Ezubao: a Chinese Ponzi scheme
with a twist
Utah State University, Logan, Utah, USA
Universidad Autonoma de Ciudad Juarez, Juarez, Mexico, and
Jack Kristian Baldwin and Steven Deron Scott
Huntsman School of Business, Utah State University, Logan, Utah, USA
Purpose –The paper aims to report on the single largest peer-to-peer lending scandal in the history of China.
The authors provide details on how the case was perpetrated. The authors also provide details as to how
investors were fraudulently manipulated in the scam. Finally, the authors provide updates on recent
regulation in China in the peer-to-peer lending industry.
Design/methodology/approach –This is a theoretical paper that provides a better understanding of
both Ponzi schemes and fraudulent practices in the peer-to-peer industry.
Findings –Whilethe Ponzi scheme has been around for many years, fraudperpetrators continue to nd new
ways to use the scheme to manipulate and take advantage of investors. The case of Ezubao provides important
insight for both regulators, academics, investors and nancial advisors.
Originality/value –Ezubao, a start-up in an industry with little to no regulation, provides a textbook
example of common fraud symptoms (or red ags). The deception was enacted through Ezubao’s bold
advertising scheme and falsied appearance of success and government support. This was enough to
brilliantly deceive over 900,000 susceptible investors. While Ezubao was one of the rst peer-to-peer lending
scandals to be uncovered, it certainly will not be the last.
Keywords Peer-to-peer, Fraud, Ezubao
Paper type Conceptual paper
In December 2008, the world was shocked when former NASDAQ chairman and Wall Street
insider Bernie Madoff admitted to committing the single largest Ponzi scheme in the history
of the world. Reported to authorities by his own sons, Madoff pleaded guilty to 11 federal
felonies including securities fraud, money laundering, mail fraud, wire fraud, perjury and
making false statements. Madoff was later sentenced to the maximum sentence of 150 years
in federal prison. Totaling more than US$65bn in paper losses, victims included a number of
celebrities such as Steven Spielberg, Kevin Bacon, Larry King and Eliot Spitzer.
While the Madoff scandal has received signicant attention in the press, the USA has also
experienced a slew of other major frauds including Enron, WorldCom, Cendant, AIG, Waste
Management, HealthSouth, Tyco and Qwest. While the USA seems to have the highest
incidence of fraud in the press, countries throughout the world also experience fraud. Some
notable cases include SK Global (Korea), YGX (China), Parmalat (Italy), Bre-X Minerals
(Canada), HIH and Harris Scarfe (Australia), Livedoor Company (Japan), Vivendi (France),
Royal Ahold (Netherlands), Saytam (India) and Petrobras (Brazil). In fact, the Saytam fraud
rocked India so hard that The Economist termed the scandal as “India’s Enron”. And, the
fallout from Petrobras has been so swift that it recently caused massive protests and
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Journalof Financial Crime
Vol.24 No. 2, 2017
©Emerald Publishing Limited