In what is being referred to as an enormous Ponzi scheme, local authorities in China are investigating allegations where a Chinese online finance company bilked investors out of more than $7.6 billion, spent lavishly on gifts and salaries and buried the evidence.
The online finance industry in China has drawn a growing number of cases of fraud and flameouts even as it still remains a lucrative area for many global leaders in the sector. The accusations cast a shadow over this business format.
Mostly fake investment products were offered to its nearly one million investors by the online company, Ezubao, once a dynamo of the industry, said the state-run Xinhua news agency. Apart from closing some of the platform’s operations, the authorities have already arrested 21 people in Anhui, the eastern Chinese province where Ezubao is based.
“Ezubao is a Ponzi scheme,” Xinhua quoted Zhang Min, a former executive at the company, as saying.
There were no comments from the company.
In order to cater to what the country’s state-owned banks will not, a new category of Chinese companies has emerged in recent years.
While the number of Chinese using their smartphones to buy groceries or transfer money is on the rise, loans to small businesses, students and others – whom the state banks traditionally ignore, are being offered by new finances companies.
Matching investors with potential borrowers over the Internet, Ezubao claims to be a peer-to-peer lender. Morgan Stanley estimated total volume of peer-to-peer lending in the country last year at $33.2 billion, surpassing the United States. Morgan Stanley says that with more than 1,500 such lending platforms, the Chinese market is highly fragmented.
While officials pledged in December to tighten regulation of peer-to-peer lending industry, local authorities have said that the cases of illegal fund-raising related to peer-to-peer lending have grown quickly in the past two years. the collapse of a major online-financing platform could raise concerns over confidence in the security of such investments due to the enormous sums involved and the large investor base.
The company was under investigation for suspected illegal business activities, reports Xinhua and it has been under the scanner for weeks.
Most of the investment products the company marketed were fake, an investigation by local authorities had revealed, Xinhua said. Xinhua said that the Yucheng Group set up the platform in July 2014 and was used to enrich top executives.
According to the news agency, Ding Ning, the chairman of Yucheng had spent more than 1 billion renminbi, or around $150 million on items and gifts including real estate, cars and luxury goods.
Ding Dian, Ding’s brother, was given a monthly salary of 1 million renminbi, raised from a mere 18,000 renminbi. In the month of November, around 800 million renminbi was spent on payroll by the company.
Quoting another executive in charge of risk management at a company affiliated with the Yucheng Group, the report said that more than 95 percent of the investment products Ezubao marketed on the platform were fake. The report also said that the people who were responsible for this did everything possible to conceal their ruse.
1,200 documents and other pieces of evidence related to the scheme were buried in 80 bags in a pit that was six meters, or nearly 20 feet deep at a site on the outskirts of Hefei, the capital of Anhui Province, said the Xinhua report.
(Source:www.nytimes.com)
The online finance industry in China has drawn a growing number of cases of fraud and flameouts even as it still remains a lucrative area for many global leaders in the sector. The accusations cast a shadow over this business format.
Mostly fake investment products were offered to its nearly one million investors by the online company, Ezubao, once a dynamo of the industry, said the state-run Xinhua news agency. Apart from closing some of the platform’s operations, the authorities have already arrested 21 people in Anhui, the eastern Chinese province where Ezubao is based.
“Ezubao is a Ponzi scheme,” Xinhua quoted Zhang Min, a former executive at the company, as saying.
There were no comments from the company.
In order to cater to what the country’s state-owned banks will not, a new category of Chinese companies has emerged in recent years.
While the number of Chinese using their smartphones to buy groceries or transfer money is on the rise, loans to small businesses, students and others – whom the state banks traditionally ignore, are being offered by new finances companies.
Matching investors with potential borrowers over the Internet, Ezubao claims to be a peer-to-peer lender. Morgan Stanley estimated total volume of peer-to-peer lending in the country last year at $33.2 billion, surpassing the United States. Morgan Stanley says that with more than 1,500 such lending platforms, the Chinese market is highly fragmented.
While officials pledged in December to tighten regulation of peer-to-peer lending industry, local authorities have said that the cases of illegal fund-raising related to peer-to-peer lending have grown quickly in the past two years. the collapse of a major online-financing platform could raise concerns over confidence in the security of such investments due to the enormous sums involved and the large investor base.
The company was under investigation for suspected illegal business activities, reports Xinhua and it has been under the scanner for weeks.
Most of the investment products the company marketed were fake, an investigation by local authorities had revealed, Xinhua said. Xinhua said that the Yucheng Group set up the platform in July 2014 and was used to enrich top executives.
According to the news agency, Ding Ning, the chairman of Yucheng had spent more than 1 billion renminbi, or around $150 million on items and gifts including real estate, cars and luxury goods.
Ding Dian, Ding’s brother, was given a monthly salary of 1 million renminbi, raised from a mere 18,000 renminbi. In the month of November, around 800 million renminbi was spent on payroll by the company.
Quoting another executive in charge of risk management at a company affiliated with the Yucheng Group, the report said that more than 95 percent of the investment products Ezubao marketed on the platform were fake. The report also said that the people who were responsible for this did everything possible to conceal their ruse.
1,200 documents and other pieces of evidence related to the scheme were buried in 80 bags in a pit that was six meters, or nearly 20 feet deep at a site on the outskirts of Hefei, the capital of Anhui Province, said the Xinhua report.
(Source:www.nytimes.com)