Death Sentence Passed in China’s Crackdown on Illegal Fundraising

A businesswoman is reported to have been sentenced to death by a Chinese court in the government’s latest crackdown on underground lending that is widely used by the country’s entrepreneurs.

The Intermediate People’s Court of Wenzhou, a city of southern China that has become a centre for private sector business and informal banking networks, said that Lin Haiyan was convicted of “illegal fundraising” for collecting 640 million yuan (CNY) from individual investors by promising high returns and low risk.

According to a statement posted on the court website the businesswoman began soliciting funds in 2007 and promised investors high returns at low risk. She told investors that the funds were being invested in initial public offerings (IPOs), share placements and bank deposits, but instead the money was used to speculate on futures and stocks, while funds raised by new investors was used to pay older clients their promised return. The scheme fell apart in October 2011, with Ms Lin owing her private backers CNY428m, it said.

Chinese entrepreneurs who often cannot get loans from the state-owned banking system rely on such informal lending. However, regulators have begun tightening controls after a surge of defaults prompted protests by lenders.

Last month China’s highest court overturned a death penalty sentence imposed on another businesswoman from the same region following a massive online protest online. Wu Ying, who turned a nail salon into a regional conglomerate, was sentenced to death in 2009 after being convicted of swindling 11 investors out of CNY380m, although her lawyer maintained that the funds were invested in real businesses.

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