Police Probe Former Peer-to-Peer Lender Neo Capital
An internet finance company that once ran one of the largest peer-to-peer (P2P) lending platforms in its home city of Shenzhen is under investigation on suspicion of illegally taking deposits from the public, local police announced.
Shenzhen police accused Neo Capital Management Group Co. Ltd. of illegally collecting the deposits through its P2P platform and a handful of private fund products the company offered, according to an announcement (link in Chinese) released Wednesday on social media.
More than 100 people bought the products, which allowed Neo Capital to raise billions of yuan, investors with knowledge of the matter told Caixin.
Shenzhen police on Wednesday took “criminal coercive measures” against Neo Capital staff who may be responsible, the announcement said. Such measures usually include house arrest or detention. The announcement did not disclose other details about the case or the suspects involved.
The P2P lending platform operated by Neo Capital is among more than 5,000 that have failed since 2016 following a regulatory crackdown in response to investors losing billions of yuan due to fraud, lax management and poor risk controls at multiple platforms.
P2P platforms were supposed to serve primarily as an intermediary, matching individuals with money to lend with borrowers who have limited access to bank loans. However, the lack of effective oversight and the high returns promised by some platforms stoked a lending boom in China that attracted both speculators and borrowers without much wherewithal to repay their debts.
The country’s four-year clampdown on the once-booming sector has led to a dramatic contraction of the industry, leaving only three P2P operators still running as of November, all of which have exited the business (link in Chinese).
Some investors started having trouble getting their money back from Neo Capital’s P2P platform as far back as mid-2018, but the company did not announce that it was closing until May 2020, a source close to Neo Capital told Caixin.
The source said regulators had requested that Neo Capital delay closing the platform because they wanted to avoid triggering a sudden collapse. Also, regulators pushed for other companies in the industry to gradually scale down.
In its May announcement (link in Chinese), the Neo Capital platform said it would exit the online lending business and promised to try its best to have borrowers repay lenders. It said the online lending industry had deteriorated over the previous two years, adding to the investment risks for lenders and operational risks for the platform.
In early May, investors who lent money to borrowers through the Neo Capital platform held around 10 billion yuan ($1.5 billion) of outstanding debt, with 2.3% (link in Chinese) repaid as of Tuesday, according to the platform.
Contact reporter Luo Meihan (firstname.lastname@example.org) and editor Michael Bellart (email@example.com)
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