Bonds May 10

Court jails 16 for 53-bn-yuan bond ‘Ponzi scheme’

Hangzhou Court jails fake bond trader and associates for swindling billions from 480,000 people who invested in illegal firms, as crackdown on fraud continues

Court jails 16 for 53-bn-yuan bond ‘Ponzi scheme’
The Hangzhou Intermediate People's Court has sentenced 16 people to jail for a vast scheme said to be swindled billions from close to half a million investors over recent years. Photo: Wikimedia Commons.

(ATF) On May 8 the Hangzhou Intermediate People's Court convicted defendant Wang Wenjun and 15 other people of fraud and forgery of state documents, according to a public account published on WeChat.

This is one of several cases from recent weeks that suggest Chinese authorities are now more strongly motivated to clean up their financial markets and crack down on groups undermining investment in legitimate bonds and securities, as more areas are opened for foreign investment.

Wang Wenjun was sentenced to life imprisonment, while 14 people including Wang Wenlan were sentenced from 7 to 15 years in prison for capital fraud. They were also sentenced to deprivation of their political rights, confiscation of property and fines, while Zhao Xiaolong was convicted and found guilty of falsifying national government documents.

Fifteen people including Wang Wenjun were ordered to pay back 17 billion yuan – to return illegally acquired funds lost by investors they had swindled.

The court found was that: from March 2015 to May 2018, Wang Wenjun, together with the others set up dozens of companies – referred to "Three-three" and under Wang Wenjun’s actual control. The companies had names such as Polylion platform, and E-Tong mall and offered asset securitization transactions via it an “online mall”. The Baolilai platform trading team conducted false propaganda through fraudulent advertising on websites, WeChat groups, and organized conferences and events, which promised high returns and engaged in illegal fundraising activities.

The fraud started small as a pyramid sales project that hired franchisees across the country to market health products, Netease reported. Gradually it formed three franchisee tiers of city agents, district agents and service outlets.

Zhengda Information Technology Co Ltd developed software to launch a bond and securities platform without obtaining financial transaction permits, and began selling asset packages. The ponzi scheme used new transactions to pay bonuses and commissions.

The original asset package was sold by Wang Wenjun and others at the fictitious "Golden Jade" price offering ten-fold profits. The scam took off when it was registered by the Zhejiang Provincial Financial Office with a trading scope as a business to provide a spot trading platform for commodities such as knitwear. They then started offering more asset products such as “Golden Jade” though no real assets were bought.

The Hangzhou Intermediate Court stated that Wang Wenjun and others illegally raised more than 53 billion yuan from more than 480,000 people at home and abroad.

After, public security agencies froze, and seized deposits, real estate, land, vehicles, jade and other properties. But more than 150,000 people suffered losses of more than 17 billion yuan.

The court said the fraudulent fundraising committed by the defendants was extremely large, and resulted in huge property losses for Chinese and foreign investors who participated in the scheme. It seriously disrupted the national financial management system, and the offenders’ crimes and consequences were particularly serious – and warranted severe punishment. The court made the above judgment in accordance with the law, facts, circumstances and social harm caused by each defendant.

Guorong Securities

In related news, the ongoing case of bond business violations by Guorong Securities has advanced significantly with staff facing criminal prosecution after notification from the supervisory authority, the China Securities Regulatory Commission (CSRC), which suspended its trading activities for a year.

In 2019, the CSRC took administrative supervision and other measures. It issued a warning letter to Guorong Securities' general manager Zhang Zhihe and compliance director Liu Yin to address the problem of non-standard bond investment in Guorong Securities.

Currently Chinese authorities are campaigning to clean up its financial markets and them make more transparent.

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