From Wikipedia: Ezubao (Chinese: e租宝) was a peer-to-peer lending scheme based in the eastern Chinese province of Anhui. It was set up as an online scheme in July, 2014, attracted funds of about 50 billion yuan ($7.6 billion) from 900,000 investors, and ceased to trade in December 2015. On 1 February 2016, the scheme was closed down and 21 involved people were arrested. Zhang Min, the president of the parent company, Yucheng Global, told investigators that the company operated as a Ponzi scheme.
This scam is unprecedented in the modern world as it affected so many people nationally and internationally. The lost capital, totaling more than 7 billion Chinese Yuan (approximately 1.1 billion USD) is a shocking number, and almost anyone coming to hear of this story wants to know of how it happened and how to prevent something from happening with their own investment and money.
The first thing to recognize is that this scam is what many refer to as a “Ponzi” scam or a “Pyramid” scam. Essentially, the shape of the scam is a triangle, the top of the triangle, being the top point with the least amount of people, and the bottom, flat surface with the most people. Mostly all of the capital gain is funneled from the bottom of the “triangle” and up toward the top, but is shrouded in illusion by the people at the top that a gain for the top is a gain for all.
The scheme of Ezubao itself was Individuals who wanted to take part in the scheme invested their money in the expectation that the money would be lent to borrowers and repaid, with interest, over time. Investors would be matched with borrowers over the Internet. The scheme promised to pay investors around seven times the interest rates that could be obtained by depositing the money with a bank in the normal way, with interest rates of between 9% and 14.6% being promised.
This scheme seems very appealing to many, but the first warning sign was the extremely low interest rates. Investors, both domestic and international, were expecting returns on their investments, but did not receive much of anything. Eventually, older investors were paid with capital from new investors.
Ezubao unexpectedly stopped trading in December 2015. Worried customers started complaining and the police started investigating. The official Xinhua News Agency reported on 1 February 2016 that 21 people involved in the scheme had been arrested, including Ding Ning, chairman of the Yucheng Group. Chinese police reported that they were investigating the peer-to-peer lending company and had frozen and seized its assets, and those of the companies linked to it. The president of the parent company, Zhang Min, had told them that the company operated as a Ponzi scheme, with money from new investors used to pay moneys due to earlier investors; it is reported that about 50 billion yuan ($7.6 billion) had been invested in the scheme by about 900,000 investors. The authorities announced in early February that Ezubao clients could register their grievances on the web site of the Ministry of Public Security.
CNBizCheck clients and partners must remain vigilant when doing business in China. These types of scams are plentiful in China, both in small and large scale. When checking businesses, it is imperative to review news sentiments and legal records of all companies to ensure a well-rounded background check. CNBizCheck offers this type of information in its “Essential” reports!