BEIJING — Chinese police arrested 21 employees at China’s largest online finance business on suspicion of fleecing 900,000 investors of US$7.6 billion, in what could be the biggest financial fraud in Chinese history.
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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 length of about 18 months.
Ezubao was probably the most spectacular player inside a booming online investment industry that Chinese authorities happen to be can not 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 frequently offer interest rates below inflation.
Ezubao promised investors that borrowers would repay loans at rates of interest between 9 percent and 14.6 percent, but 95 per cent of these borrowers were fictional entities developed by Ezubao, an old 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 right before the widely viewed nightly CCTV newscast, their state broadcaster’s flagship program.
Ezubao seemed 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 job interview has since been removed from the site.
State media took a much 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 also the gifts he lavished on the business partner Zhang Min, including a US$20 million villa in Singapore and a US$1.8 million pink band.
“The fact is that it’s a fraud … it’s a typical Ponzi scheme,” Zhang, the associate, said in her own aired confession.
Despite the billions cited in the case, Ezubao, which also went by Ezubo on its website, represented only a sliver of China’s shadow banking industry estimated to become worth US$1.5 trillion as of the end of June, based on Chinese banking regulators.
Independent economists and party officials alike have warned concerning the danger of unchecked private lending and the political spillover of the large-scale collapse.
After police turn off Ezubao in December, lots of protesters gathered outside a Beijing government building to demand their cash back. Simmering anger on social networking also spurred public security officials to phone Online users to warn them against criticizing the Communist Party online.
One investor from Northeast China who lost close to US$80,000 told The Associated Press in December that police confiscated her computer and cellphone after she posted online that they might file a petition with the central government.
Fu Weigang, a researcher at the Shanghai Institute for Finance and Law, said difficulty obtaining financing inside a state-dominated banking system has for decades driven Chinese citizens into underground borrowing and lending, that 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 some countrywide level.
“What they were doing was nothing new in China,” Fu said. “But how these were doing it online, and the scale, was unprecedented.”
The Associated Press
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