China Busts US$8 Billion Online Investment Scam

Feb 01, 2016 02:56 AM EST

A Chinese man identifies a new issued 100 yuan note with an old one issued in 1999, at a bank on August 31, 2005 in Shanghai, China. Authorities issued new yuan notes today that largely resemble bills in circulation but with new marks meant to foil currency counterfeiters. New 100, 50, 20, 10 and 5 yuan notes, as well as a 1 jiao coin (10 Chinese cents), were available from the People's Bank of China. The design of the new bills, bearing a portrait of former Chinese leader Mao Zedong, remains the same as the last-issued 1999 series but incorporate new watermarks and other minor changes that will make it harder to duplicate, according to state media. (Photo by China Photos/Getty Images)

Chinese authorities have arrested 21 people who were allegedly involved in one of the biggest online investment scams in the country, which has duped nearly a million investors.

According to the official Xinhua news agency, the US$7.6-billion online investment scheme operated by peer-to-peer lender Ezubao was a Ponzi scheme and that more than 95 percent of the projects posted on the site were fake.

Like Us on Facebook

Ezubao was classified as China's biggest peer-to-peer online platform based on lending amount. Authorities said those behind the platform managed to rake in US$7.6 billion from unsuspecting investors in just 18 months.

The police arrested 21 people for their alleged involvement in the operation, including Ding Ning, chairman of Yucheng Group, which launched Ezubao in July 2014.

Authorities did not disclose why they classified the site as operating a Ponzi scheme but the scheme usually involves investments that promise huge returns but require investors to recruit other investors.

Police opened investigations into Ezubao in December after it became clear that the scheme was unsustainable.

According to the Xinhua report, Ezubao's executives allegedly tried to conceal evidence by putting more than 1,200 account books into 80 plastic bags and buried them some six metres under ground in a suburb in Anhui, Xinhua reported.

Police spent more than 20 hours digging up the evidence using two excavators.

With the arrest, Chinese authorities also froze, sealed, and seized all assets of Ezubao. Assets of companies linked to the peer-to-peer lender had also been frozen and sealed for further investigation.

The latest development further highlights the risks involved in China's fast-growing US$2.6 trillion wealth management industry. According to a Reuters report, several investment products are sold through channels that are loosely regulated, including online financial investment platforms.

TagsChina Investment Scam, Ezubao, Ponzi Scheme, China Online Investment Scam