In Depth: Art Fraud Lifts Lid on Illegal Public Fundraising
When retired teacher Zhang Yanli invested millions of yuan in calligraphy and paintings, she didn’t expect that her art would remain out of sight, let alone vanish completely.
Despite all the money she spent, Zhang never saw any of the art she bought as it was kept for safekeeping by the local artwork management company that facilitated the deal.
Their agreement noted that she would receive an annual return on investment of more than 10%. But since August 2018, she had received zero returns and couldn’t even get her principal back.
Zhang, a resident of the eastern city of Nantong, is just one victim of fraud perpetrated by people raising money illegally. Many investors in the same position only realized they had been defrauded after they filed civil lawsuits and were told that the suspicion of economic crime meant their case would be handled by the police.
Such cases of art investment gone wrong are typical of a growing trend of illegal, unlicensed fundraising. In the past three years, authorities across the country have conducted investigations into more than 11,000 illegal fundraising cases involving more than 380 billion yuan ($58.5 billion), according to official data.
In September, a court in Nantong put 14 employees of the Jiangsu province branch of the artwork management company Zhang invested in behind the bars for “illegal absorption of public deposits,” with the core offenders each sentenced to nearly 10 years in jail.
The court found that from June 2016 to October 2018, the branch illegally raised more than 3.43 billion yuan from upwards of 6,000 people in the province’s cities of Nantong, Changzhou, and Suzhou. Another 1,000 investors in other parts of China, including Beijing and Shanghai brought the total raised to more than 6 billion yuan.
Behind the fraud is Sha Shuibing. His company, Zhongyi Yunlian Wenchuang (Beijing) Culture and Technology Group Co. Ltd, had branches across the country. In October last year, Sha, a Jiangsu native, was apprehended by police. Beijing prosecutors have since initiated a public prosecution against him, Caixin learned.
Sha Shuibing. Photo: Zhongyi Yunlian
Retired for six years, Zhang invested 50,000 yuan in Zhongyi Yunlian in 2016. At first, Zhang got her return as promised and redeemed her principal, which was all the reassurance she needed to make further investments.
From March to June 2018, Zhang invested 970,000 yuan in the name of her daughter, and signed multiple partnership and membership agreements with the company.
Wang Yun, 67 invested in the company’s Xiaoshan branch via a shareholding agreement signed in April 2018 in which she subscribed to 100,000 yuan in employee stock shares.
“Their salesman said that the company would definitely go public and that my investment could increase fivefold after listing, and I was also told that there would be equity dividends every year,” Wang said, adding that she signed the contract without even reading it as she trusted the salesman.
The trust didn’t come from nowhere. The company appeared to be successful and trustworthy, with dozens of branches across the country and regular public events.
In March 2018, Sha claimed at an event that the company had accumulated four categories of product — including wine, calligraphy and paintings, copyrighted works and jewelry and jade — worth tens of billions of yuan. By using big data and artificial intelligence, the company would provide tens of thousands of families in China with access to works of art and their derivatives, he claimed.
Along with these ambitious promises, the company released a notice on Aug. 2, 2018, claiming it had “reached a strategic investment plan for listing with a company in Singapore.” The notice said that “customers’ principal payments and other major account payments will be suspended, but dividends will be paid as usual every day” while the company tried to ensure sufficient funds would be available to ensure a smooth listing.
But Sha admitted in an open letter in October that year that some of the investors’ funds had been spent buying physical assets and covering principal and interest, marketing and company management, leaving the company unable to return customers’ subscription funds in the form of cash anytime soon.
However, he claimed that the company had physical assets worth over 7 billion yuan, and proposed solutions including deferred payment, which entailed paying increasing portions of the principal every year for three years from August 2019.
Sha also claimed the company would resume normal operation by running nationwide art tutoring services and selling works authorized by more than 1,300 well-known artists.
None of Sha’s commitments were realized. The most any investors received was a “festival allowance” of around 500 yuan each in early 2019.
It was then that many investors decided to take the company to court.
In late 2018, civil rulings issued by the Chongchuan District Court in the city of Nantong determined that by gathering funds the company exceeded its business scope and was suspected of economic crimes. These were matters that needed to be handled by public security organs and subject to further judicial proceedings. In March 2020, the local prosecutor filed formal charges against 14 suspects.
On Sept. 15 this year, the Chongchuan court handed down its first verdict, finding that the company’s Jiangsu branch had illegally gained more than 3.42 billion yuan from upwards of 6,000 people in the cities of Nantong, Changzhou, and Suzhou from June 2016 to October 2018. The money was filtered through Zhongyi Yunlian and other companies owned by Sha.
The actions of the 14 defendants constituted the crime of illegal absorption of public deposits, the court determined. Yang Bin and Feng Jiancheng, the principal criminals, were sentenced to nine years and 10 months, and nine years and five months in prison, respectively, and were fined 500,000 yuan each.
The other 12 defendants were given fixed-term sentences of four to seven years and slapped with fines. More than 10 defendants have appealed, Caixin has learned.
Some other individuals involved have also faced criminal liabilities. Branch heads Yu Canhua and Liu Hongwei were found to have illegally acquired funds and caused 205 million yuan of losses to 812 investors between December last year and June. Yu and Liu were sentenced to three years and four months in prison, and three years and three months in prison, respectively.
Zhu Weijiong, head of a branch in Zhejiang province, was sentenced to two years and eight months in prison for illegally acquiring more than 40.56 million yuan of public deposits.
An exhibition held by Zhongyi Yunlian in Nantong, East China’s Jiangsu province, in August 2018. Photo: Zhongyi Yunlian
Several investors told Caixin that media reports on the company, and endorsement from government officials and prestigious calligraphers and painters made them believe in Zhongyi Yunlian and Sha, despite the company’s actual track record.
In August 2016 and March 2017, the Beijing and Jiangsu branches were punished by regulators for false advertising.
Commerce authorities in Beijing’s Shunyi district fined the company 110,000 yuan after determining that it was not, as it claimed, a cultural enterprise with a history of 18 years, and had not been given the title of a “good Chinese enterprise” by state media.
The market supervision administration in Nantong also ordered the company’s Jiangsu branch to stop advertising and handed it a fine of 34,200 yuan.
Many investors compared the company’s process of luring people into investing to classic “Ponzi schemes,” they told Caixin.
In late 2020, the company issued an open letter to investors on its official WeChat account, warning of its potential downfall.
“At present, all branches and the Beijing headquarters are under investigation by the public security authorities, and the heads of key branches and some workers have been arrested,” the letter said. “It’s very likely that the Beijing headquarters will release bad news soon.”
Unfortunately, this was a notice that did come true. Sha was arrested a year ago, on Nov. 20, 2020, and Beijing’s Changping district has initiated his public prosecution.
The names Zhang Yanli, Wang Yun, Fang Shuxia and Tan Aihua are pseudonyms.
Contact reporter Cai Xuejiao (email@example.com) and editor Heather Mowbray (firstname.lastname@example.org)
Download our app to receive breaking news alerts and read the news on the go.
Get our weekly free Must-Read newsletter.
- MOST POPULAR