Bad news for alternative financial services in China.
Chinese authorities are accusing Ezubo, an online financing platform, of cheating a combined $7.3 billion out of a group of mostly small investors through what was essentially a Ponzi scheme.
As reported by the state’s Xinhua News Agency on Monday (Feb. 1), the charges follow Ezubo’s 2015 implosion last year.
Ezubo and its parent, Yucheng International Holdings Group Ltd., have collectively seen 21 employees arrested on charges of illegally soliciting funds from the public and fraud. The state news service further reported that prosecutors are seeking restitution for 900,000 investors.
Ezubo and Yucheng are accused of using high-interest payouts for investors to lure people into what officials are calling “a downright Ponzi scheme.”
The officials, including Yucheng Executive Chairman Ding Ning, are in custody and couldn’t be reached for comment by The Wall Street Journal.
China has seen an explosion of P2P platforms; as of the end of 2015, there were 2,595, up from 880 at the start of 2014. All in, loans made online were up 14-fold to 440 billion yuan ($66.8 billion), according to data provider Wind Information Co.
Putatively, Ezubo was in the business of finance leasing — it provided businesses with equipment in return for a stream of rental payments. Ezubo promised investors returns of 9 percent to 14.6 percent on products whose maturities ranged from three months to a year.
“We did look into other types of investments, but there weren’t really any others, as stocks were too risky,” said Zhang Hang, a 28-year-old musician who invested 550,000 yuan ($83,655) in Ezubo in October.
As it turns out, maybe those stocks were the way to go.
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