SHANGHAI (Reuters) - Zhongjin Capital Management made a splash in the past couple of years in Shanghai. The wealth management firm’s imposing branch office on Shanghai’s historic Bund pulled in many eager investors seeking the double-digit returns it promised on short-term financing products. It had a big profile, sponsoring popular Shanghai TV dating program “Saturday Date” and signed up domestic billiards star Pan Xiaoting as a spokesperson.
But this week, the image of riches and success that it had cultivated came crashing down. Police said they arrested 21 executives linked to Zhongjin Capital on April 5 on suspicion of “illegal fundraising,” a loosely defined term applied to irregular behavior in China’s energetic but opaque shadow banking sector.
The only person named by Shanghai police so far has been top executive Xu Qin, who local media said had been arrested at the Shanghai airport on his way to get married in the Vatican.
Xu has been described by domestic media as a high roller, who is under 30 years of age.
Chen Jiajing, the 29-year-old chairwoman of Zhongjin’s parent Guotai Investment Holdings, cannot be located. Public statements issued this week by two Hong Kong-listed companies in which Guotai is a major stakeholder indicated they had been unable to reach her.
Zhongjin employees told Reuters that other senior managers had been arrested during a raid on company offices. They were interrogated, allowed to use the bathroom only if they had a police escort, then hauled off, the staff said.
Calls to Zhongjin and Guotai headquarters in Shanghai went unanswered. Both company websites were inaccessible on Friday. The authorities did not provide further information about the case, and what the investigation’s focus is.
“The really strange part was that our business hit a new all-time high on April 5, but the next day the offices were closed,” one employee who gave her name as Jiang said in a phone interview, adding that investors had been paid off on schedule the day prior to the arrests, but were unable to withdraw funds that were scheduled to mature on April 6.
“The victims are the small investors and the low-level employees. We all got our friends and family to invest in the company’s products,” she said.
Defaults and fraud cases in China’s shadow banking sector have risen in the past few years as the economy has slowed and struggling companies have been forced to pay higher interest rates to raise cash as they try 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.
Zhongjin’s offices were often in some of the most expensive commercial buildings in the country and known for being full of investors eager to put down millions to buy its products. Investors told Reuters they would line up overnight to get a place in the queue, and offices were often full from 8 a.m. until 11 p.m.
They looked like banks, and were often located next to banks, giving them an air of reputability - a common practice among Shanghai wealth management firms seeking to burnish their reputations for stability in the face of rising reports of failure and fraud.
Local media showed posts from social media accounts featuring a young woman claiming to be a manager at Zhongjin, including pictures of her holding what looked like six 100,000 yuan bricks of cash garnished with thinner 10,000 yuan sheafs. More boxes of cash were in the background. Other posts show her driving a Ferrari and claiming to have just purchased a 2 million yuan investment product from the company. Reuters could not immediately verify the authenticity of the images and posts or identify the woman.
An investor who gave his surname as Jiang told Reuters in a phone interview that he put 300,000 yuan ($46,345) of his family’s money into the company in March because of its perceived trustworthiness and high profile.
“The company’s offices were always busy, and they always paid back investments on time. Who would expect this type of company to have problems?” he said.
Investors have been told to take their cases to their local police stations, but one said he was required by the police to sign a statement admitting he was involved in illegal fundraising before they would take up his claim. He balked.
On Friday, Zhongjin investors attempted to gather at People’s Square in central Shanghai, but the group was broken up by police, according to a Zhongjin investor. Reuters viewed video showing clashes with police in the square, though that couldn’t be immediately verified. On Thursday, the police also broke up an assembly of investors and employees outside one of the company’s offices.
Additional reporting by Shanghai Newsroom; Writing by Pete Sweeney; Editing by John Ruwitch and Martin Howell