STEVE INSKEEP, host:
Turns out the United States is not the only country where investors are stung by pyramid schemes. In China, hundreds of thousands of people are hoaxed every year. They've lost their savings investing in ant farms and fictitious projects to promote AIDS awareness, not to mention scams that promised big returns from sinking cash into cemeteries.
NPR's Louisa Lim reports from the central Chinese city of Changsha.
(Soundbite of man speaking Chinese)
LOUISA LIM: This is the sound of dreams being shattered. We're sitting in a nondescript hotel room. A young man is talking, an elderly man is sitting absolutely still, listening - a twitching muscle in his cheek the only sign of his turmoil. Slowly, painfully, the realization is dawning on him that he's invested his life's savings — some $30,000 — in a pyramid scheme.
Mr. CAI (Victim of Pyramid Scheme): (Chinese spoken)
LIM: Some people even sold their houses and got bank loans to invest more, says the elderly man, Mr. Cai, desperately trying to marshal evidence on his side. He was afraid to give his full name.
But the young man, an anti-pyramid scheme activist who calls himself Ye Piaoling, is in full flow. He describes exactly how Mr. Cai was conned, detailing the structure of the organization that cheated him, even down to the design of its membership cards.
I know, Ye Piaoling says, because I designed those membership cards myself.
In a final dramatic flourish, Ye Piaoling comes clean: I myself was once a pyramid scheme boss, he admits.
Mr. YE PIAOLING (Anti-Pyramid Scheme Activist): (Through translator) Although I'm very young, I entered this business in 2004. Nine of us controlled 40,000 people. In the past, I've cheated a lot of people. You are effectively my victim.
LIM: Once a master scammer, Ye Piaoling now devotes himself to the scammed. He was called here by Mr. Cai's son, a 26-year-old university graduate who asked that his name not be used. His suspicions were raised after his father tried to get him to invest money.
Unidentified Man (Mr. Cai's Son): (Through translator) Because of the economic crisis, our family factory is facing bankruptcy, so my father was depressed. He wanted to find new opportunities and a new life.
LIM: Chinese pyramid schemes are a heady mix of economic scam and quasi-religious cult, where the object of worship is money itself. This sound is a secret recording of a brainwashing session inside a pyramid scheme, obtained by a Chinese journalist who went undercover.
(Soundbite of chanting)
LIM: Pyramid schemes are illegal in China, but it is legal to sell directly to customers, as Amway does. And pyramid schemes often blur the difference to persuade people like 47-year-old Mr. Li, to join.
Mr. LI (Pyramid Scheme Victim): (Through translator) They persuaded me by saying our former leader Deng Xiaoping had brought direct sales to China from the West. They said it was in a gray area and not yet legal. Once legalized, it wouldn't be so profitable, but right now you could make profits of 60 percent.
LIM: In his case, the supposed product was a health tonic, but he never saw it. That didn't stop him from handing over $6,000 of hard-earned cash that he'd made as a pig farmer to buy 15 shares of the product.
Mr. LI: (Through translator) It was voluntary. They brainwashed you, and as you got involved, you handed over your money. They said if you spent that much, you could make $20 million in profits.
LIM: Nationally, the figures on pyramid schemes are extraordinary. Last year, a fertilizer scam conned 380,000 people. The year before, a cosmetics fraud involved half a million people.
Numbers are hard to come by. The government department responsible, the Anti-Pyramid Scheme Office, didn't reply to requests for information. But Xinhua News Agency says the government cracked down on 3,747 pyramid schemes in the first 11 months of last year.
Mr. Li's son, another university student, describes the reaction when he went to the police.
Unidentified Man (Mr. Li's son): (Through translator) They said this had been happening in the area for several years. They needed proof, but I didn't have any. They wanted me to be their undercover agent and pay money to the pyramid scheme and then report it. How could I be their spy?
LIM: Some family members of victims believe local officials turn a blind eye to pyramid schemes because they stimulate the economy by luring thousands of victims to live in remote rural areas. There, they live in closed communities, attending brainwashing sessions and sleeping in sex-segregated dorms.
(Soundbite of singing)
LIM: For entertainment, they sing songs together, such as this one. This sense of community and the spiritual satisfaction derived from it is one psychological tool used by pyramid schemes. Just days after leaving his group, the elder Mr. Li is already nostalgic.
Mr. LI: (Through translator) There was real affinity between people. It was like a great big family. Our society today is just people shoving each other, people exploiting each other, only inside the group, we helped each other.
LIM: Pyramid schemes prey on the aspirational and the vulnerable. These aren't hard to find in get-rich-quick China, where the big wealth gap stokes both resentment and determination. Pyramid scheme victims cut across society, with anecdotal evidence indicating university students are particularly susceptible, especially given the scarcity of jobs. Activist Ye Piaoling warns the trend is likely to get worse.
Mr. PIAOLING: (Through translator) The financial crisis offers a historic chance for the proliferation of pyramid schemes. According to our statistics, there are probably between five and 10 million pyramid scheme victims in China. But if China goes on like this, the number of victims could increase to 50 million in less than three years.
LIM: Since July, he's received about 50 phone calls a day asking for help. In the past three years, this 30-year-old has extricated about 300 people from pyramid schemes. He says he's motivated by guilt over his years as a pyramid scheme boss.
Mr. PIAOLING: I'm doing this to try to salve my conscience. I've cheated lots of people, now I want to save lots of people. Huge numbers of people hate me. That's why I haven't gone home for six years. Even my parents hate me for tricking all my friends and relatives.
LIM: Back in the hotel room, Ye Piaoling tells Mr. Cai one last reason for his conversion. Maybe when the police finally catch me, he says, they'll be kinder to me. He has been talking for over an hour to Mr. Cai, who has at last agreed not to return to the pyramid scheme.
Today's work is over for the activist, but with the economic crisis worsening, he fears what tomorrow might bring.
Louisa Lim, NPR News, Changsha, China.
(Soundbite of music)
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