Chinese authorities pursuing a nationwide campaign against unregulated investment firms and online lenders have revealed details of a Ponzi scheme that allegedly defrauded more than 25,000 investors of 39.9 billion yuan (US$6.12 billion).
Wealthroll Asset Management Co (中晉資產管理公司), a Shanghai-based seller of wealth-management products, still had unpaid debt of 5.2 billion yuan owed to 12,800 individual investors, the Chinese Communist Party-controlled Jiefang Daily reported yesterday, citing police and a confession from the firm’s owner Xu Qin (徐勤).
Xu and 34 other executives from Wealthroll, which was shut down by police last month, were arrested on Friday for allegedly raising public deposits illicitly, the report said.
Chinese authorities are acting to head off potential instability after almost 1,000 online lenders collapsed in the past year and amid signs of fraud at wealth-management firms. In December, the nation’s biggest-ever Ponzi scheme was exposed after Internet lender Ezubao (租寶) allegedly defrauded more than 900,000 people out of the equivalent of US$7.6 billion.
Xu squandered investors’ money on homes, luxury cars — including a 47-million-yuan Bugatti — and raised peacocks at his home in Shanghai’s Lujiazui financial district, the Jiefang Daily said.
“From the way we operate, we are a Ponzi scheme,” Xu said in a televised confession published on the newspaper’s Web site.
The ex-soldier, who was born in 1981, started Wealthroll in 2011 with 5 million yuan from family and friends, and offered a 2 percent monthly return to attract his first investors, the paper said.
China’s Cabinet last month started its first campaign to clean up illicit activities in Internet finance, focusing on areas such as third-party payments, peer-to-peer (P2P) lending, crowdfunding and online insurance. It suspended the registration of all new companies with finance-related names.
As the number of P2P firms grew, the online lenders began opening stores on busy streets or in luxury office buildings and hired thousands of staff to sell products promising extraordinary returns to lure funds from investors. Other brick-and-mortar firms sprang up offering wealth-management products with big payoffs, and many of those moved online too, giving visibility to what was previously the hidden world of shadow banking.
Among the more than 220 partner firms Xu established to raise funds from investors, only one was registered with the securities regulator and all the proceeds went into Wealthroll’s own asset pool rather than into the custodianship of a bank, the report said.
The firm paid its sales managers commissions ranging from 4 percent to 400 percent, based on the type of products.
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