Chinese shadow bankers are accused of ripping off 900,000 investors to the tune of 50 billion yuan ($7.6 billion) in an unprecedented Ponzi scheme that promises to be the largest financial scam in Chinese history.
Ezubao, an obscure investment firm that promised yearly gains of 14.6 percent, rose to prominence in the shadow banking sector of China in 2014 where transactions are largely unregulated. Over a period of just 18 months Ezubao became the country’s largest online financing platform, reports CBS News.
Ding Ning, chairman of Ezubao’s parent company Yucheng Global and the man accused of orchestrating the Ponzi scheme was arrested Sunday along with 20 other employees on charges of embezzlement. Police spent over 20 hours retrieving 1,200 financial documents, distributed across eight duffle bags that were buried six meters underground in an attempt to destroy evidence, reports Xinhua, the official news outlet of the People’s Republic of China.
State run China Central Television (CCTV) aired confessions from some of the major players Sunday night. They admit the company was set up as a total fraud from day one. Chinese officials investigated the purported 207 companies that had done business with Ezubao, but were only able to find one that had legitimate transactions with the company, reports Xinhua.
“To my knowledge, 95 percent of investment projects on Ezubao were fake,” Yong Lei, senior manager of the company’s east China branch said in a confession.
Ezubao stole information from various financial companies across China and listed them as clients in order to build trust among investors. One business owner had no idea his company was listed until the Chinese government froze all his assets.
“They stole my business registration and taxation information through another transaction between my firm and Yucheng Global then faked the project,” the anonymous businessman told Xinhua. “It’s an outrage.”
Zhang Min, president of Yucheng Global admitted in her confession that Ezubao was setup as a Ponzi scheme and that all involved were aware of the scam. In 2015 Zhang received a bonus of 550 million yuan in cash ($84 million), a $20 million Singapore villa, a $1.8 million pink diamond ring and an assortment of luxury cars, reports CBS News.
Regulators in China estimate the worth of the shadow banking sector to be roughly $1.5 trillion. The shadow banking sector thrives due to the poor returns offered by depositing money in Chinese banks, however economists fear that financial scams of this magnitude have the potential to spill over into their economy, reports CNN Money.
China’s economy is off to a disastrous start in 2016, and fears are mounting over the ability of individuals and businesses to pay off their growing debts. Global economists list the shadow banking sector as one of the greatest threats facing the Chinese economy in 2016.
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