The platform, based in the southwestern city of Kunming allowed people to trade 14 rare metals, and to borrow money from retail investors online with a 20 per cent down payment. But Shan's troubles began in mid July when trading was suspended after Fanya became unable to pay back investors' principal and a 13.7 per cent annualised return it had guaranteed.

The outstanding debt from more than 80,000 investors across the country stood at about 36 billion yuan, Fanya estimates.

Angry investors kidnapped Shan from a five-star hotel in Shanghai in late August, pushing him to the ground before carting him off to a local police station, urging him to give back money. After a few hours of negotiations, Shan returned to Kunming promising to find a solution.

The 51-year-old Shan said it was not Fanya's responsibility to repay the money to the investors.

"The money from investors has been lent to more than 400 financiers through Fanya. We are acting as a bridge, not a borrower. I have submitted the list of borrowers to the Kunming municipal government, as well as the Yunnan provincial government," he said, noting that more than 90 per cent of the money had been lent to less than 100 private companies. The rest was owed by more than 400 individuals.

Shan said Fanya was responsible for the collecting money from lenders and matching each of their investments to a specific borrower. It charged handling fees and custodian fees, and made profits of several hundred million yuan, but never manipulated prices. No investor money was transferred to his own account, he said.

A college graduate in statistical sciences, Shan entered the commodities futures industry in 1996. He bought a brokerage called Dahua Futures in 1999 in Shanxi province and sold it several years later. With the money from the sale he set up SCOAL, a spot trading platform for coal products in Shanghai, but closed it in 2010 "as some trading practices were not allowed by the authorities", he said.

He set up Fanya the same year with help from a small team of four or five people he described as "professionals".

However, people who put money into the platform have cried foul, saying they thought they were buying a wealth management product named Ri Jin Bao, rather than lending money to unknown people online.

"The sales manager told me it was a wealth management product issued by a government-backed company. I would not have dared to put a penny into Fanya if I had known it was actually an online peer-to-peer lending platform," said Vivian Jiang, who works at a university in Shanghai. She said more than 800,000 yuan of her money was now frozen in her Fanya account.

Shan said Fanya had never issued any wealth management products. Ri Jin Bao was a nickname "invented by some sales manager" to explain Fanya's "entrusted loan" business, he said.

An advertising leaflet issued by one of Fanya's authorised agents in Guangzhou said: "Rare metal investment on Fanya's platform is as safe as bank savings. The operational process is clear and regulated. The returns will be at your account in a timely way and you can withdraw capital at any time. It is more stable than stocks, while much more rewarding than bank savings!"

Shan said he had never consulted any financial institutions or legal entities over the running of the platform, since "practice goes ahead of theory". "The CSRC [China Securities Regulatory Commission] had questioned the lending business at the end of last year after an inspection, while the Yunnan provincial government has said we did nothing violating current rules, " Shan said. "Fanya has clearly stated the rights, responsibilities and risks of each party on our website."

An investor who was present when Shan was pulled from his Shanghai hotel said people believed Shan had registered many shell companies, and used those shell companies to trade and borrow money.

A rare metals producer who operates a bismuth factory in Jiangxi province and who gave his surname as Wu, said he started selling on Fanya in late 2013, but never knew who the buyers were because users were anonymous. "Trading was very active on Fanya. The turnover on this platform used to make up 60 to 70 per cent of my company's total turnover," he said.

"However, trade volume shrank sharply since last December, when they changed the settlement rule from same day to five days and introduced a real-name trading system. I hardly sold any products after that."

Shan said Fanya changed the trading system last December after an inspection by the market regulator, the CSRC. He said it was this change that directly drained the liquidity of the platform, as many people gave up trading, but he did not inform investors because he thought he should not mislead the market.

Wu said he had had concerns over Fanya's business model as it offered 100 per cent credit to anyone who paid 20 per cent as a down payment. And if the price of the metals fell, the borrowers simply left the market, losing only their down payments and leaving those who financed the deals with the risk.

"I reminded Shan several times about the risk last year, as the outcome could be huge once the capital chain breaks. However, he seemed very capable of getting funding at that time," Wu said. "Shan told me 'money is infinite'.

Rise and fall

Shan Jiuliang set up Fanya in December 2010 with the approval of the Kunming municipal government. Fanya was brought under provincial government supervision from 2011, after the State Council initiated a national campaign to clean up regional exchange platforms.

The China Securities Regulatory Commission (CSRC)questioned Fanya's business during an inspection, urging it to change its settlement cycle from same day to five day and introduce a real-name trading system.

The Yunnan Securities Bureau said Fanya posed "huge risks" in a post on its website, but removed it a few hours later.

Fanya announced it would follow the CSRC's instructions and adopt a five-day settlement cycle and a real-name trading system.

The price of indium had more than doubled on the Fanya exchange by March this year from October 2011, and was well above the average global market price.

Some investors found they could not get their principal and returns from their accounts.

Fanya held a national conference for its 360 authorised service agencies all over the country to address investor issues.

More investors reported that their accounts were frozen and they were unable to withdraw principal and returns. Fanya said it would suspend part of the business.

Investors kidnapped Shan Jiuliang in Shanghai and carted him off to a local police station, urging him to give back the money.

: Fanya said it would suspend all business.

Hundreds of investors protested outside the CSRC's headquarters in Beijing and urged the central government to probe Fanya. They also accused the Yunnan government of abetting Fanya.

Fanya proposed three "debt restructuring plans" on its website, saying investors could either sell the warrants they held for the rare metals to get part of their investment back, or securitise the warrants and change them for shares of unspecified listed companies. No investor or listed company has said they are willing to accept the plan.