Outrage has erupted in China at revelations from the police that online investment bank Ezubao was nothing more than a gigantic swindle – as police arrested 21 of Ezubao’s top officials behind the 50bn yuan (£5.3bn) Ponzi scheme.
It has emerged that nearly 900,000 Chinese investors are thought to have lost their money since the Ezubao site was shut down by police in December after suspicious transactions in the billions sent a red flag up.
A Ponzi scheme is a giant financial scam in which a company with no capital lures victims with offers of high rewards and its first investors usually get their money but it is simply taken from newer ones, and so a pyramid is built which will, sooner or later, have too wide a base to continue.
Ezubao’s unique selling point was matching investors seeking companies and companies looking for finance, an increasingly popular way of investment known as peer-to-peer (p2p). But, unlike previous high-return Ponzi frauds like Bernie Madoff who targeted the international jetset out of billions of dollars, Ezubao’s clients were ordinary Chinese citizens coming mainly from rural areas. This has sparked huge outrage and many of them are helping create a consumer rights protection movement with a recent call for three days of national protests.