Founder of Shanghai investment firm Zendai Group surrenders to police after P2P lending units default on payments

Dai Zhikang, the founder of Zendai Group, a Shanghai-based closely held investment firm, has surrendered himself in connection with a scam linked to peer-to-peer lending, police said over the weekend.

Dai, 55, turned himself in on Thursday and said his firm could not make payments due to depositors through its online lending units, Shanghai police said. Assets linked to the case have been frozen and, along with Dai, another 40 people have been detained.

A former hedge fund manager, Dai set the firm up in 1992. He surrendered after the abrupt closure of Zendai’s two online lending units valued at 10 billion yuan (US$1.4 billion) last month. The shutdown, which happened alongside a laying off of staff, was the result of a government clampdown and the termination of a partnership with a custodian bank, according to leaked internal Zendai emails.

Beijing has been cracking down on the P2P lending sector in recent years, in an attempt to restore order to the troubled industry.

Dai is being investigated for illegally accepting deposits from the public, as the two Zendai P2P lending units were not licensed for financial business, police said. He has also admitted to setting up capital pools and embezzling funds during business operations, they added.

China’s P2P lending sector, meant to help smaller companies and individuals who cannot access bank loans, is now viewed as a major threat to financial stability by regulators, with funds raised from the public either being used for purposes other than those stated at the outset, or misappropriated.