Illegal fundraising influx

Updated 2017-08-07 10:07:20 Global Times

Controversial 'Batie' project among the increasing number of online finance scams duping senior investors

Illegal fundraising cases in China have been on the rise in recent years, partly due to the burgeoning online finance sector. A typical case study is the high-profile traffic-straddling Transit Elevated Bus project also known as "Batie," developed by online lending company Huayingkailai, which folded in July after unlawfully soliciting 4.8 billion yuan from 40,000 investors. The Global Times spoke with several investors victimized by the scam as well as lawyers to investigate the common tricks employed by financing platforms and areas where governments could strengthen supervision.

For 56-year-old Beijing resident Wang Yan, it only took less than four months for her lifetime savings of 2 million yuan (7,000) to evaporate into a financial black hole.

Wang invested money into financial products sold by Huayingkailai, a Beijing-based online lending company which developed the high-profile and controversial traffic-straddling Transit Elevated Bus (TEB) project, commonly known as "Batie."

In July, the company was probed by the Beijing police for illegal fundraising after owing investors about 4.8 billion yuan. A total of 32 company employees, including CEO Bai Zhiming, have been arrested and are awaiting further investigation.

Wang recalled that in January, a salesperson of Huayingkailai approached her when she was dancing in the street and started explaining to her that the funds she could invest in "would be used for the TEB's test run." Subsequently, she was promised an annual return of 12 percent.

Wang was, at the start, skeptical about the project. But after searching for media coverage on Batie and visiting the investing firm's fancy office in Galaxy Soho in Beijing's Chaoyang district, she became interested.

"During that visit, the staff there explained the project in technical terms and showed me a video of Batie moving slowly on its test track in Qinhuangdao, [North China's Hebei Province], so I became gradually convinced that the project would be a revolution in Chinese transport and had great market potential," Wang told the Global Times Wednesday.

But what prompted her and the other 40,000 investors, mostly in their 50s and 60s, to sign the investment agreement was the company's claimed partnership with local governments.

"The salesperson stressed that the project was being developed in a public-private-partnership model whereby governments play a leading role…so I thought the risk was very low," another investor surnamed Li said.

After being introduced to the company by her friend, Li purchased Huayingkailai's wealth management products for about 200,000 yuan in February.

Since April, both Li and Wang have not received any monthly interest promised by the company. And their attempts to withdraw their investments have failed.

The two seniors did not lose complete faith in the company and its TEB project until early July when Beijing police announced that they had launched a probe into the company for alleged illegal fundraising.

But at this point, it was already too late for them to retrieve their money.

The investors' funds "must have been transferred into foreign accounts after such a long time, which makes it extremely difficult to trace them back," a lawyer familiar with the matter told the Global Times on condition of anonymity.

Can never be too cautious

The TEB case is just the tip of the iceberg and sheds light on the common pitfalls of illegal fundraising.

And for investors like Beijing resident Xing Xilan, merely staying cautious did not mitigate potential fraud risks.

The 63-year-old retired worker purchased 230,000 yuan worth of financial products developed by Shenzhen-based investing firm Yuecheng in February. A month later, the company's website was shut down and senior managers became uncontactable, defaulting over 300 investors with 15 million yuan in principals.

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