In a sign of a more vigilant approach by Chinese authorities regarding questionable peer to peer lending platforms, Ezubo (Ezubao) saw 1.1 billion yuan frozen by the government and the Chairman, Din Ning along with other top executives were said to be in police custody according to multiple reports. The locked funds were held at China CITIC Bank which complied with a police order delivered on December 8th. Police confiscated computers and sealed off an Ezubo office in Bejing. On December 3rd, over 40 Ezubo employees were taken for questioning by police foreshadowing the state action. The employees were released once the questioning was completed.
Ezubo was launched only in 2014 and since that time transaction volume has rocketed to over 73 billion yuan. The peer to peer lender was said to have over 5 million registered users. Investors were offered products that promised annual returns from 9 to 14.6%.
According to a report in Caixin, the P2P lender had a “murky history” after speaking to individuals close to the company including an Ezubo employee;
“Individual investors had to first pay upfront before getting a contract and were not told who they were lending to, an Ezubo employee, who declined to be named, said.
Firms borrowing from financial leasing companies often pay an annual interest rate of 7 to 8 percent, and that “clearly fell short of the yields offered by Ezubo’s wealth management products,” a person close to the company said.”
Governmental scrutiny into the largest peer to peer lending market in the world has increased since draft regulations were announced this past summer. In September police arrested “a large number of employees” from 3 P2P lending firms based in Shenzehen where over 600 direct lending companies operate.
Howhow Zhang, an employee with KPMG, told SCMP earlier this year that some P2P lenders were little more than Ponzi schemes.