lin Ruiyang has had assets worth 600 million yuan (US$94 million) frozen due to an investigation by China’s market regulator over an alleged pyramid scheme.

The market regulator in Shijiazhuang, the capital of northern China’s Hebei province, said it had received several reports about a suspected pyramid scheme involving Shanghai Dowell Trading, according to a letter widely circulated on Chinese social media platforms on Tuesday.

“Because of its use of financial institutions to transfer or conceal funds involved in pyramid schemes, the administration has applied to the People’s Court to take preservation measures under the law, and the case is currently under further investigation,” said the letter dated last week.

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Shanghai Dowell Trading responded on Wednesday, and said that it “is a legally operating company that has always complied with the government guidance, adhered to the legal operation, and paid taxes according to the law”.

“We are very grateful to the Administration for Market Regulation of Shijiazhuang Yuhua District for guiding our company to check the risk; at present, the company is operating normally. Our company will actively cooperate with relevant departments,” said the statement on the company’s Twitter-like Weibo account.

Shanghai Dowell Trading, which was founded in 1996, is the main operator of cosmetics and skin care products brand TST Tin’Secret, which lists Taiwanese model-actress Lin Chi-ling as a spokeswoman.

Chinese actor Xu Zheng is also a former shareholder, while several famous Chinese stars have posted photos on social media using the brand’s face masks.

The Taiwan Affairs Office within China’s State Council said at a regular press conference on Wednesday that the business incident had nothing to do with cross-strait relations.

Taiwanese model-actress Lin Chi-ling is listed as a spokeswoman for TST Tin’Secret. Photo: Handout alt=Taiwanese model-actress Lin Chi-ling is listed as a spokeswoman for TST Tin’Secret. Photo: Handout>

“I want to emphasise that anyone running or starting a business in the mainland must first and foremost follow the law and regulations,” said Taiwan Affairs Office spokesman Ma Xiaoguang.

Lin made a name for himself starring in the Chinese TV series Fantasies Behind The Pearly Curtains in the 1970s, while Zhang featured in the Legendary Chien Lung TV series in 1991.

Pyramid schemes, which are illegal in China like many other countries, are businesses that recruit people whose job is to enrol others into the scheme rather than selling a specific product or service.

The business model means only a few people at the top of the pyramid earn money, while the large number at the bottom will make little to zero return on their investment.

Taiwanese actors Zhang Ting and Lin Ruiyang founded Shanghai Dowell Trading in 1996. Photo: Weibo alt=Taiwanese actors Zhang Ting and Lin Ruiyang founded Shanghai Dowell Trading in 1996. Photo: Weibo>

They are similar to multilevel marketing in terms of structure, but do not involve a specific product.

As early as 2016, the Beijing Youth Daily newspaper reported several skin irritation and acne cases caused by the face masks. The “China Consumer Reports” journal also featured cases of skin damage caused by the products as one of its annual cases as part of International Consumer Rights Day in 2017.

Li Xu, the founder of the Chinese civil society organisation “Li Xu anti-multi-level marketing team,” said Shanghai Dowell Trading uses three typical features of a pyramid scheme, namely the need to pay a joining fee, the number of people involved and the method of payment.

The correlation between agents’ salaries and the size of their teams means the more members people bring in, the more commission they receive, he added.

Li said traditional pyramid schemes are based on pure money flow and are more likely to gather funds in the name of investment, which differs from the current pyramid micronet businesses that own legitimate companies and products.

“They have legitimate companies as a cover and will even have celebrity endorsements, but it’s still a pyramid scheme in nature,” said Li.

Shanghai Dowell Trading was recognised for making the highest annual tax payment in Shanghai’s Qingpu District in both 2017 and 2018, with the company claiming to have paid 2.1 billion yuan (US$330 million) in tax in 2018 alone.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

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