Minsheng Bank Fined Record $4 Million for Wealth Management Fraud

China’s banking regulator fined China Minsheng Bank, the country’s largest privately owned bank, for selling 1.65 billion yuan ($249 million) of fake wealth management products.

The bank was ordered to pay a fine of 27.5 million yuan ($4.16 million), the biggest fine imposed on a bank. In addition, 13 bank executives and employees were handed penalties including fines and bans from the banking industry, according to a statement released Thursday by the Beijing office of the China Banking Regulatory Commission (CBRC).

The Minsheng case is only the most recent in a series of wealth management product scandals in China. In 2012, Huaxia Bank, a midsize commercial bank, blamed an employee at a Shanghai branch for selling unauthorized wealth management products, causing dozens of depositors to lose millions of yuan. The bank eventually reimbursed customers after initially refusing. Violations in the sale of wealth management products were also found more recently at other banks, including Agricultural Bank of China, one of the four biggest state-owned commercial banks.

The fraud at Minsheng was first exposed in April when a customer seeking to redeem a wealth management product bought at Minsheng Bank’s Hangtianqiao sub-branch in Beijing was told the product didn’t exist.

Police launched an investigation of the branch president, Zhang Ying, and several other employees. Minsheng confirmed in late April that the fraud involved more than 150 customers who bought non-existent wealth management products worth about 1.65 billion yuan. Minsheng said it has since repaid clients for their losses.

Domestic media reported that Zhang used the proceeds from the sales to help a corporate client to repay debt owed on the issue of bills of exchange.

But Minsheng denied the reports and said the Hangtianqiao sub-branch was not engaged in the bills business. The bank said Zhang “raised funds from such customers in an illegal way for her own use, with a part of them for the investment in real estate, cultural relics, jewelry and other fields.”

Zhang and two vice presidents of the sub-branch were permanently barred from the banking industry, and several managers were barred for one year, according to the CBRC Beijing office.

Two other employees were fined 500,000 yuan. Minsheng’s Beijing branch Assistant President Wang Yuewei was removed from the company’s board and senior management for five years.