6 caught for fraud over school course sales

SIX people have been caught for contract fraud after acquiring schools facing bankruptcy and then falsely selling courses in those schools, police said yesterday.

In what police say is the first case of its kind in Shanghai, the suspects allegedly scammed more than 10 million yuan (US$1.4 million) from parents.

The six were rounded up in Shanghai and Jiangsu Province in November.

Five have been detained on criminal charges of contract fraud and one released on bail.

Most of the courses were extracurricular training in the arts.

One of the schools was the M.D.C. on Qiheng Road in the Pudong New Area, which offered training in dance and art.

The original owner of the school, a man surnamed Chen, decided to sell the school in June this year because the business was failing.

He contacted one of the accused, surnamed Xu.

Xu allegedly claimed that he had the expertise to lift the business and list it on the stock market, and based on this promise Chen agreed to sell the school.

But the school went out of business only two weeks later after a strike by employees, and parents were not refunded.

Similar fates hit other schools involving Xu and the other five suspects, including Romp n’ Roll, Z&Y Studio and Karibaby, police said.

Police said the suspects founded an organization called BO Union Education Complex in October last year and had acquired more than 30 failing schools like the M.D.C.

Promising the owners of the schools they would cover liabilities and also pay them dividends from earnings, the suspects used false advertisements, usually offering huge discounts, to draw customers.

The money was diverted to the gang’s bank accounts, police said.

After the schools were milked dry and customers asked for their money back, the suspects turned the angry parents to the original school owners.

The suspects told parents the original owners had misled them about the financial situation of the schools, which made the sales contracts invalid and that therefore the transfer of ownership was also invalid, police said.

In this way, the suspects allegedly defrauded the original owners of the schools, causing them to lose more than 2 million yuan.

The suspects allegedly also defrauded their own investors of more than 4 million yuan by pitching their startup ideas of acquiring schools and creating new brands of education and training businesses, police said.