ICC Commercial Crime Service

China’s Billion Dollar Ponzi Scheme Puts Focus on Stricter Regulations and Asset Recovery

Nearly a million online investors in China are still reeling from news that they are victims of a billion dollar Ponzi scheme, perpetrated by Ezubao, a large peer-to-peer lender and its founder Ding Ning, 34, that ultimately took in 50 billion yuan or $7.6 billion. While the company operates primarily in China, so far it is unclear whether there are foreign victims, or whether the government was also defrauded.

According to China’s criminal law, assets resulting from fraud are to be used preferentially to compensate the victims. Chinese enforcement authorities have already frozen some assets of entities known to be associated with the crime. Meanwhile the government is expected to respond quickly to a public outcry over the fraud by rolling out stricter regulations to protect investors in the future. However, in addition to a crackdown on the criminals, more aggressive asset tracing and asset recovery for victims would also help rebuild confidence in a wary public and send a message that criminals cannot get away with hiding stolen money. As China’s regulations attempt to catch up with financial services industries that grew too quickly, asset recovery may play a more important role in government efforts.

Ding’s case has raised great concern about the safety of online wealth management products in China, a business that developed rapidly here over the past five years.

Xinhua, the state news agency, reported earlier this month that police had arrested 21 people connected to Ezubao for defrauding about 900,000 online investors.

Ding promised 9-14 % annual return, much higher than banks or other peer-to-peer lenders. However, according to Xinhua, 95 percent of the investments were fake. Ding used the money on a lavish lifestyle including luxury cars and real estate including a home in Singapore worth 130 million renminbi or $20 million, according to the news reports and a confession by Ding.

He also used mass advertisements on state media to attract investors and a large amount of money within a very short period. He purposely held his company’s annual meeting last year in Beijing’s Great Hall of the People, where usually China’s legislature meets and official government meetings are held, and invited famous TV hostess and government officials to attend the event. These public displays misled the public and inspired confidence, and investors never considered that the investments could be a fraud.

China’s wealth management industry has grown rapidly over the last decade as a strong economy brought fortune to the Chinese people. According to one survey by the Bain Company, China’s total private wealth market grew by 16% annually from 2012 to 2014. Commercial banks, security companies, fund companies, trust companies and insurance companies are five main players in the industry. All are under strict regulation in China.

However, some new players, including companies on the P2P platform, crowd-funding platform and other wealth management companies are newly emerging and lack adequate regulation so far. The Ezubao Ponzi scheme and its large number of victims now has the government's attention to tighten the regulations on these new players.

Despite strict government regulations, Ponzi schemes are not new in China. In famous cases including the Wu Ying case, Yilishen case, Fanya Case and Thousands of Miles Forestation case are large Ponzi scheme cases in China and have been widely reported. For instance, in the Wu Ying case in 2007, Wu Ying defrauded RMB 770 million from the public for fake investments with alleged high returns. Wu Ying was arrested and eventually sentenced to life. All of her properties were confiscated, but only RMB 380 million have been returned to the victims.

The Chinese public security authorities in different cities have frozen Ezubao's assets, including a bank deposit of RMB 1.071 billion from Anhui Yucheng Finance Lease Co. Ltd., the holding company for Ezubao and an active participant in the Ponzi scheme. If those assets are deemed by Chinese courts as illegal property resulting from the fraud, they should be preferentially used to compensate the investors.

On December 28, 2015, two weeks after Ezubao was investigated, the China Banking Regulatory Commission, along with the Ministry of Public Security and other authorities, published a draft of P2P rules for public feedback, which seeks to tighten regulation on the P2P industry.

According to news reports, Chinese public security authorities are still in the progress of investigating Ezubao and tracking its assets and its affiliates’ assets. So far, there is no detailed asset recovery plan published by the Chinese Ministry of Public Security, but the latter has opened an online information platform for the Ezubao investors, and the investors of all other illegal fun-raising cases in the future, to register their loan and investment for the purpose of evidence collection by the Chinese public security authorities. It is an important start of what will hopefully be a larger role for asset recovery in helping the government return the people’s money.

Christine Yi Kang is a partner of Jun He Law Offices (“JunHe”). She has significant experience in international commercial dispute resolution, including international commercial arbitration and litigation, both in China and abroad for over 15 years. She also practices extensively in corporate compliance and ant-commercial bribery investigation. She joined JunHe in 2011 after practicing with international law firms and with China International Economic and Trade Arbitration Commission (CIETAC) for over ten years. Established in 1989, JunHe is one of the first private partnership law firms in China and has grown to be one of the largest and most recognized Chinese law firms. JunHe has nine offices around the world and a team comprised of more than 600 professionals, including over 180 partners and legal counsel, as well as over 420 associates and legal translators. JuneHe provides first-class full services on Chinese Law, as well as legal services on local laws through its overseas offices. Due to its outstanding client service and excellent reputation, JunHe is the only Chinese law firm to have been accepted for membership in Lex Mundi and Multilaw, two leading associations of independent law firms around the world. Through such alliances, JunHe is able to extend its premier legal services efficiently and consistently to every corner of the globe.





ICC FraudNet is an international network of independent lawyers, who are leading civil asset recovery specialists in each country. Recognized by Chambers Global as the world’s leading asset recovery legal network, our membership extends to every continent and the world’s major economies, as well as leading offshore wealth havens that have complex bank secrecy laws and institutions where the proceeds of fraud often are hidden. Founded in 2004 by the Paris-based International Chamber of Commerce (ICC), the world’s business organization, FraudNet operates under the auspices of the ICC’s London-based Commercial Crime Services unit.