Zhongjin Capital Management Co (中晉資產管理) made a splash in the past couple of years in Shanghai. The wealth management firm’s imposing branch office on Shanghai’s historic Bund pulled in many eager investors seeking the double-digit returns it promised on short-term financing products. It had a big profile, sponsoring popular Shanghai TV dating program Saturday Date and signing up domestic billiards star Pan Xiaoting (潘曉婷) as a spokesperson.
However, this week, the image of riches and success that it had cultivated came crashing down. Police said they arrested 21 executives linked to Zhongjin Capital on April 5 on suspicion of “illegal fundraising,” a loosely defined term applied to irregular behavior in China’s energetic, but opaque shadow banking sector.
The only person named by Shanghai police so far has been chief executive Xu Qin (徐勤), who local media said had been arrested at the Shanghai airport on his way to get married in the Vatican. Xu has been described by domestic media as a high roller, who is under 30 years of age.
Chen Jiajing (陳佳菁), the chairwoman of Zhongjin’s parent, Guotai Investment Holdings Co (國太控股), cannot be located.
Public statements this week by two Hong Kong-listed companies in which Guotai is a major stakeholder indicated they had been unable to reach her.
Zhongjin employees said that other senior managers had been arrested during a raid on company offices. They were interrogated, allowed to use the bathroom only if they had a police escort, then hauled off, the staff said.
The authorities did not provide further information about the case.
“The really strange part was that our business hit a new all-time high on April 5, but the next day the offices were closed,” one employee who gave her name as Jiang said in a telephone interview, adding that investors had been paid off on schedule the day prior to the arrests, but were unable to withdraw funds that were scheduled to mature on April 6.
“The victims are the small investors and the low-level employees. We all got our friends and family to invest in the company’s products,” she said.
Defaults and fraud cases in China’s shadow banking sector have risen in the past few years as the economy has slowed and struggling companies have been forced to pay higher interest rates to raise cash as they try to stay afloat.
The Shanghai arrests come two days after the municipal government launched a crackdown on illegal fundraising as part of a broader effort to stem financial risks.
Zhongjin’s offices were often in some of the most expensive commercial buildings in the country and known for being full of investors eager to put down millions to buy its products.
Investors said they would line up overnight, and offices were often full from 8am until 11pm.
They looked like banks, and were often located next to banks, giving them an air of reputability — a common practice among Shanghai wealth management firms seeking to burnish their reputations for stability in the face of rising reports of failure and fraud.
Local media showed posts from social media accounts featuring a young woman claiming to be a manager at Zhongjin, including pictures of her holding what looked like six 100,000 yuan (US$15,470) bricks of cash garnished with thinner 10,000 yuan sheafs. More boxes of cash were in the background.
Other posts show her driving a Ferrari and claiming to have just purchased a 2 million yuan investment product from the company.
An investor who gave his surname as Jiang said in a telephone interview that he put 300,000 yuan of his family’s money into the company last month because of its perceived trustworthiness and high profile.
“The company’s offices were always busy, and they always paid back investments on time. Who would expect this type of company to have problems?” he said.
Investors have been told to take their cases to their local police stations, but one said he was required by the police to sign a statement admitting he was involved in illegal fundraising before they would take up his claim. He balked.
On Friday, Zhongjin investors attempted to gather at People's Square in central Shanghai, but the group was broken up by police, according to a Zhongjin investor.
Reporters viewed video showing clashes with police in the square, though that could not be immediately verified.
On Thursday, the police also broke up an assembly of investors and employees outside one of the company's offices.
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