A woman running a private banking operation in China has been sentenced to death after being found guilty of defrauding investors.
Lin Haiyan was convicted of “illegal fundraising” for collecting 640 million yuan from investors by promising high returns and low risk, according to the Intermediate People’s Court in Wenzhou, a centre for private sector business. It said the scheme collapsed in October 2011.
The case highlighted potential abuses in largely unregulated informal lending that supports entrepreneurs who generate China’s new jobs and wealth but often cannot get loans from the state-owned banking industry. The government is tightening controls after the global economic downturn sparked a wave of defaults and protests by lenders.
Another businesswoman from Wenzhou also was sentenced to death last year on illegal fundraising charges. That penalty was overturned following an outcry on the Internet and she was sentenced to prison.
Communist leaders have promised more bank lending for entrepreneurs and announced a pilot project in 2012 in Wenzhou to allow closely supervised private sector lending. But business leaders in Wenzhou say it is harder for entrepreneurs to get loans because worsening economic conditions have made banks and private sources reluctant to lend.
Many households provide money for private lending in an effort to get a better return than the low deposit rates paid by Chinese banks, which effectively force depositors to subsidise low-interest loans to state industry.
Around 1,500 people have been jailed for at least five years for involvement in underground lending since 2011.
Legal experts say loans between individuals are legal and the government has failed to make clear what lenders and borrowers are allowed to do.
Lin started raising money from friends, relatives and co-workers in 2007, telling them the money was going into stock offerings and bank deposits. But she used it to speculate in stocks.
Even as losses mounted, Lin continued to raise money until the scheme collapsed.
The statement said the penalty still must be confirmed. All death sentences in China are automatically appealed to the country’s highest court for review.
The court took the unusual step of issuing a second statement to support sentencing Lin to death after a Chinese blogger questioned the penalty in a comment that included the phrase “killing the witness.”
“Lin Haiyan’s actions constituted financial fraud that caused huge losses and seriously damaged the people and the state,” said the statement, which was several times the length of the original announcement. It criticised the blogger for challenging the court’s decision.
Protests erupted in 2011 and early 2012 in cities and towns throughout central China and along the southeast coast, areas with large concentrations of small private businesses, after the downturn in global trade triggered a wave of defaults. Schoolteachers, retirees and others who had lent to entrepreneurs demanded authorities get back their money.