chinapyramidReutersA Chinese acrobatic troop.
Chinese authorities have arrested 21 people involved with the country's largest peer-to-peer lending service, Ezubao, which is accused of conducting a Ponzi scheme.
A Ponzi scheme is basically a pyramid scheme in which an investment operation pays returns using money from new investors. To attract investment, the returns are normally unusually high.
The Xinhua newspaper, the mouthpiece for the Chinese government, reported that the fintech company was suspected of conning 900,000 investors out of about 50 billion yuan (£5.3 billion, $7.6 billion).
Peer-to-peer lending in China is like the Wild West right now. Most of the malpractice happens on a small scale at the bottom of the market, which partly explains why it has failed to generate big headlines.
Despite the huge number of platforms going bust there are still an estimated 2,000 online lenders in China, with just 50 representing about half of the market. And online lending remains a tiny fraction of China's financial services overall.
But this would be the largest scam to emerge from the country yet. According to the Xinhua report, the police used two excavators to "uncover some 1,200 account books that had been buried deep below ground."
The Xinhua report said Ding Ning, the chairman of the holding firm Yucheng Group, which launched Ezubao in 2014, used money from new investors to fund his own real-estate projects and to pay off existing investors. It also mentioned that state investigations revealed that more than 95% of the investment offerings on the site were fake.
Investors have already lost a whole heap of money on P2P lending services in China.
In October, Henry Yin, managing director of CreditEase, one of China's biggest platforms, said Chinese investors, most of them unsophisticated individuals playing with savings, have lost an estimated $1.2 billion (£780 million) putting money into Chinese P2P lending platforms, largely over the past 18 months.

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