China Economy

Chinese police swoop on HK$59 billion ‘record-breaking online Ponzi scheme’

Mastermind of peer-to-peer lender Ezubao fleeced backers in a scheme that involved more than 900,000 investors across the country, the authorities say

PUBLISHED : Sunday, 31 January, 2016, 11:52pm
UPDATED : Monday, 01 February, 2016, 3:00pm

Chinese authorities have busted a Ponzi scheme involving over 50 billion yuan (HK$59 billion) and more than 900,000 investors across the country, state-run Xinhua reported late Sunday night.

The case surrounding Ezubao, China’s largest online peer-to-peer (P2P) lender, is set to become the country’s biggest illegal fund-raising case in terms of money and the number of investors.

At least 21 suspects, including the scheme’s alleged high-flying mastermind, Ding Ning, were under arrest, Xinhua reported. The suspects are accused of luring in investors with false offers of double-digit annual returns.

Ding, 34, financed his lavish lifestyle with money fleeced from investors, according to previous reports by Caixin.

READ MORE: China’s HK$59 billion online Ponzi scheme: who started it, how did it happen and now what?

Ezubao was launched in July 2014 and embarked on a massive advertising campaign to raise funds.

On the surface, it was a P2P website with various projects, offering investors annual returns ranging between 9 per cent and 14.6 per cent.

In reality, the website’s operators made up most of the projects listed on its website and used funds from new investors to pay old debts, Xinhua reported.

“Ezubao is a complete Ponzi scheme,” Zhang Min, the former president of Ezubao’s operating company and its public face, was quoted by Xinhua as saying from a police detention centre. Zhang reportedly said the company’s executives knew it was all a fake.

READ MORE: Funds frozen in China P2P cleanup

Xinhua also quoted Yong Lei, Ezubao’s risk controller, as saying, “As far as I know, 95 per cent of the listed projects are fake.”

The case came to light as President Xi Jinping listed financial risk management as one of the priorities for the country’s for “economic work” this year. It also came as the country’s political and legal affairs commission pledged to crack down on illegal financing deals and activities conducted via the internet.

As far as I know, 95 per cent of the listed projects are fake
Yong Lei, Ezubao’s risk controller, as quoted by Xinuhua

Xinhua reported that Ding used investors’ money to fund extravagant personal outlays, including gifts for Zhang. Among those gifts were a villa in Singapore valued at 130 million yuan, a pink diamond ring worth 12 million yuan, and 550 million yuan in cash, according to the Xinhua report.

He also used the raised funds to pay huge salaries to the company’s employees.

READ MORE: China sets rules for online lenders as it vows to cleanse the market

Ding Dian, Ding’s younger brother, saw his pay rise to over 1 million yuan a month, Xinhua reported.

Police started to investigate the case in December as it became clear that the Ezubao scheme was unsustainable.

But the case has proved a challenge, with investigators confronting a network of at least 200 computer servers and a multitude of places and people linked to the scheme.

To conceal evidence, Ezubao’s executives put more than 1,200 account books into 80 plastic bags and buried them six metres below ground in an Anhui suburb. Police took over 20 hours with two excavators to dig them up, Xinhua reported.

Police were still tracking the flow of money, and the Ministry of Public Security would soon have a website link for victims to register their details, Xinhua added.