Ezubao

Revelations about the fraudulent nature of Ezubao’s operations emerged after an exposé in late 2015, leading to public outcry and intensified scrutiny by regulatory authorities.

[1] The scale of Ezubao’s Ponzi scheme, which orchestrated a sophisticated ruse involving fake projects and returns, was unprecedented in China, contributing to an estimated loss of billions of yuan for investors.

The scandal not only devastated the finances of nearly a million individuals but also prompted a nationwide tightening of regulations on the peer-to-peer lending industry, aiming to close loopholes and restore investor confidence.

[1] The allure of Ezubao was rooted in its proposition of high-yield returns, far outstripping traditional banking interest rates, which captured the attention of a vast number of investors.

This approach resonated particularly in rural areas, where traditional credit access was limited, and Ezubao's offerings appeared as a potentially lucrative opportunity.

Reports of payment delays and challenges in fund withdrawals started emerging, raising red flags about the viability of Ezubao's business model.

In a financial landscape where individuals, households, and SMEs often find themselves sidelined due to a lack of connections for credit access, Ezubao's peer-to-peer lending platform emerged as an appealing solution.

The traditional banks' preference for financing large-scale projects created an opportunity for P2P platforms to cater to underserved groups, particularly middle and lower-income individuals and small businesses.

These tactics were successful in attracting a large number of investors, capitalizing on the broader economic environment and the public's growing interest in innovative financial products.

However, the lack of strict oversight and the platform's aggressive growth strategy ultimately exposed investors to significant risks, exemplifying the challenges and potential pitfalls of the burgeoning P2P lending sector during this period.

[4] Additionally, he spent an estimated 1.5 billion yuan of Ezubao funds on personal expenses, including mandating his staff to wear only luxury brands and instructing Zhang Min to aggressively purchase from high-end stores like Louis Vuitton and Hermès across China and overseas.

In Myanmar, Ding Ning and Yucheng Group reportedly transferred $1.5 billion to territories controlled by the United Wa State Army near the Chinese border.

The group had plans for a significant investment of $6.1 billion to develop a free trade zone in Panghsang, the UWSA headquarters, and to operate a commercial bank in the area.

[3] 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.

In a state-broadcast news report by CCTV, excavators dug up evidence from the online financial company that was suitcases full of cash that was from their money laundering practices.

[11] According to the Xinhua report, individuals involved in the scheme concealed approximately 1,200 documents and related evidence in 80 bags, burying them at a depth of six meters, or almost 20 feet, in an area on the outskirts of Hefei, the capital of Anhui Province.

After investors were alerted that this investment firm was just a disguised Ponzi scheme, they were furious and lined up outside the State Bureau for Petitions in late December with hopes of recovering their lost money.

[3] Following the closure of Ezubao and street protests, Chinese authorities recognized the imperative to promote financial stability, safeguard investor interests, and uphold market integrity.

Especially because of  incidents like Ezubao, the regulatory measures now encompass directives "prohibiting P2P lending platforms from accepting investor deposits, ensuring borrowers' loans, securitizing assets, or participating in Ponzi schemes.

"[12] Chronologically, the China Banking Regulatory Commission (CBRC) issued the draft of the P2P lending regulation in December 2015, with the official announcement following in August 2016.

"[16] The regulatory authorities are actively addressing risks associated with internet asset management, virtual currency speculation, and illegal foreign exchange transactions.

Victor Shih, political scientist at the University of California, San Diego, commented: "The awkward truth is that Chinese regulators either knew about the scam and did nothing, or they completely missed the massive fraud".