Beijing First Intermediate People’s Court has started since Thursday to give back about 35% of the money that 900,000 investors invested on Ezubao, once China’s biggest peer-to-peer (P2P) lending platform but later proved to be a Ponzi scheme, according to 21st Century Business Herald, citing several victims.
One investor said that he has almost forgotten this sum of money after more than four years have passed since the platform went bust. Ezubao folded in 2016 after collecting RMB 59.8 billion (USD 9.14 billion) from its investors through savvy marketing, including TV advertising in state media CCTV.
The P2P lender, which was launched by Yucheng Group in July 2014, promised 9% to 14.6% annualized yields to investors who allowed their money to be locked for three, six, or 12 months, in a time where the P2P industry was flourishing in China, without a solid regulatory framework. In contrast, a one-year term deposit in most traditional banks in 2016 would result in just less than a 2% annual return.
In reality, Ezubao, like other similar platforms, created fake investment products, and used the money new investors placed in those products to pay back older investors.
The P2P scandal turned out to be one of the biggest Ponzi schemes in recent Chinese history, which caused massive protests outside the offices of the banking and insurance regulator in Beijing and Shanghai. Some investors who lost their life savings even committed suicide, Bloomberg reported.
In September 2017, Beijing First Intermediate People’s Court sentenced 26 executives of Ezubao’s operator Anhui Yucheng Group and its affiliates to imprisonment for committing frauds and other crimes. Ding Ning, chairman of the group, and Ding Dian, the chairman’s brother, were sentenced to life in prison. Ding Ning was also fined with RMB 100 million and confiscated of his personal property.
The Ezubao scandal triggered a collapse of the P2P lending sector in China as investors turned to be more cautious and regulators sped up cracking down on illegal companies. In 2018, Chinese authorities suspected of at least 199 P2P platforms committing frauds, and started to investigate them. By the end of 2019, the number of online lending platforms still in place were only 343, down from the nearly 3500 registered in 2015.