Elderly at the mercy of illegal fundraising
As China’s middle class expands, financial scams spread across the country into second-, third-tier cities
After “saving” over 100,000 yuan ($15,752) in a bank account provided by travel agency Haitao International for the purpose of “free” overseas trips, Wang Kun, a 62-yearold Beijing resident, never imagined it would turn out to be an elaborate financial hoax.
Wang got to know Haitao’s so-called “deposits in exchange for free overseas tours” business model in December 2015 after being introduced to it by several of her relatives. The same month, she even came to the travel agency’s office in Beijing’s Chaoyang district for further consultation.
The well-dressed Haitao salesperson that served her enthusiastically receipted Wang and told her that if she saved 100,000 yuan as a “deposit” in the company’s account over the coming year, she could travel to six overseas destinations including Japan, Russia, South Africa as well as Germany, Italy and Switzerland.
Having never traveled abroad before, Wang became immediately interested in the tour plan. “I also weighed up my options with other tour plans of other travel agencies and found that the Haitao one was the most cost-effective… So I signed a one-year contract with Haitao two days later,” she told the Global Times on Thursday.
“The trip to those six overseas countries would have cost about 180,000 yuan based on my research, so the contract translated to a yearly interest rate of 18 percent on my savings, quite a promising return,” she explained.
In 2016, Wang did indeed travel to the six abovementioned tourist spots, but she, as well as several of her relatives, found that they began having trouble withdrawing their savings at the beginning of 2017. Also, calls to the salesperson she had previously met with were not answered.
In April 2017, Wang, along with dozens of other elders who had also poured money into such services, came to Haitao’s office to demand their funds be returned. But they were told by senior managers that “Haitao was mired in a capital crunch and therefore unable to repay the investments,” Wang recalled.
What further angers Wang is that Haitao refused to recognize her investments as a deposit. “The company said it hadn’t been charging consumers with deposits since March 2014, and [that the deposits she had saved] were just a misunderstanding between the salesperson and consumer,” she noted.
In the agreement Wang presented to the Global Times, Haitao had only detailed travel routes without mentioning the so-called “deposits.” Also, it turned out that Wang’s money had been transferred to a bank account of a securities firm and that she had just been given a receipt as proof of the deposit transaction.
Also in April, Beijing’s police department started to investigate the matter, but according to Wang, a lack of evidence made the victims of the illegal fundraising scam unable to bring the case to court. However, as of press time, all Haitao’s travel products had been removed from its website.
Scam expansion
Wang’s experience sheds light on China’s prevalent issue with illegal fundraising, which industry insiders said has evolved to be more complex and elaborate, making up a number of Ponzi schemes nationwide.
“With misleading marketing information, frauds usually whet consumers’ appetites by promising them high returns, and at the initial stage, they give buyers some tangible sweeteners to assure them, or even lure them to invest more,” Peng Guiping, a lawyer at Sichuan Zhongxing Law Firm, told the Global Times over the weekend.
Also, “most victims of illegal fundraising cases are introduced to such investment projects by their friends or relatives, and because of that emotional connection, they therefore tend to trust such projects without further verifying the investment plan themselves,” Peng noted.
Peng added that middle-aged folk and elders who have accumulated lifelong savings and are eager for quick returns are especially vulnerable to such hoaxes.
As China’s middle class expands, illegal fundraising scams are simultaneously expanding to the country’s second- and third-tier cities, Zhang Zhiyou, a lawyer at Beijing Zhicheng Law Office, told the Global Times over the weekend.
Chen Wen (pseudonym), a 50-something resident in Southwest China’s Sichuan Province, also became the victim of a fundraising scam, but in the province’s capital Chengdu.
Chen was introduced by his friend to a delivery locker project by Quangui Technology Co in 2016. The company told him at the time that it was developing an advertising project based on delivery lockers, and that if he bought one delivery locker, he could get about 2,000 yuan in return every month.
Chen poured in more than 90,000 yuan and bought one delivery locker, plus 10,000 company shares.
But it took just several months for Chen to witness his savings evaporate. In April 2016, the company’s staff told him that their investments had been embezzled. Since then, local police have been investigating the case and Chen has also brought the case to court.
In Chengdu, the amount of money involved in the Quangui case totaled more than 100 million yuan, according to media reports.
A lawyer familiar with the case told the Global Times that it is “almost impossible” to retrieve the investors’ money “because their funds were transferred to a private bank account, with that money likely being further transferred to other bank accounts, or even foreign accounts, after some time.”
“And in all illegal fundraising cases, tracing investment back is always extremely difficult,” he added.
More measures needed
In 2016, China saw 5,197 cases of illegal fundraising, which is actually down 14.48 percent year-on-year. The amount of investment involved in such cases also declined 0.11 percent year-on-year to 251 billion yuan, according to a report by news website china.com released in April 2017.
Nevertheless, the central government said on February 27 that the country will further crack down hard on illegal fundraising to fend off financial risks throughout 2018, the Xinhua News Agency reported, citing an interagency anti-illegal fundraising meeting.
China will strengthen its supervision mechanism for illegal fundraising, hold local government supervisors accountable, and improve the legal system and public education in 2018, according to a statement released after the meeting.
Zhang suggested that Chinese financial regulators raise the threshold for opening online financing accounts amid growing consciousness of the problem.
In addition, the penalties for frauds should be strengthened, Peng said.