A company at the heart of an alleged US$7.6 billion Ponzi racket used money from more than 900,000 investors to support a lavish lifestyle for its top official, according to executives.
Ezubao, once China’s biggest peer-to-peer (P2P) lending platform, collected 50 billion yuan (US$7.6 billion) in less than two years from more than 900,000 investors through savvy marketing and the promise of big returns, Reuters reports.
But executives at Ezubao’s parent company, Yucheng Group, say it was “a complete Ponzi scheme”, which used investor funds to pamper a top official.
Among gifts Yucheng chairman Ding Ning gave his president, Zhang Min, were a US$20 million Singapore villa, a US$1.8 million pink diamond ring, luxury limousines and watches and more than US$83 million in cash, Xinhua said.
The alleged scam underscores the risks in China’s fast growing and loosely regulated wealth management product industry, with many products peddled through online financial investment platforms and privately run exchanges.
Products promising annual returns of up to 14 percent have drawn investors at a time when savings rates are low and property is no longer a guaranteed get-rich-quick bet.
A report on China’s stock market crash authored last year by former senior officials, including former central bank vice governor Wu Xiaoling, said Chinese retail investors are short-sighted, have a weak investment philosophy and a herd mentality.
China’s P2P and the online finance industry also serve as a critical channel for the emerging small business and consumer market, which is often ignored by banks and mainstream financial institutions.
iResearch predicts China’s unsecured consumer finance market alone will triple by 2019, reaching outstanding loans of over US$1.7 trillion.
By November, there were more than 3,600 P2P platforms as the industry raised more than 400 billion yuan, according to the China Banking Regulatory Commission
More than 1,000 of those were problematic, it said.
The consequences when these schemes fail can be devastating, said Yang Dong, vice-dean at Renmin Law School and an expert on finance and securities law.
“The harm is obvious. It’s going to damage financial reforms, cause social unrest and destabilize the regime to some extent,” he said.
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