NZ police aid investigation of alleged pyramid scheme
AUCKLAND: Nearly $70 million in New Zealand bank accounts has been frozen as part of a global investigation into a wealthy Chinese businessman accused of running a massive pyramid scheme from Canada.
Xiao Hua Gong has built a business empire in Toronto including a hotel chain and television channels, as well as attending fundraisers for Canada’s Prime Minister Justin Trudeau and donating to the governing Liberal Party.
But the entrepreneur, also known as Edward Gong, has now been forced to deny his success was gained from an alleged $202 million pyramid scheme selling medicines in China.
He was arrested in Canada and charged with fraud and money laundering last December in connection to the alleged pyramid scheme involving the ‘‘fraudulent sale of hundreds of millions of dollars’’ in shares in China.
The role of New Zealand police, who investigated how Gong deposited $77 million — allegedly profits from the pyramid scheme — into the country over seven years can now be reported.
Nine months before Gong’s arrest in Canada, a High Court judge granted freezing orders over Gong’s assets in New Zealand, which include $69.5 million held in bank accounts and an Auckland home worth $2 million.
Suppression orders on Justice Paul Davison’s ruling were lifted yesterday, showing the judge was satisfied there were ‘‘reasonable grounds’’ to believe Gong had profited from criminal activity.
Nothing has yet been proven in court, but Justice Davison’s ruling was made after reading affidavits filed by New Zealand detectives and a financial analyst, investigators in China, and staff from ANZ and ASB banks.
Money laundering was the crime committed in New Zealand, police allege, in order to distance Gong from the alleged pyramid scheme in China.
Nearly $12 million was later transferred from New Zealand to Canada.
Gong ‘‘orchestrated’’ a pyramid scheme in China which involved the sale of health products coupled with the gift of shares in pharmaceutical and television companies, police allege.
‘‘The pyramid scheme involved the making of representations to potential investors which were false and dishonest, including a claim that the company share price would increase by 2000% to 4000% and that the products sold were legitimate health products, which they were not,’’ Justice Davison wrote, summarising the police case.
There were at least 50,000 investors and the total of the alleged fraud was $202 million, police allege.
The funds were transferred into ‘‘suspected underground Chinese bank accounts’’, police said, then shifted again into 29 different accounts in China using New Zealand internet addresses.
The money — which totalled $77 million over seven years — was then moved from China into the New Zealand bank accounts by associates of Gong, police allege.
Most of the money, $62 million, was deposited between December 2014 and April 2016 when the pyramid scheme was allegedly running.
Two banks, ANZ and ASB, placed ‘‘stops’’ on Gong’s accounts in 2016. ANZ later made a ‘‘suspicious transaction report’’ to police.
The $69.5 million held in the six bank accounts, an East Tamaki home and a latemodel Toyota van were restrained under the Criminal Proceeds Recovery Act.
In China, 11 people were given prison sentences or fines for their part in the pyramid scheme allegedly controlled by Gong.
Six months before his arrest, Gong held a press conference in Canada to deny the allegations.
The Ontario Securities Commission charged Gong in December with fraud and money laundering in connection with the ‘‘fraudulent sale of hundreds of millions of dollars’’ of securities in pharmaceutical and television companies to Chinese citizens.
After Gong’s arrest, it emerged a Liberal Party MP handdelivered a letter to a senior official at the Canadian embassy and personally spoke to Chinese authorities on Gong’s behalf.
Gong, who was photographed making dumplings with Justin Trudeau at a ‘‘cash for access’’ fundraiser in May 2016, is a donor to the Liberal Party.
Geng Tan, a Liberal MP, delivered an unsigned letter from Gong to the deputy head of mission at Canada’s embassy in Beijing, according to an OSC affidavit filed in a Toronto court.
In the letter Gong denied he was running a pyramid scheme.
Detective Inspector Craig Hamilton, who oversees the police asset recovery units, did not comment on the specifics of the case against Gong.
Gong has enlisted a highpowered legal team led by Mike Heron QC, the former Solicitorgeneral, and Marc Corlett QC.
Mr Corlett was also involved in a similar case involving New Zealand and China.
The police restrained at least $40 million of assets in New Zealand belonging to William Yan and alleged they were bought from the proceeds of a $130 million fraud in China.
Yan eventually cut an unusual deal with police.
He agreed to pay $43 million without admitting civil or criminal liability — easily the largest settlement in the history of the Criminal Proceeds Recovery Act in New Zealand. —