The dangers of pyramid schemes

The iCon Group became the subject of significant attention after several victims filed complaints against the company. The estimated damage is over 2.4 billion baht, and the Police Central Investigation Bureau has issued arrest warrants for the iCon Group on charges of committing public fraud and inputting false information into a computer system.
The iCon Group is also accused of being a pyramid scheme since it recruits new members instead of selling products and services.
The main reason iCon Group has gotten so much attention is because three celebrities — TV host Kan Kantathavorn, Peechaya “Min” Wattanamontree and Yuranunt “Sam” Pamornmontri — were hired as product presenters and received huge payments. Some victims claimed they invested in iCon because they were fans of the celebrities and believed in them.
From the first case, Share Mae Chamoy in 1989, there have been many pyramid and Ponzi schemes in Thailand. To educate people about these schemes so that they can avoid being scammed, the Office of Innovations and Social Missions at Kasetsart University organised a forum titled “Modern-day Pyramid Schemes: Why Do People Still Fall Victim?”.
Lertsak Raktham, director of the Office of Consumer Protection Board (OCPB)’s Legal Execution Division, pointed out that many people fall for Ponzi schemes because scammers claim they can provide quick returns from short-term investments.
“If someone promises you a 100 baht return on your 1,000 baht investment in just one week, you must suspect it is likely a scam. There is no investment that brings quick and huge returns. If any company offers returns that are higher than legally allowed, it violates Section 4 of the Emergency Decree on Borrowing regarding Public Cheating and Fraud, B.E.2527, making it an act of public fraud,” said Lertsak.
Lertsak also explained that companies which run Ponzi schemes usually attract people with the promise of potential material wealth and a glamorous lifestyle.
“Companies running pyramid and Ponzi schemes usually create an image of wealth and success. They often post images and advertisements showcasing stacks of cash, supercars, luxurious houses, designer products, international travel and association with high class people,” he said.
Due to recent coverage of the iCon Group, people have developed a negative perception about direct selling companies.
To help people distinguish between companies running a Ponzi scheme and direct selling companies, Nadhakan Shinnaranantana, head of the Department of Marketing at Kasetsart Business School, explained that while direct selling companies focus on selling products, companies involved in Ponzi schemes concentrate on recruiting new members.
“Most direct selling companies have products the public is familiar with. These companies usually have warehouses to stock their products, but distributors do not have to stock products themselves. New distributors may have to pay a registration fee, but the fee is reasonable. After registration, distributors will receive sales manuals and product samples. Companies will provide training to distributors, so they will understand more about the products,” explained Nadhakan.
“Income for direct selling distributors comes from product or service sales, not from recruitment or purchasing positions. Business operators or entrepreneurs are required to submit a compensation plan to the Office of Consumer Protection Board for review and approval. In Thailand, there are over 600 direct selling companies which are registered with the OCPB. With the high level of competition, only 5% of total distributors are successful.”
Unlike direct selling companies, companies running pyramid and Ponzi schemes have a high registration fee and do not focus on their products, or have low quality offerings.
“Legal direct selling companies must have a product return policy for distributors or sales representatives, while companies with pyramid or Ponzi schemes do not have this policy,” Nadhakan explained.
“These scam companies usually guarantee quick returns but the Securities and Exchange Commission always warns that any investment involves risk, so investors should evaluate and weigh all aspects before making a decision. Moreover, scam companies allow their downlines to purchase positions and recruit new members in order to scam them for income.”
Asst Prof Thanasin Tanompongphandh, chairman of the Faculty of Economics Center for International Affairs, noted that the iCon Group surged in growth after the Covid-19 pandemic because people were unemployed and searching for new ways to make money.
According to the company’s revenue report, 2021 was its most profitable year. In 2020, the iCon Group earned 378 million baht and made a profit of 9 million baht. In 2021, it earned 4.95 billion baht and made a profit of 813 million baht. In 2022, it earned 3.02 billion baht and made a profit 188 million baht.
Asst Prof Thanasin noted that there are two incentives to increase downlines. The first incentive is a retail price at 2,500 baht and the other is a wholesale price at 25,000 and 250,000 baht. If products are sold at the wholesale price, the distributors will earn a large profit.
There are many levels in the iCon Group such as Boss, Emperor, Royal Crown, Crown Dealer and Wisdom Dealer. Asst Prof Thanasin commented that the titles of each level are like social status, which motivates distributors to recruit more downlines.
When the host asked why the public attention focused on the three celebrities in the news, Nadhakan replied that using celebrities as presenters can attract a large number of people.
“Celebrities are key factors as to why many fans become distributors. Some fans do not even consider the product’s quality because they trust in the celebrity they admire,” said Nadhakan.
Asst Prof Thanasin warned: “This case is a crucial lesson for celebrities who endorse products. Celebrities who use their fame and credibility to guarantee a product should be more selective and check out the product carefully.”
Surakij Singhapol, legal and case officer at the Thailand Consumers Council, explained the investigation has to focus on celebrities who are the “boss”, in this case because crucial information will come from them.
“Police officers must gather crucial information from high-ranking employees. Investigators will also examine lower-level employees to determine consistency. After that, investigators will identify which legal violations the iCon Group broke,” said Surakij.
If you are one of the victims of any pyramid or Ponzi scheme, Surakij suggests that before going to the Thailand Consumers Council, people should file a fraud report at a police station because that is concrete evidence for compensation.
“Before filing a report, victims should gather all relevant evidence such as bank transfer slips, online chats and ads or promotional materials that lured them into becoming distributors. To terminate a contract, victims must create written evidence, such as a cancellation letter or an online chat. Then, they should file a police report that they have this cancellation letter. This may help their chances of claiming a refund,” said Surakij.
“To prevent consumers from falling victim to pyramid and Ponzi schemes, they must check the company’s background. They should check websites to see if the company is registered legally or consult with the Office of Consumer Protection Board or the Securities and Exchange Commission.
“If you become a victim, you should file a report at a police station to protect your rights and the rights of others. Don’t become an upline of scammers. All victims are encouraged to gather evidence, file a police report or call Thailand Consumers Council at 1502 for advice.”