Trial of Fintech Ponzi Scheme Opens in Beijing

The Beijing No. 1 Intermediate Court kicked off its public trial of the key players behind fraudulent P2P lending platform Ezubao on 26 April.

Yucheng Global president Zhang Min and Yucheng Group chairman Ding Ning are amongst a total of 26 individuals standing trial before the Beijing No. 1 Intermediate Court, over accusations that they used the “Ezubao” and “Sesame Finance” online lending platforms to defraud 900,000 investors of funds during the period from June 2014 to December 2015.

According to the court documents from the trial which opened on 26 April, the majority of funds raised via these platforms were not used for productive business activities, but instead channelled towards illegal criminal activities that resulted in major economic loss.

The rapid rise and precipitous fall of Ezubao is undoubtedly the biggest scandal to hit China’s fledgling fintech sector.

The P2P lending platform was established in the hinterland province of Anhui in July 2014, and attracted approximately 50 billion yuan ($7.6 billion) in funds from 900,000 investors prior to its shut down in December 2015.

The sheer scale of the Ponzi scheme shocked observers, and led to accusations that provincial regulators in Anhui province were either complicit or completely negligent in their duties.

At its peak Ezubao ran advertisements on China Central Television just prior to its evening news bulletin, as well as served as a sponsor for online broadcasts of the National People’s Congress.

This prominence gave the fintech platform an air of imprimatur, enabling it to lure in a huge number of victims, many of whom were small-time investors from the countryside.

While Ezubao promised to match investors with borrowers via its online lending platform and provide returns of between 9% and 14.6% – or seven times interest rates offered by banks,

According to Zhang Min, president of Ezubao’s parent company Yucheng Global, the fintech platform was essentially just a Ponzi scheme that used money from fresh investors to pay those who had joined previously.

Yucheng Group chairman Ding Ning reportedly spent $150 million of these ill-gotten proceeds on designer goods, luxury vehicles and real estate.

Trading by Ezubao came to an abrupt halt in December 2015, with complaints from concerned customers prompting an official investigation.

By February the following year the authorities had arrested total of 21 people involved with Ezubao, including both Zhang Min and Ding Ning.

 

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