Regulators eye shady marketers
by Thuy Anh
The recent arrests of top managers of the Muaban24 Online Trade and Training Co for alleged fraud through their direct-sale network – aka pyramid scheme – has brought home the urgent need for tightening regulation and oversight of direct sales in Viet Nam.
Multi-level marketing, as it is euphemistically called, is a method of marketing and retailing goods directly to end-users through a network of distributors who are also "members" that is very popular in many countries.
Since it was legalised in Viet Nam 10 years ago, almost 80 companies set up shop, but 23 of them closed and two were shut down by authorities. Twenty others have been punished for flouting regulations and two are now under investigation.
Direct sales firms usually make money by luring people to join their distribution network with a promise of high incomes and persuade them to buy goods to resell and coax others to become their sub-agents with the same promise. All it means is taking money from one to pay others.
"The crux of the problem is that participants pay the high cost and then receive a bonus, which is deducted from the following investors," Scott Balfour, vice president for international legal issues of global direct marketing giant Amway Corp, told a seminar held last week by the HCM City Department of Industry and Trade.
Theoretically, direct sales saves on intermediaries' cut and advertisement costs and offers flexible jobs.
Tran Vinh Nhung, deputy head of the department, said the current legal framework lagged behind market development, allowing operators to take advantage.
Doan Ngoc Minh of the Da Nang Department of Industry and Trade said multi-level companies exaggerated their product quality and functions to push up prices at the expense of consumers.
But it is admittedly not easy to monitor them since direct-sales firms have no shops.
Regulations require them to report every six months but only to the Department of Industry and Trade of the place they registered their business with, making it harder for authorities in places where they expand to.
By the end of last year more than one million people were members of direct-sales networks and they made a total turnover of around US$200 million, up from 881,000 persons and $140 million in 2010.
Securities fraud revealed
Authorities have uncovered violations by several securities companies and arrested their bosses for fraud and flouting regulations, as detecting them has become easier in this sluggish period than when the market was bullish.
The stock market's collapse has meant many shares are illiquid, and many clients doing margin deals do a vanishing act after they lose money.
To retain customers, securities companies routinely flouted regulations related to margin lending and margin calls.
The latest fraud by Sacombank Securities Company (SBS) which "intentionally released untrue information or hid facts about securities-related activities, influencing securities prices."
SBS has yet to release its second quarter financial report as required. According to the first quarter report, the company suffered an accumulated loss of VND1.424 trillion (US$68.5 million) despite selling its building in HCM City for VND355 billion (US$17 million).
Phan Minh Anh Ngoc, chairman of the Rubber Securities Company, has been arrested for investigations of financial problems at the Viet Nam Rubber Financial Company of which he was once general director.
On August 2 the Small and Medium Enterprise Securities Company (SMES)'s chairman Phan Huy Chi and general director Pham Minh Tuan, who were considered responsible for the company's failure to pay clients and other frauds, were arrested.
It too had provided excessive loans to customers in the form of margins, many of whom disappeared leaving SMES in the lurch.
Previously Pham Thi Tuyet Mai, former general director of Vietinbank Securities Company, Truong Duy Son, former chairman of Ha Thanh Securities Company, and Hoang Xuan Quyen, former general director of Lien Viet Securities Company, have been prosecuted for fraud, causing losses, and misappropriating others' assets.
Nguyen Doan Hung, vice chairman of the State Securities Commission, promises that the SSC will improve risk management and oversight of securities companies.
New regulations on risk management will be issued this year to improve the quality of the market, he says. — VNS