The following story is an argument for having good auditing laws and securities regulations protecting investors.
e-Zubao was an Anhui-based Chinese online financing company. It was small, just 21 people. And in just 18 months, it became the largest online financing company in China. It provided loans to consumers, promarily, at 9% to 15% interest. Investors loved it. This company was going to make hand-over-fist. Almost a million investors invested in the company through the stock exchange.
None of the above is false. But they did falsify one thing: the number of borrowers. There were none. Well, not exactly none. About 5% of the stated borrowers were actually borrowers. The rest were made-up ghosts. To put it in terms of returns, to make the same kind of returns it stated it would be making, it would have to have just one employee, and all other costs must also be 20 time less.
You can imagine the horror when investors found out that their explosive company imploded.
Marcus Maltempo is a Certified Anti-Money Laundering Specialist and a Certified Fraud Examiner with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.