Website shut down amid potential finance fraud

An online investment website closed down last September, leaving over 20,000 investors facing losses of around 10 billion yuan ($161 million), making it the largest Internet financial fraud case so far in China, China Central Television (CCTV) reported over the weekend.

"Such a fraud case may lead to tighter regulation of the Internet finance sector," Xu Hongwei, founder and CEO of wangdaizhijia.com, an online investment market intelligence provider, told the Global Times on Sunday.

Established in August 2012, Hong Kong Jinyu Hengtong Investment Management Ltd operated an investment website which had no physical office in Hong Kong, no employees and did not even have any licenses or certifications to sell financial products, CCTV reported. The company claims it is headquartered in the UK.

It offered a wealth management product that guaranteed investors would get their money back while boasting a 1.5 percent daily return rate and a monthly investment return of 45 percent, according to its video posted on the Internet.

Lured by the high returns, some investors put their life savings into the investment.

The firm said it had made investments in a variety of sectors including the property, banking and tobacco industries, while managing total assets of 23 billion pounds ($38 billion).

According to the China Banking Industry Association, the average annual return of banking wealth management products was 4.66 percent in 2013, while for trust loans it was 8.81 percent.

A Beijing-based investor surnamed Liu said she had borrowed 1.68 million yuan to invest in Jinyu Hengtong's wealth management product in late August but then found that the website ceased operations on September 3, 2013.

Since then, the company has never reopened its website.

Liu has had to repay not only the money she had borrowed but also 120,000 yuan in monthly interest.

Many investors suffered heavy losses just like Liu and reported the case to local public security authorities.

Banks have frozen over 100 accounts of Jinyu Hengtong so far.

The Ministry of Public Security was not immediately available for comment on Sunday.

The case is reportedly still under investigation by mainland authorities, but it has sounded an alarm about the burgeoning Internet finance sector and online wealth management products, as the country tries to encourage financial innovation and investors seek products that give higher returns than traditional bank deposits.

There have been previous reports on personnel fleeing and closure in the Internet finance sector, especially in peer-to-peer (P2P) lending, which currently lacks transparency and regulation.

However, "the case of Jinyu Hengtong is different from Internet finance in nature," Xu said. Jinyu Hengtong committed the economic crime in the form of Internet finance, but it is more like pyramid selling, he noted.

There have been several P2P website closures over recent years, many of which were related to failure in risk control, Xu said.

"Whether victims can recover their money depends on the investigation and if the culprits can be caught," Yang Zhaoquan, a lawyer at Beijing Vlaw Law Firm, told the Global Times on Sunday.

Internet finance has experienced faster growth over recent years by offering wealth management products with higher yields than traditional bank deposits. Swindlers tend to take advantage of the burgeoning sector to fool investors, Yang noted.

China's central bank recently suspended the launch of virtual credit cards as well as QR code transactions, and mulled reining in single purchases via third-party payment accounts to 5,000 yuan ($810), with a monthly limit of 10,000 yuan, in an effort to ensure financial security.

The move has also been regarded as a curb on Internet giants Alipay and Tencent's online wealth management products, which some Net users have criticized as an attempt to protect the interest of government-controlled banks.

High returns mean high risks, so prudence and risk awareness is the key to preventing oneself from falling prey to financial crime, Yang said.

Any new form of investment must get regulators' approval, so without detailed regulations, no organization should be allowed to sell financial products so as to protect investors, an investor in Jinyu Hengtong who declined to be named told the Global Times via a written message on Sunday.