Illegal Online Lending Platforms And Financial Fraud
Case 1: Ezubao Ponzi Scheme
Background:
Ezubao was a P2P platform founded by Anhui Yucheng Holdings. It claimed to provide investment opportunities in “real projects” across China.
It attracted approximately 900,000 investors, raising around 50 billion yuan over a year (2014–2015).
Fraud Method:
Almost all investment projects were fabricated; no actual lending occurred.
Investor funds were used to pay returns to earlier investors, classic Ponzi style.
Marketing exaggerated returns (up to 9–12% annually) and falsely claimed government approvals.
Criminal Determination:
Operators were found guilty of fundraising fraud and illegally absorbing public deposits.
Court determined they had illegal-possession intent, knowing the projects were fake and misusing funds.
Consequences:
Top executives received life imprisonment and fines (100 million yuan for the chairman).
Companies were fined billions, assets seized, and investors’ losses partially recovered through liquidation.
Significance:
Largest Ponzi-style case in China’s online finance history; exposed systemic risks in P2P lending and led to stricter regulation.
Case 2: Wangzhou Group P2P Platform
Background:
A P2P platform marketed as a “wealth management + lending” service, promising 7–15% annual returns.
Operated by the Wangzhou Group.
Fraud Method:
Created a capital pool, where investor funds were not matched with real borrowers.
Funds were diverted to the company and related enterprises rather than used for legitimate lending.
Criminal Determination:
Prosecutors determined this was illegal fundraising because funds were collected under false pretenses.
The platform disguised itself as an intermediary but acted as a financial institution using funds for its own purposes.
Consequences:
Key executives faced prison terms, fines, and asset seizure.
The case became a model for prosecuting P2P operators using capital pools.
Significance:
Demonstrated how “self-financing” P2P platforms could be criminalized even if appearing legitimate.
Case 3: 2018 “11·07” Trap Loan Case
Background:
An organized criminal network offered loans online with seemingly low interest rates to vulnerable borrowers, often students or young professionals.
Fraud Method:
Embedded hidden fees, high service charges, or mandatory deposits in the loans.
Used coercion, threats, or even physical force to enforce repayment.
Some victims were exploited beyond finance, e.g., forced into labor or prostitution to repay loans.
Criminal Determination:
Courts treated this as trap loan (套路贷) crime combined with organized crime.
The lenders’ intent went beyond financial misconduct to coercion and exploitation.
Consequences:
Network leaders received long-term prison sentences.
Several accomplices faced imprisonment for coercion, fraud, and other associated crimes.
Significance:
Shows the blurred line between financial fraud and criminal exploitation in online lending.
Case 4: Shanlin Finance P2P Platform Collapse
Background:
Shanlin Finance and related P2P platforms promised high yields (8–15%) and targeted small investors.
Fraud Method:
Platforms “rolled over” investor funds to repay earlier investors.
When platforms could not sustain payouts, they collapsed.
Promises of escrow accounts or third-party verification were falsified.
Criminal Determination:
Authorities classified this as illegal fundraising and fraud, since funds were misused.
Operators had intent to defraud, using public trust in P2P as cover.
Consequences:
Executives arrested, assets frozen, and civil liquidation proceedings initiated.
Numerous small investors lost money, highlighting systemic risk.
Significance:
Example of widespread P2P “explosions” (平台爆雷) causing regulatory crackdowns.
Case 5: Empirical Study of 28 P2P Fraud Cases
Background:
Peking University law researchers analyzed 28 criminal cases of P2P fundraising fraud.
Fraud Methods Observed:
“Borrowing new to repay old” (借新还旧) to maintain illusion of solvency.
Using investor funds for personal or unrelated company expenses.
Fabrication of borrowers or loan projects.
Criminal Determination:
Courts examined objective behaviors to infer illegal intent, such as misuse of funds or impossibility of repayment.
Legal focus was on intent to misappropriate, not just operational mismanagement.
Consequences:
Convictions for illegal fundraising or fraud; prison terms ranged from 3 years to life.
Some defendants received fines and political rights deprivation.
Significance:
Case analysis provides insight into how courts determine criminality in online lending fraud.
Case 6: Student-Focused Online Cash Loan Apps
Background:
Apps offering quick, small loans targeting college students and recent graduates.
Fraud Method:
Lured borrowers with low interest but deducted large hidden fees (service, risk, or guarantee deposits).
Used threats or harassment to ensure repayment, creating psychological coercion.
Criminal Determination:
Prosecuted as trap loan crimes combined with illegal fundraising.
Operators misrepresented the loan terms and intended to profit through deception.
Consequences:
App operators received imprisonment and fines; apps shut down.
Some victims recovered partial funds through enforcement actions.
Significance:
Highlights vulnerability of young borrowers and the importance of digital financial literacy.
Shows that “small loans” can escalate into serious criminal violations.
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