Caixin Weekly | Cedarlake Holding's Alleged Fraud Culminates: Approx. 6,800 Investors Caught in a 20 Billion Yuan Financial Black Hole (AI Translation)

财新周刊｜雪松控股涉诈终局 约6800名投资者身陷200亿元资金黑洞

Cedar Holdings Group Co., Ltd., once celebrated as "Guangzhou's top private enterprise," is currently facing its downfall, with a trial held between October 28 and November 1, 2024, at the Guangzhou Intermediate People's Court. The charges against Cedar Holdings involve fundraising fraud, illegal absorption of public deposits, and other crimes, primarily targeting the company's executives from its bulk trade and finance divisions [para. 1]. Established in 1997, Cedar Holdings saw rapid revenue growth from 59.3 billion yuan in 2015 to 221 billion yuan by 2017, later joining the Fortune Global 500 list in 2018. This growth was largely propelled by financing trade, where companies use trade as a facade for borrowing and lending, often fabricating trades to secure financing and inflate financial statements [para. 4].

Cedar Holdings established wealth management firms to market financial products, known internally as "Runbang Wealth Management," based on fictitious assets, which started defaulting in March 2021 with an accumulated scale of defaults about 20 billion yuan [para. 5]. Criminal measures were imposed on Zhang Jin, Cedar's actual controller, and other individuals related to the illegal public deposit charges. In court, most senior executives admitted guilt but disputed some charges, while Zhang Jin argued against the fundraising fraud charge [para. 7].

The decline of Cedar Holdings was partially due to its relationship with local government officials, like the former Party Secretary of Huangpu District, which significantly facilitated the company's rapid expansion. Cedar manipulated its transaction data to meet government performance metrics, and this support allowed the company to pursue risky financial practices [para. 10]. However, following financial product defaults, Cedar Holdings faced additional financial stress as institutions withdrew support and local enterprises sought asset transfers to cover their losses [para. 11].

A "special task force" was established by the Guangzhou municipal and district governments in March 2022 to address Cedar's debt crisis. Government-backed asset transfers helped mitigate losses for state-owned enterprises [para. 13]. Cedar Holdings had promised large returns on financial products, which mostly consisted of fictitious assets, convoluting their financial state. In May 2022, KPMG's assessment suggested Cedar was insolvent with liabilities exceeding assets under most conditions [para. 19].

Further investigations revealed that Cedar vastly inflated transaction volumes to secure financing, involving establishing numerous offshore companies to fabricate trades and absorb losses. The issuance of wealth management products using fictitious underlying assets led to raising nearly 59.6 billion yuan [para. 27]. Post-2021, Cedar managed to repay 33.7 billion yuan through various asset transfers, although small investors likely won't receive more than 3% of their principal back due to Cedar's insolvency [para. 34].

The Cedar Holdings scandal has led to judicial proceedings against company executives and financial advisors who were involved in its fraudulent financing practices. These involved large sums misappropriated under false pretenses to finance various speculated company operations [para. 36]. The situation highlighted the involvement and subsequent accountability measures taken against local government institutions and state-owned enterprises, with certain individuals now under investigation for their roles in the fiasco [para. 41].