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Developer gets death sentence for fraud

Raymond Li

A property developer in Zhejiang province has been sentenced to death for illegally raising 5.5 billion yuan (HK$6.73 billion) and for fraud involving 1.47 billion yuan. The severe punishment was meted out as the authorities step up a crackdown on pyramid schemes and underground banking.

Citing the verdict by Lishui city's intermediate court, the Procuratorial Daily reported that Ji Wenhua and three relatives illegally raised 5.5 billion yuan from the public between 2003 and 2008 by promising monthly returns of between 15 and 120 per cent.

Ji was sentenced to death on Monday, while two relatives were given suspended death sentences. The third relative received life imprisonment. Two employees from Ji's company, Yintai Real Estate Group, were sentenced to three years in prison.

The harsh penalties for the illicit fundraiser and the enormous amount involved offer further insight into the country's underground financing system, which boomed in recent years because of rising demand for funds from small private businesses shunned by state-run lenders.

The recent financial crisis in Wenzhou, Zhejiang - renowned for its entrepreneurial spirit - has raised alarm over the country's shadowy banking system. Small business owners fled the city en masse in recent months after encountering financial problems caused mainly by excessively high-interest loans.

The Lishui court said in a statement the Ji family started raising funds from the public in 2003, despite their property development company losing money. It said the company covered up its financial problems by offering high bidding prices in land auctions and through a media campaign.

Ji started raising money using his company as guarantor, promising monthly interest rates ranging from 15 to 25 per cent. Before their arrest in 2008, the Ji family had promised interest rates as high as 120 per cent.

Zhejiang University professor Li Youxing, who specialises in private fundraising scheme studies, said that once a fundraising scheme was deemed by a court to be fraudulent, a death sentence was justified if the amount involved exceeded 100 million yuan.

But commercial lawyer Zhang Junsan said death sentences should never be made a deterrent against such financial irregularities, no matter how much money was involved.

'If the harsh penalty is an indication of a crackdown, it serves only to reveal how little enforcement regulators have done in the first place,' Zhang said.

Li said regulators should have been aware of some schemes that had been operating over the years and that had raised huge amounts, but there was no enforcement or warning system.

'Only when such schemes become social problems for their fraudulent nature do the authorities begin to do something about them,' he said. 'But it often comes too late, and there's little they can do about it.'

3.6b yuan

The amount of money involved in illegal private lending activities in Wenzhou up to the end of last month

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