Chinese company accused of defrauding investors of $7.6B

BEIJING - Chinese police arrested 21 employees at China's largest online finance business on suspicion of fleecing 900,000 investors of $7.6 billion, in what could be the biggest financial fraud in Chinese history.

See Full Article

State media outlets reported the arrests late Sunday. State broadcaster CCTV aired purported confessions from two former employees at Ezubao, an Anhui Province outfit that rose from obscurity to become China's largest online financing platform in the span of about 18 months.

Ezubao was the most spectacular player in a booming online investment industry that Chinese authorities have been struggling to regulate. Firms ranging from established Internet companies such as Alibaba to virtually unknown upstarts have flooded into the business, promising higher returns than those at state-run banks, which often offer interest rates below inflation.

Ezubao promised investors that borrowers would pay back loans at interest rates between 9 per cent and 14.6 per cent, but 95 per cent of those borrowers were fictional entities created by Ezubao, a former company executive told investigators.

Behind the firm's rise was 34-year old Ding Ning, an Anhui native who dropped out of school at 17 to work at his mother's hardware factory, where he first gained experience running online sales, according to media reports.

With no technical or financial training, Ding launched Ezubao in July 2014 and opened multiple marketing offices across China. The venture bought expensive ad spots that aired just before the widely viewed nightly CCTV newscast, the state broadcaster's flagship program.

Ezubao appeared to gain Beijing's imprimatur when the gov.cn government website published an interview with Ding in July discussing his life as an entrepreneur. The interview has since been removed from the site.

State media took a far different tone on Sunday as CCTV aired Ding's confession and footage of officials hauling away bags of cash from his home. The Xinhua news agency detailed Ding's extravagant lifestyle and the gifts he lavished on a business partner Zhang Min, including a $20 million villa in Singapore and a $1.8 million pink diamond ring.

"The truth is that it's a fraud ... it's a typical Ponzi scheme," Zhang, the associate, said in her aired confession.

Despite the vast sums cited in the case, Ezubao, which also went by Ezubo on its website, represented just a sliver of China's shadow banking industry estimated to be worth $1.5 trillion as of the end of June, according to Chinese banking regulators.

Independent economists and party officials alike have warned about the danger of unchecked private lending and the political spillover of a large-scale collapse.

After police shut down Ezubao in December, scores of protesters gathered outside a Beijing government building to demand their money back. Simmering anger on social media also spurred public security officials to phone Internet users to warn them against criticizing the Communist Party online.

One investor from Northeast China who lost close to $80,000 told The Associated Press in December that police confiscated her computer and cellphone after she posted online that she might file a petition with the central government.

Fu Weigang, a researcher at the Shanghai Institute for Finance and Law, said difficulty obtaining financing in a state-dominated banking system has for decades driven Chinese citizens into underground borrowing and lending, which also gave rise to countless Ponzi schemes.

But Ezubao was able to take advantage of an influx of mom-and-pop investors in recent years using an Internet model, Fu said, effectively pushing small-scale scams to a countrywide level.

"What they were doing was nothing new in China," Fu said. "But how they were doing it online, and the scale, was unprecedented."



Advertisements

Latest Economic News

  • Infrastructure bank studied as funding option for U.S.-Canada high-speed rail

    Economic CTV News
    OTTAWA -- Washington state is exploring whether Canada's new infrastructure bank could help finance a multibillion-dollar proposal for high-speed rail between Vancouver and the U.S. northwest. The Trudeau government's soon-to-be-launched, $35-billion infrastructure bank will seek to use public funds as leverage to attract billions more in private investment for major infrastructure projects, such as bridges, transit systems and rail lines. Source
  • Asian shares mixed as attention turns to Fed meeting

    Economic CTV News
    TOKYO -- Asian shares meandered Monday as market attention turned to the U.S. Federal Reserve meeting later in the week. Japanese shares languished as the yen strengthened against the dollar. KEEPING SCORE: Japan's benchmark Nikkei 225 lost 0.6 per cent to finish at 19,975.67. Source
  • German automakers' shares fall on diesel emissions concerns

    Economic CTV News
    FRANKFURT -- The German auto industry's troubles over excessive diesel emissions are looming larger. Shares in the three biggest German automakers fell Monday after a newsmagazine report claimed they had colluded for years over diesel technology. Source
  • Australian consumer watchdog investigates air bag recall

    Economic CTV News
    SYDNEY, Australia -- Australia's consumer watchdog said on Monday it was urgently seeking information from the government regulator and car manufacturers after a magazine reported that recalled Takata air bags were being replaced by faulty air bags. Source
  • Hidden city ticketing: How air travellers are taking chances to save big

    Economic CTV News
    TORONTO -- When Kevin, a Toronto-based entrepreneur, travels to San Francisco for work, he often books a flight to Santa Ana, Calif., instead. Then he disembarks the plane during the stopover in San Francisco and skips the last leg of the flight to southern California. Source
  • Taking flight: Loonie may top 80 cents for first time since 2015

    Economic CBC News
    The Canadian dollar is flirting with 80 cents US, a level it hasn't touched since the summer of 2015. The Canadian dollar finished last week just below the threshold, settling at 79.76 cents US when stock markets closed on Friday. Source
  • Greening Canada's oil could be good for business and the environment: Don Pittis

    Economic CBC News
    To much of the world, Canada's oil production is indelibly linked to images of tortured landscapes that make oilsands mining seem like something out the evil land of Mordor in J.R.R. Tolkien's Lord of the Rings. Source
  • Online calls to #BoycottSearsCanada over treatment of ex-employees

    Economic Toronto Sun
    TORONTO — Sears Canada is facing a social media campaign calling for a boycott after the company said it planned on paying millions in bonuses to keep executives on board during restructuring, despite not offering severance to laid-off workers. Source
  • Sears Canada faces online calls for boycott over treatment of ex-employees

    Economic CTV News
    TORONTO - Sears Canada is facing a social media campaign calling for a boycott after the company said it planned on paying millions in bonuses to keep executives on board during restructuring, despite not offering severance to laid-off workers. Source
  • BBC women demand immediate response to gender pay gap

    Economic CTV News
    LONDON -- Some of the BBC's most prominent female journalists and TV presenters are banding together to demand that the broadcaster fix its wide gender pay gap immediately rather than in several years as management has proposed. Source