China Company Accused of Fleecing Investors of $7.6 Billion

Ezubao offered investors annual returns of between nine percent and 14.6 percent on various projects, the official Xinhua news agency reported – far more than now offered by Chinese banks’ wealth management products.

Chinese authorities have struggled to regulate the sudden boom of online investment schemes that promise higher returns than those at traditional banks. Yucheng Global’s three other businesses had a combined revenue of 800 million yuan and net profits of less than 100 million yuan, nowhere near enough to cover Ezubao’s needs.

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.

State run China Central Television (CCTV) aired confessions from some of the major players Sunday night.

He also splashed out investors’ money on a lavish lifestyle, including giving Zhang a 130-million-yuan villa in Singapore and 500 million yuan in cash.

Chinese authorities have arrested more than 20 suspects who are accused of involvement in a massive Ponzi scheme that allegedly swindled hundreds of thousands people out of billions of dollars. If it had occurred in the US, it would rank behind only the $17 billion in investments that Bernie Madoff stole, and narrowly ahead of the $7.2 billion fraud perpetuated by Robert Allen Stanford.

The growing middle class in China has been brought to internet investment schemes as individuals seek to rapidly raise their riches.

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

Police shut down the operation in December, prompting scores of protesters to gather in Beijing to demand their money back. Then, under the model of assignments of credit, once the companies operating the projects got financing, they would pay fees to the leasing companies, which would then pay interest to investors as well as the principal amount of their investment, Xinhua said.

“I told my mother that this is like a pyramid scheme and they are seeking to brainwash investors”, said a man in an online post. “But how they were doing it online, and the scale, was unprecedented”.