Chinese authorities are struggling to quell protests following the collapse of an investment scheme police say took as much as $4.7 billion from millions of depositors.
The implosion of Qianbao.com adds to a string of failures of Chinese financial ventures blamed on fraud or mismanagement that have prompted protests and complaints of official indifference to the suffering of small investors. In a separate case, the founder of an online lender was sentenced in September to life in prison on charges he defrauded investors of $7.7 billion.
On Monday, hundreds of people marched in freezing weather in the eastern city of Nanjing in Jiangsu province, where Qianbao was founded in 2012, shouting for the government to take action. A video shot by a demonstrator showed police carrying some people away while others shouted, "The Jiangsu government is beating people!"
"Don't organize and don't participate in illegal activities," the official Xinhua News Agency told readers in a report on Qianbao.com.
Depositors protested in Nanjing on Dec. 12 after they lost access to online accounts, according to Zhan Jianfu, an employee of an auto dealership in the western city of Mianyang. He said he invested several hundred thousand yuan (tens of thousands of US dollars) in Qianbao.
"We failed to get a response and some of the investors were intercepted and beaten up," Mr. Zhan said in a telephone interview.
Qianbao, Chinese for "Wallet," had as many as 200 million registered users, according to Chinese news reports. The founder, Zhang Xiaolei – dubbed "China's most notorious swindler" by one newspaper – turned himself in Dec. 26 to Nanjing police, who are leading the investigation.
Unlike some legitimate Chinese investment vehicles that spun out of control, police and news reports describe Qianbao as a brazenly fraudulent Ponzi scheme.
The company, which moved to Shanghai in 2015, promised returns of up to 60 percent a year. Depositors were paid what Qianbao said were wages for simple tasks such as watching online ads.
Some of the 30 billion yuan ($4.7 billion) raised from depositors was used to buy businesses including a soccer team and a producer of glycerine, but only 20 of the more than 70 companies Qianbao said it owned really existed, according to a statement by Nanjing police. Profits were too small to pay such high returns, so Qianbao used money from new depositors.
The newspaper Huanqiu reported that in an interview Saturday while in police custody, Mr. Zhang "made it clear Qianbao's collapse was due to his own greed," but said reckless investors also had to accept the consequences.
"The two sides used each other in a frenzy of chasing fame and fortune," the newspaper wrote.
Photos released by Xinhua show the balding, bespectacled Zhang in handcuffs and a blue vest as he talked to investigators.
Ambitious investment companies have flourished as Chinese authorities allowed an informal finance industry to grow over the past decade to support entrepreneurs who can get scant credit from the state-owned banking system. The national bank regulator estimated in 2015 the underground finance industry had grown to $1.5 trillion.
The internet has helped them attract money from working class or rural depositors, many of them financial novices with little knowledge of the risks involved. Many lend to factories and retailers or invest in restaurants, car washes, and other businesses, but inexperience and poor risk control means a downturn in business conditions can bankrupt them.
Beijing tightened control as defaults mounted following the 2008 financial crisis. Finance as a whole has come under tougher scrutiny after a 2015 plunge in stock prices led to accusations of insider trading and other offenses.
Lack of official supervision has allowed grifters to attract money from investors despite a steady drumbeat of news reports about failed and fraudulent ventures, said Lin Changyu, a lawyer in Shanghai for the Yingke Law Firm.
"In some cases, their advertisements were even shown on [state-run] China Central Television or celebrities were invited to promote the schemes," said Mr. Lin. "Secondly, people were in greedy pursuit of high returns from the scheme and often ignored the potential risks."
Investors in fraudulent schemes rarely get money back because Chinese courts are reluctant to accept a lawsuit against someone who has been convicted of a crime, said Lin. He said any remaining assets usually are confiscated.
"The chances of investors getting their money back are extremely slim," said Lin.
Authorities often seem as keen to defuse protests as they are to help defrauded investors.
In one of China's biggest financial scams, authorities say depositors lost 50 billion yuan ($7.7 billion) in online lender Ezubo before it was seized by regulators in 2015. The founder, a high school dropout, and his brother were sentenced to life in prison in September and 24 other executives received terms of three to 15 years.
When Ezubo depositors vented their anger on social media and asked why authorities didn't act sooner, police phoned some to warn them against criticizing the Communist Party online. One depositor told The Associated Press police confiscated her computer and cellphone after she wrote online that she might file a petition with the national government.
Zhan, the Qianbao investor, complained authorities might have made losses worse.
"The police shut down some of the factories in which Qianbao invested, causing the workers to lose their jobs and leaving us unable to get our money back," said Zhan. To salvage what is left, he said, "we appeal for the release of Zhang Xiaolei."
This story was reported by the Associated Press.