Shanghai police arrest 21 suspected of wealth management fraud

SHANGHAI (Reuters) - Police have arrested 21 people with ties to well-known Shanghai investment firm Zhongjin Capital Management, accused by police of illegal fundraising in China’s rowdy and chaotic wealth management industry.

Investors gather at the office of Shanghai investment firm Zhongjin Capital Management in Shanghai, China, April 7, 2016. REUTERS/Aly Song

Municipal police said in a statement on their microblog late Wednesday that they made the arrests on April 5, one day after receiving reports of investor fraud.

Of the detainees, the police identified only one - Xu Qin, an executive at Zhongjin’s parent company Guotai Investment Holdings Co.

Xu and some of his associates were detained at an airport as they prepared to flee the country, according to state media reports. Company employees told Reuters the others were arrested in their offices.

On Thursday, a branch of Zhongjin in Shanghai’s historic Bund riverside area had locked its doors. A notice posted on the door said the company is under investigation and invited investors to submit complaints to their local police station.

More than 50 people milled about outside, many claiming to be either Zhongjin investors or employees. Several investors and employees said they were surprised by the arrests.

“It was very sudden,” said an employee who gave her surname as Zhang, adding that she feared losing the 1 million yuan ($154,595) she had herself invested with the company.

Slideshow ( 2 images )

One man who gave his name as Grandpa Yan said Zhongjin had been paying out interest on schedule, echoed by others in the crowd. His complaint was with the police.

“After the arrests, we are now indeed victims. We demand the (company) officials be freed so we can get our money back. We don’t want our money to be confiscated by the state. It’s money earned with blood for our retirement.”

Calls to Zhongjin for comment were not answered. The telephone number listed on the website of its parent company, Guotai Investment, appeared to be disconnected.


Defaults and fraud cases in China’s shadow banking sector have risen in past years as the economy has slowed and struggling companies have been forced to pay higher interest rates to raise cash to stay afloat.

The Shanghai arrests come two days after the municipal government launched a crackdown on illegal fundraising as part of a broader effort to stem financial risks.

The term illegal fundraising is used by regulators to describe irregular shadow banking activities, including the creation and sales of financial products through loosely regulated channels.

Zhongjin, founded in 2013, said on its microblog it had made cumulative total investments of 29.5 billion yuan (£3.2 billion) by the end of last year. It said most of that principal had already been returned to investors.

Earlier this month it said one of its latest funds had raised 5.26 billion yuan from over 10,000 investors for investments in convertible bonds. Last month, the company launched a $1.5 billion (£1 billion) private equity fund for merger and acquisition activities.

Zhongjin’s parent, Guotai Investment, is a major shareholder in three Hong Kong-listed companies and claims to have over 100 unlisted subsidiaries.

Additional reporting by Shanghai Newsroom; Writing by Pete Sweeney; Editing by John Ruwitch and Ryan Woo