Ezubao: a Chinese Ponzi scheme with a twist

Author:Chad Albrecht, Victor Morales, Jack Kristian Baldwin, Steven Deron Scott
Position:Utah State University, Logan, Utah, USA
Pages:256-259
SUMMARY

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/methodolog... (see full summary)

 
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Ezubao: a Chinese Ponzi scheme
with a twist
Chad Albrecht
Utah State University, Logan, Utah, USA
Victor Morales
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
Abstract
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 falsied 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
Introduction
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 signicant 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
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
24,2
256
Journalof Financial Crime
Vol.24 No. 2, 2017
pp.256-259
©Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2016-0026

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