"Family Life Ruined by Sharp Tongue"... 'Multi-Level Marketing Specialist Investigator' Talks About Fraudulent Investment Crimes [After Ponzi Scheme]

③[Interview] Kim Hyun-soo, the First Domestic Detective Specialized in Multi-Level Marketing Investigations
Illegal Multi-Level Marketing Crimes Are 'Economic Murder'
Evolving into Complex Forms... Must Adhere to Investment Principles

"People are not only killed with weapons. Multi-level marketing crimes can destroy the lives of a person and their family with just a few words."

Kim Hyun-soo, a police superintendent affiliated with the Suseo Police Station in Seoul, repeatedly emphasized the seriousness of multi-level marketing fraud in an interview with Asia Economy. Superintendent Kim is an expert in investigating illegal multi-level marketing who has dismantled similar deposit crime organizations for over 20 years. In particular, in 2018, he was selected as the first specialized investigator for multi-level marketing similar deposit offenders in Korea by the National Police Agency and has been actively involved in various investigations of similar deposit crimes.

Superintendent Kim defined illegal multi-level marketing crimes as a kind of "economic murder." This is because the recovery rate of criminal proceeds from similar deposit crimes is less than 5%, and once they explode, large-scale damage occurs targeting ordinary citizens.

On the 8th, Police Superintendent Kim Hyun-soo, whom we met at the Suseo Police Station in Seoul, is explaining about multi-level marketing crimes.
[Photo by Lee Ji-eun]

Unlisted Stock and Cryptocurrency Scams on the Rise... Occurring in Complex Forms

Superintendent Kim explained that illegal multi-level marketing crimes, which were previously limited to methods such as forcing housewives and unemployed youth to hoard health supplements, have recently evolved by combining with various investment fraud methods. It has developed from a simple crime into so-called "complex crimes."

In fact, this trend is also reflected in the National Police Agency's crime statistics over the past five years. Compared to the traditional multi-level marketing method of paying incentives for recruiting additional investors, a large number of crimes combining new types of fraud such as unlisted stock and virtual asset investments have occurred. Crimes combining so-called "point marketing"?where points are accumulated by purchasing goods and huge profits are returned?with multi-level marketing fraud are also rampant.

Superintendent Kim said, "Fraud can be seen as a kind of comprehensive criminal art. In the past, multi-level marketing fraud often involved promoting gambling or 'money for money' schemes, but recently, there are many cases where crimes occur in complex forms." He added, "As crimes combining multiple methods become widespread, there has also been an increase in cases where the same individual is punished as a principal offender for committing multiple crimes."

Cases combining newly emerging financial products in line with IT technology are also increasing. This includes fraud methods combined with P2P finance connecting investors and borrowers, and crowdfunding supported through social networking services (SNS). He warned, "As fintech businesses become active and new financial techniques develop, multi-level marketing fraud is becoming highly sophisticated."

Police Lieutenant Kim Hyun-soo of Suseo Police Station.

Difficult to Prove Deception and Light Punishments... A Vicious Cycle of Recidivism

Because the methods have become highly sophisticated, it is true that investigators spend a lot of time and effort to catch recruiters. To establish fraud charges, it must be proven that the recruiter deceived the victim and obtained financial gain.

Superintendent Kim explained that lower-level recruiters sometimes do not understand the overall flow of funds, making it difficult to judge them as co-principal offenders. He said, "To establish fraud charges, it must be proven that the recruiter deceived the victim, causing them to dispose of their property. However, it is difficult to prove the causal relationship between deception and the disposal act for lower-level recruiters who do not know the flow of funds."

Superintendent Kim is confronting these difficulties by fully utilizing his expertise in multi-level marketing crimes and simultaneously reviewing various legal theories. This includes examining charges such as breach of trust in the course of duty, violations of the Capital Markets Act, and whether deceptive acts were committed with conditional intent.

However, above all, he emphasized that to suppress multi-level marketing crimes, the sentences must be increased. Multi-level marketing crimes are likely to lead to other forms of multiple fraud crimes later, but under current law, the maximum statutory penalty for similar deposit crimes is imprisonment of up to 5 years or a fine of up to 50 million won. This creates a vicious cycle where recruiters commit repeat offenses.

Superintendent Kim said, "In reality, most suspects receive fines or suspended sentences and often conspire to commit other crimes. Because the criminal proceeds are much greater than the disadvantages from punishment, suspects who earned considerable profits without much effort find it difficult to stop committing crimes on their own."

Chief Inspector Kim Hyun-su is pointing at the blackboard while explaining the Capital Markets Act and the Financial Investment Services and Capital Markets Act. The blackboard is densely filled with classifications of financial investment products and types of investment businesses.
[Photo by Lee Ji-eun]

'Remember the Principles of Investment'... Need for Cooperation System Among Related Agencies

Since the punishment level for multi-level marketing fraud is low and the possibility of recovering criminal proceeds is low, preventing crimes in advance is also important.

Superintendent Kim advised that the first step in crime prevention is to recall the definition of investment. He emphasized, "All investments carry the risk that you may not recover the entire principal beyond just losing the principal. This ordinary truth must always be kept in mind."

For businesses with complex profit models, he recommended consulting with experts. Superintendent Kim said, "If the profit structure is complex and opaque, or if investment information is provided only to specific individuals, the possibility of fraud is very high. Consulting with surrounding experts or carefully reviewing investment documents to predict risks helps prevent crime damage."

He also emphasized the efforts of related agencies to respond to the rapidly increasing multi-level marketing fraud and to help victims. Superintendent Kim said, "Victims of large-scale financial investment fraud find it difficult to recover damages, which is likely to cause other social problems. For similar deposit crimes, the Financial Supervisory Service, National Police Agency, Prosecutors' Office, and National Tax Service must establish a close cooperation system and develop response strategies."

He added, "From the early stages, it is necessary for investigative agencies to actively work to preserve the profits formed by the criminal groups and return them to the victims to help restore their damages."

Editor's NoteThey attract investors by guaranteeing unrealistic profits. Later investors' money is used to pay profits to earlier investors. This simple structure is widely known to us as illegal multi-level marketing or Ponzi schemes. Over time, its form has evolved from forced sales of health supplements to overseas mining investments, and now to blockchain and mobile payment forms. However, as the crime methods become more sophisticated, more than 2,000 cases of damage occur every year. This series of three articles explores the pain victims endure, the sophistication of fraud methods, the reasons investigations face difficulties, and ways to prevent these crimes.