The implosion of Qianbao.com adds to a string of failures of Chinese financial ventures blamed on fraud or mismanagement that have prompted protests and complaints of official indifference to the suffering of small investors.
In a separate case, the founder of an online lender was sentenced in September to life in prison on charges he defrauded investors of USD 7.7 billion.
On Monday, hundreds of people marched in freezing weather in the eastern city of Nanjing in Jiangsu province, where Qianbao was founded in 2012, shouting for the government to take action.
"Don't organise and don't participate in illegal activities," the official Xinhua News Agency told readers in a report on Qianbao.com.
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Depositors protested in Nanjing on December 12 after they lost access to online accounts, according to Zhan Jianfu, an employee of an auto dealership in the western city of Mianyang. He said he invested several hundred thousand yuan (tens of thousands of dollars) in Qianbao.
"We failed to get a response and some of the investors were intercepted and beaten up," Zhan said in a telephone interview.
Unlike some legitimate Chinese investment vehicles that spun out of control, police and news reports describe Qianbao as a brazenly fraudulent Ponzi scheme.
The company, which moved to Shanghai in 2015, promised returns of up to 60 per cent a year. Depositors were paid what Qianbao said were wages for simple tasks such as watching online ads.
Some of the 30 billion yuan (USD 4.7 billion) raised from depositors was used to buy businesses including a soccer team and a producer of glycerine, but only 20 of the more than 70 companies Qianbao said it owned really existed, according to a statement by Nanjing police.
The newspaper Huanqiu reported that in an interview Saturday while in police custody, Zhang "made it clear Qianbao's collapse was due to his own greed," but said reckless investors also had to accept the consequences. "The two sides used each other in a frenzy of chasing fame and fortune," the newspaper wrote.
Photos released by Xinhua show the balding, bespectacled Zhang in handcuffs and a blue vest as he talked to investigators.
Ambitious investment companies have flourished as Chinese authorities allowed an informal finance industry to grow over the past decade to support entrepreneurs who can get scant credit from the state-owned banking system. The national bank regulator estimated in 2015 the underground finance industry had grown to USD1.5 trillion.
Beijing tightened control as defaults mounted following the 2008 financial crisis. Finance as a whole has come under tougher scrutiny after a 2015 plunge in stock prices led to accusations of insider trading and other offenses.
Lack of official supervision has allowed grifters to attract money from investors despite a steady drumbeat of news reports about failed and fraudulent ventures, said Lin Changyu, a lawyer in Shanghai for the Yingke Law Firm.
Investors in fraudulent schemes rarely get money back because Chinese courts are reluctant to accept a lawsuit against someone who has been convicted of a crime, said Lin.
He said any remaining assets usually are confiscated. "The chances of investors getting their money back are extremely slim," said Lin.
Authorities often seem as keen to defuse protests as they are to help defrauded investors.
When Ezubo depositors vented their anger on social media and asked why authorities didn't act sooner, police phoned some to warn them against criticising the Communist Party online.
One depositor told The Associated Press police confiscated her computer and cell phone after she wrote online that she might file a petition with the national government. Zhan, the Qianbao investor, complained authorities might have made losses worse.
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