Endorsed brand turns out to be a scam, celebrity apologizes and trends on social media

[4] Compiled from: Red Star News
 
Recently, Shanghai police uncovered a suspected contract fraud case involving up to 700 million yuan. Some netizens noticed that famous actress Ma Yili is the brand ambassador for this brand.

 

On the 15th, Ma Yili issued a statement on Weibo regarding the alleged illegal and criminal activities of the tea brand Chazhilan, which she had endorsed. In the statement, she said that after receiving notice from the police, she immediately notified the brand of the termination of their contract. Ma Yili also stated that she would assist the defrauded franchisees in defending their rights.
 
 
Case review
The brand Chazhilan, endorsed by Ma Yili, is a milk tea brand suspected of illegal and criminal activities. Since the end of last year, Shanghai police have received numerous reports from franchisees of the brand's milk tea shops. After extensive investigation, they discovered suspected economic crimes and, on March 23 of this year, apprehended a fraud gang led by suspects surnamed Jin and Wang.

 

Investigation revealed that the gang established a catering company and set up multiple fraudulent franchise recruitment websites for well-known bubble tea brands. They also forged authorization documents for multiple brands and even hired people to pose as consumers, forming repeated queues in front of bubble tea shops during on-site inspections by prospective franchisees to create the illusion of a booming business and defraud franchise fees. Currently, the police have shut down multiple fraudulent recruitment websites, arrested over 90 suspects, and the amount involved in the case exceeds 700 million yuan.
 
During the investigation, police found that the criminal gang hired people at rates ranging from 40 to 80 yuan per person per day to pose as consumers and line up repeatedly in front of milk tea shops to attract franchisees. After franchisees paid the franchise fees, the gang performed its obligations in bad faith by delaying site selection, randomly choosing locations by browsing maps, inflating renovation and procurement quotes, and supplying substandard raw materials, directly causing many franchise stores to operate poorly or even close down.
 
Victim Ms. Gao recalled that after an on-site visit in Shanghai in May 2020, she paid 100,000 yuan as a franchise fee for the "Chazhilan" milk tea brand. However, after the payment, the comprehensive support services that had been promised were never delivered. The company did not help the franchisee find a store location or provide training; it only gave her a stack of milk tea recipe ratio materials and left the franchisee to figure things out on her own. Three months after opening, Ms. Gao's store had dismal business and she was forced to close down. Angered, Ms. Gao approached the company to demand an explanation, but the company ignored her, citing poor management on her part as the reason.

 

Several franchisees said their stores are indeed still operating, but they were shocked to learn that the brand owner is suspected of a crime and have no idea how to resolve the situation. A franchisee of the "Cha Zhi Lan" milk tea shop in Nanchang said he joined the franchise last November and made a special trip to Shanghai to inspect the business at the time, which seemed to be doing well. After paying a 120,000 yuan franchise fee, the company failed to deliver on many of its promises. He has now invested over 300,000 yuan in total, yet business remains poor. "I'm losing money every day, and this incident has made things even worse. I don't know what to do."
 
 
The [3] Advertising Law "
[4] Article 56
[5] If an advertising endorser knowingly or should have known that the advertisement is false, yet still designs, produces, acts as an agent, publishes, or recommends or certifies it, they shall bear joint and several liability with the advertiser.
 
[6] Article 61
If an advertising endorser recommends or proves a product they have not used or a service they have not received; or if they knowingly or should have known that the advertisement is false but still recommend or prove the product or service in the advertisement, the market supervision and administration department shall confiscate the illegal income and impose a fine of not less than one time but not more than two times the illegal income.
 
 
[1] The author's perspective
However, in reality, there are few cases where advertising endorsers bear responsibility for this. One core reason is that the two main bases for an endorser's liability include knowing or should have known that the advertisement is false and recommending a product they have not used or a service they have not received. In practice, most celebrities have professional legal teams providing legal services, and when accepting advertisements, the team generally helps the celebrity avoid certain legal risks.
 
Taking this case as an example, if there is relevant evidence to prove that Ma Yili knew that the Chazhilan brand was engaging in contract fraud and still endorsed it, as an endorser, Ma Yili's behavior would constitute aiding and abetting, potentially involving joint criminal liability. However, in reality, this possibility is not high.
 
Nevertheless, based on information disclosed by the media, the Chazhilan brand was established purely for fraud, with its business being entirely fraudulent and involving almost no normal business activities. Therefore, all fraudulent funds of Chazhilan are illegal proceeds and should be recovered according to law. Regardless of whether the advertising endorser fulfilled their review obligations, their endorsement fees should be recovered through the asset recovery process and used for compensation to the victims.