The U.S. Securities and Exchange Commission said Zhunrize Inc., an Atlanta-based business, has been ordered to halt operations after the agency accused it of a global pyramid scheme that allegedly has raised more than $100 million.
The company sells online stores to members who then sell company-provided products on those sites.
Zhunrize and Chief Executive Officer Jeff Pan could not be reached for comment. Pan also is named in an SEC complaint filed in U.S. District Court in Atlanta this week.
The SEC said the court has issued a temporary restraining order against Zhunrize, and the company’s assets have been ordered frozen.
The agency said Zhunrize, founded in 2012, is operating a pyramid scheme because its sales commission structure is based on the recruitment of new members, not product sales. The company has taken in about $105 million from about 77,000 fee-paying members since it began operations, the agency said.
On its website, Zhunrize says it provides what it calls fully operational online savings stores to members, or “e-commerce business owners.” The stores sell everything from apparel, shoes and jewelry to games, music, computers and automotive supplies.
Owners pay a one-time upfront fee of as much as $3,000 to operate a store, plus $100 a month to operate it, according to the company’s website.
In a promotional video on YouTube, Todd Spencer, vice president of product sales and product development, suggests members working from home can make “$500 to $1,000, to $3,000, to $5,000 to $10,000 a month.” The company, however, also adds a disclaimer: “Success at Zhunrize is not guaranteed, but rather influenced by an individual’s specific efforts and product sales.”
The SEC, however, said the majority of Zhunrize’s revenue comes from the fees owners pay rather than product sales.
“In fact, the company is operating as a pyramid scheme because its commission structure is based on the continual recruitment of new members, with the most lucrative returns dependent on the downline recruitment of other members,” it said in announcing the case.
Zhunrize hosts regular webinars to explain how members can make more money through what it calls income sharing.
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