Risk & Compliance

Chinese P2P Lender Accused of $7B Ponzi Scheme

The Ezubao online lending platform allegedly bilked nearly one million investors, raising concerns over confidence in the security of such investme...
Katie Kuehner-HebertFebruary 1, 2016

Top executives of Chinese online peer-to-peer lending firm Ezubao have been accused of operating a Ponzi scheme that bilked investors out of more than $7.6 billion, according to the New York Times.

The NYT cited China’s state-run Xinhua news agency, which reported that Chinese officials arrested 21 people in the eastern province of Anhui for offering mostly fake investment products to nearly one million investors. Executives allegedly used the money to enrich themselves with lavish salaries and items such as real estate, cars, and luxury goods.

“Ezubao is a Ponzi scheme,” Xinhua quoted Zhang Min, a former executive at the company, as saying. The NYT could not reach company officials for comment.

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“The accusations throw a shadow over China’s online finance industry, a lucrative area for many global leaders in the sector,” the Times said, noting that because of the enormous sums involved and the large investor base, “the collapse of a major online-financing platform could raise concerns over confidence in the security of such investments.”

P2P lending in China grew to $33.2 billion last year, surpassing the U.S., with companies catering to customers who would not be able to get loans from the country’s state-owned banks. Ezubao claims to match investors with potential borrowers over the Internet.

“New types of finances companies are offering loans to small businesses, students and others that state banks traditionally ignore,” the NYT noted.

But amid an increase in cases of illegal fund-raising related to peer-to-peer lending, Chinese officials pledged in December to tighten regulation of the industry.

Xinhua said an investigation by local authorities had found that most of the investment products Ezubao marketed were fake. Some offered investors annual interest payments of as much as 15%.

Ezubao executives allegedly placed about 1,200 documents and other pieces of evidence related to the scheme in 80 bags and buried them nearly 20 feet underground at a site on the outskirts of Hefei, the capital of Anhui Province.

It took police 20 hours with two excavators to unearth the evidence, according to Xinhua.