May 16, 2016 / 12:18 PM / 2 years ago

China wealth management firm executive confesses to Ponzi scheme

BEIJING (Reuters) - A top executive at a Shanghai investment firm, Zhongjin Capital Management, confessed on state television on Monday to operating a Ponzi scheme, a sign of the authorities’ increasing scrutiny of systematic financial fraud.

Police accused Zhongjin last month of “illegal fundraising” a loosely defined term applied to irregular behavior in China’s energetic but opaque shadow-banking sector. At the time, he and 20 other executives with ties to the firm were arrested.

“The way we operated our fund was with a Ponzi scheme method,” Xu Qin, a man described by domestic media as a high roller, said on China’s official state broadcaster, China Central Television (CCTV).

Xu has not been formally tried in court. Rights activists have said that public confessions in China are often forced and violate the accused’s right to due process.

Reuters was unable to contact Zhongjin or Xu for comment.

Media said last month that Xu had been arrested at Shanghai’s airport on his way to get married in the Vatican.

“We used money from investors who came later to pay the interest owed to earlier investors,” said Xu.

“It was actually an extremely typical Ponzi scheme.”

Part of the broadcast showed police scouring a building, remarking on piles of money, a Hermes brand handbag and other luxury goods.

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.

Police in Shanghai, China’s main financial hub, have also set up a new securities crime unit, China’s Wenhui Daily reported on Monday.

Reporting by Elias Glenn and Paul Carsten in Beijing; Editing by Robert Birsel

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