Police arrested the founder of China's largest online business Ezubao, Ding Ning, together with 20 of his employees on suspicion of fleecing $7.6 billion from about 900,000 investors. The case is being touted as China's biggest financial fraud in history.
The Anhui Province based Ezubao rose from obscurity to become the most spectacular player in the online investment industry in China in the span of 18 months reports IB Times. Chinese authorities have been struggling to regulate the booming industry where companies such as Alibaba promise higher returns on investments than state-run banks.
According to CBC News, Ezubao has promised its investors to charge borrowers interest rates of 9 to 14.6 percent. However, it turns out that 95 percent of the borrowers are dummies or fictional names created by Ebuzao confessed a former officer of the company.
Ding Ning is primarily responsible for its meteoric rise. He was a high school dropout and who at 17 worked at his mother's hardware company where it is said he gained experience in online selling. Ding started Ezubao in July 2014 and opened multiple marketing offices across China even with no technical or financial training.
The company bought expensive ad spots that were aired just before the widely viewed nightly newscast of CCTV. In July, Ding's interview on his life as an entrepreneur appeared on the government website, gov.cn, which gave Ezubao legitimacy and the Chinese government's imprimatur. Said interview has since been deleted from the website.
On Sunday, CCTV aired Ding's confession and showed a footage of officials carrying bags of cash from his house. Meanwhile, his extravagant lifestyle was document by the Xinhua news agency that showed the lavish gifts he gave his business partner Zhang Min. Among them were a $1.8 million pink diamond ring and a $20 million villa in Singapore according to NY Times. Zhang, in her confession said that their business was nothing but a typical Ponzi scheme.
According to Chinese banking regulators, the country's shadow banking industry was estimated to be worth $1.5 trillion by mid 2015. The amount involved in the Ezubao case is just a small portion of the total. Economists and some government officials have warned about the dangers of unregulated private lending and the effects of a large-scale collapse.
Many say however that the difficulty in obtaining financing in the banking system has driven the people into underground lending which unfortunately also spelled growth to countless Ponzi schemes. An economist has said that what Ezubao was doing was not new in China. What was trailblazing was how they did it online and the magnitude of their operations.
© 2023 Lawyer Herald All rights reserved. Do not reproduce without permission.
Get the Most Popular Lawyerherald Stories in a Weekly Newsletter
Join the Discussion
Related Articles
