Web Finance Firm Head Surrenders to Police After Ponzi Scheme Allegations

The head of a Chinese internet finance and marketing company has turned himself over to police, amid a slew of allegations that the company has been scamming investors.

Zhang Xiaolei, who holds almost 95% of the parent company of Qbao.com, also known as Qianbao, gave himself up to police in the eastern city of Nanjing, where the company is based, on Tuesday.

Zhang is “suspected of violating the law and committing crimes,” the police said in a statement posted Wednesday on a verified social media account. The police are investigating into the case, it added, without clarifying whether Zhang’s suspected offenses had any links with the operations of Qbao.com.

“Qbao is Zhang Xiaolei’s Qbao,” a former employee of the firm told Caixin. “Its business is doomed now that he’s under investigation.”

The website of Qbao.com is inaccessible as of Thursday.

Launched in 2012, Qbao.com, which means “money treasure” in Chinese, promises high returns to investors after they place required amounts of deposit with the company and take part in product promotional activities such as watching the advertisements of the firm’s clients, filling in questionnaires or sharing information about products on social media. The higher deposits investors pay, the more return they will be rewarded. Qbao.com claims to have nearly 100 million users and more than 480,000 merchants.

An investor could get a monthly reward of about 6,000 yuan ($915) after paying 100,000 yuan in deposit with the company and completing the promotional “tasks,” with the annualized return-on-investment rate reaching 72%, according to a report by the state-run China National Radio last year.

However, this business model has drawn wide skepticism over its sustainability.

A whistleblower reported to the industry and commerce authorities in August that Zhang and Qbao.com were suspected of running a Ponzi scheme and illegally raising funds from the public, The Beijing News reported Thursday. Some investors also complained that they have had difficulties withdrawing large amounts of cash, and that the firm’s Shanghai office had been vacated, the newspaper said.

Born in 1969, Zhang has more than 80 registered companies under his name, according to Tianyancha, a portal providing company registration information in China. These companies, some of which are connected with Qbao.com’s merchant platform, run a vast range of businesses from sponsoring Spanish football club Real Sociedad to acquiring the gaming section of debt-laden Chinese tech giant LeEco.

Before launching Qbao.com, Zhang was accused of embezzling 4.2 million yuan that he raised from investors, by fabricating a contract with a South American football club to send Chinese teenagers for soccer training, according to a report by the official Xinhua News Agency in 2003.

China’s fast-growing internet finance industry is prone to scandals and has come under the increasing scrutiny of the country’s regulators.

One of the most notorious scams, Ezubao, once a leading peer-to-peer online lending platform until it was shut down in December 2015, milked more than 50 billion yuan out of about 900,000 people in less than two years, using fake companies posing as borrowers.

Contact reporter Leng Cheng (chengleng@caixin.com)