City Limouzine Investment finance fraud

Kochi: Palluruthy police have arrested a four-member gang that had duped several job aspirants by promising to arrange visas to Singapore.

The gang operated from Mumbai and found gullible victims by placing advertisements on online classifieds like Quikr. The arrested had duped nearly Rs 50 lakh from job aspirants who had filed complaints with the Palluruthy police.

The accused are Shiju Sheelan, Jayasheelan, Krishna Kumar, Jithu Xavier and Haneefa. While Jithu is a native of Eramalloor in Alappuzha, the remaining three are from Thiruvananthapuram.

All the accused except Jayasheelan were arrested from an apartment at Vashi, Navi Mumbai, in Maharashtra by a team of police headed by Palluruthy circle inspector Aneesh K G.

Police were on search for the accused after Bibin, a Kumbalanghi native, lodged a complaint with the Kochi city police commissioner last week. "Seeing the online advertisements, jobs aspirants will send them applications. The accused will respond to the applicants. Jobs were offered with a shipping firm in Singapore," said Aneesh.

Selected applicants were later sent fake visa and flight tickets. They were requested to transfer amounts ranging from Rs 2.5 lakh to Rs 5 lakh for further formalities.

According to the inspector, the accused had collected money through bank accounts that were opened using fake documents. Different SIM cards used by the accused were also obtained using forged ID cards. Police traced their location to Mumbai by tracing the mobile tower locations and arrested them with the support of Maharashtra police. According to police, the accused had cases registered against them at Ernakulam central, Karamana, Punalur, Aroor, Kozhikode and Palakkad.

In the case registered with Palakkad police, the accused had duped money from 11 Tamil Nadu natives too. Following the arrest, the city police were approached by nearly ten people from Mumbai who have reportedly lost about Rs 35 lakh.

They accused have been booked for cheating and under provisions of IT Act. They were remanded in judicial custody on Monday. Police would seek the custody of the accused to interrogate them on several new complaints.

BENGALURU: The 26 nationalised banks, which are expecting a Rs 25,000 crore government bailout in the coming financial year have lost at least Rs 30,873.86 crore to frauds in four years -- 2011-12 to 2014-15.

According to documents accessed from the Ministry of Finance, these losses are only due to frauds of Rs 1 lakh or more. Some of these cases are being probed by investigating agencies.

In the latest development, the Central Bureau of Investigation, which is also probing the Kingfisher Airlines case, arrested a chartered accountant of Udaipur and a businessman of Jaipur in an on-going investigation of a case relating to an alleged loss of approximately Rs 1,000 crore to Syndicate Bank.

Syndicate Bank is headquartered in Karnataka. In the said period, the bank has lost Rs 1,133.31 crore and has reported 445 cases of fraud involving Rs 1 lakh or more.

The State Bank of India (SBI) and its five associate banks have lost a total of Rs 5,881.20 crore in the said period. SBI, which reported 2,049 fraud cases, lost the majority of this money (Rs 3,461.74 crore), followed by State Bank of Hyderabad which lost Rs 876.43 crore and reported 139 fraud cases.

IDBI, which is also being probed in the Kingfisher Airlines case, has lost Rs 1,350.69 crore in the said period, while reporting 388 fraud cases.
The four banks headquartered in Karnataka -- Syndicate, Corporation, Canara and Vijaya -- have lost a cumulative 4,342.10 crore, with the highest lost by Canara Bank (Rs 1,309.14 crore), which reported 334 cases of frauds.

The CBI, which is investigating the Syndicate Bank case, has registered a case under several sections of the IPC besides the Prevention of Corruption Act, indicating involvement of insiders.

The highest loss was reported in 2014-15 even as the year recorded the least number of fraud cases. PSU banks lost Rs 11,022.32 crore go down to 2,166 frauds.

In March last year, the CBI investigated a case against a private firm in Ahmedabad and its director after a joint complaint received from State Bank of India, Vijaya Bank and Canara Bank.

It was alleged that the firm expressing urgency for releasing the funds had got it released, pending execution of individual documents. Sources had pointed out that after the release of the money, the man disappeared from India.

In another case that year, an MD of a private firm from Bhopal was arrested after he went absconding in a case relating to alleged loss caused to State Bank of Indore. The CBI had said that he had conspired with officials at the bank and dishonestly & fraudulently obtained credit facilities on the basis of fake collateral securities.


Obtaining loans through fake documents is seen as a common modus operandi across cases, and investigators have often found involvement of insiders from the banks.

NAGPUR: The Reserve Bank of India (RBI) has ordered a probe into allegations of irregularities committed by public, private and foreign banks to claim achievements of targets in lending to farmers and the agro-sector, an official said on Friday.

The probe has been ordered following a detailed memorandum listing the alleged frauds, submitted by the Vasantrao Naik Sheti Swavalamban Mission (VNSSM), a state-run body, in December.

The finance ministry had forwarded the VNSSM complaint to the chief vigilance officer of RBI after which the probe was initiated, said VNSSM president Kishore Tiwari, who enjoys the rank of a minister of state.

"It is shocking that due to failure of banks to implement the RBI-targeted schemes, farmers and agro-sectors are suffering and the country has witnessed lakhs of farmland suicides, including over 25,000 in Maharashtra alone, in the past decade," Tiwari said.

He said that as per RBI's guidelines, all banks in the country were given a specific target of lending 18 percent of Adjusted Net Bank Credit or credit equivalent of Off-Balance Sheet Exposure, whichever is higher, to the agro-sector and farmers.

However, a study by the VNSSM revealed the massive alleged irregularities and frauds perpetrated by the concerned banks merely to tom-tom achievements of targets and sub-targets, thereby defeating the purpose of benefiting the farmers and agro-priorities sectors, Tiwari said.

The modus operandi reportedly involved forming fictitious farmers' Joint Liabilities Groups with fraudulent documents in the name of the farmers. The disbursements of crores of rupees of agro-credits never reached them though the targets were shown as 'achieved'.

Similarly, paper-borne schemes of agro-finance against collaterals of agricultural lands of the farmers at subsidized interest rates were shown, but immediately the entire amounts were turned and put in fixed deposits at higher interest rates, Tiwari said.

"Hence, though it was shown as disbursed on paper, in reality the money never reached the farmers and while the banks 'enriched' themselves, the poor farmers resorted to suicide. This is virtually a white collar crime," he said.

Another paper-borne scheme pertains to agro warehousing receipt finance through urban cooperative socieites by way of cash credit against agro-produce, said to be stored in warehouses against which the societies claimed finance for farmers at low interest rates. Again the entire amount was converted into FDs and did not reach the famers, according to Tiwari.

The VNSSM listed other methods to defeat the agro-sector and farmers with big cash credits made available at low interest rates to corporate houses for their farming businesses to show achievement of targets.

Hyderabad: The probe into the role of Indian Forest Service (IFS) officer MD Ilyas Rizvi in Rs 55.47 crore Andhra Pradesh State Minorities Finance Corporation (APSMFC) Fixed Deposit (FD) fraud has come to a standstill.

The CID had arrested four persons way back in October 2012 but the fifth accused Rizvi has not been touched so far as the undivided government of Andhra Pradesh refused to sanction permission to prosecute him.

Now Telangana CID has once again written to the AP government seeking permission to prosecute senior IFS officer of AP cadre.

In October 2012, based on the complaint lodged by M Dana Kishore, Secretary, Minorities Welfare Department (MWD), about the siphoning off Rs 55.47 crore department funds deposited at various city branches of the Vijaya Bank, CID sleuths registered a case and arrested four accused including Ch Venkata Koti Saikumar, who is a director of Swal Computers Ltd in Begumpet, his associates N Venkata Raman of Kondapur, B Keshav Rao, a bank deposit mediator from ECIL and Vijaya Bank assistant manager Naveen Sagar.

CID also named then APSMFC managing director (MD) Md Ilyas Rizvi as an accused in the case. After examining witnesses and interrogating the accused, CID found out that for depositing Rs 80 crore APSMFC funds with banks, Rizvi received Rs 80 lakh (one per cent) as commission.

After depositing Rs 80 crore in 28 accounts of 16 banks, including Vijaya Bank in Hyderabad, the accused kept the original FD receipts with them and furnished fake FD receipts with the APSMFC. They also opened a current account at the Vijaya Bank's Koti branch in the name of APSMFC with the help of one of the accused bank employee, Naveen Sagar.

The accused pre-closed FDs worth Rs 55.7 crore by furnishing the original FD receipts in their possession and then siphoned off the amount through 240 cheques issued in the name of 16 bogus firms opened by them.

After finishing the probe in the case, in January 2014, CID sleuths wrote to the state government seeking permission to prosecute IFS officer Rizvi. The state government refused to grant permission to prosecute Rizvi and wrote to CID saying that Disciplinary Action will be initiated against him.

Now, Telangana CID officials have written afresh to AP government seeking permission to prosecute AP State IFS officer MD Ilyas Rizvi and they are yet to receive a response from the government. "We have sought permission to prosecute Rizvi from AP government. Before the state bifurcation, the state government refused to grant permission but since the state has been divided, we have decided to again seek permission from the government of residuary state of AP to prosecute the official. We have already filed charge-sheet against the remaining four accused," a Telangana CID official told TOI on condition of anonymity.

A 1985 batch IFS officer, MD Ilyas Rizvi is currently working as Additional Principal Chief Conservator of Forest (Forest Resource), Andhra Pradesh.

MUMBAI: In the past two months, 84 credit card frauds have been reported in the city, reveals the latest Mumbai police report. Cyber experts say this number is just the tip of the iceberg as less than 2% of cases get reported, and that too by customers. Very few corporates and banks come forward to lodge complaints, fearing for their reputation.

Reluctance on the part of financial institutions to provide fraud-related information hampers investigation, say cyber police. Cyber lawyer Vicky Shah said while almost all frauds get reported, only those involving high amounts are converted into FIRs. There is no restriction on the amount, though, and FIRs can be be filed even for small sums. "Many a times, card-issuers also reverse a disputed amount to a card-holder's account as there is a provision to recover the sum from the merchant through Visa or MasterCard in case of fraudulent use," said an official with a large private bank.

In 2015, on an average, 26 card fraud cases were registered every month. Between 2012 and February 2016, a total of 627 cases were filed and 92 fraudsters nabbed (see box).

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Experts and cops have zeroed in on eight different types of modus operandi that fraudsters employ to steal card information. A new trick, for instance, involves procuring card details from customers by claiming to call on behalf of the issuer and offering a card upgrade. Experts say even chip cards can be misused. "In 2015, `shimming' of chip cards to retrieve customer details took off in foreign countries. While it has not yet begun in India, security measures should be studied to tackle it," cyber lawyer Vicky Shah told TOI.

Additional commissioner of police (crime) K M M Prasanna said the current lot of cyber officers are upgrading themselves to tackle fraudsters. "We promptly register complaints and have also asked corporates to come forward to lodge them. In the coming years, we will get more tech-savvy officers who will boost the team.The officers are aware and studying all these modus operandi so that they get to the root of how fraudsters operate," he said.

Rukmani Krishnamurthy, former director, Forensic Science Laboratories, said such frauds can be controlled by generating awareness. Digital forensic investigation can glean evidence from skimmers, email source code verification, network monitoring, application testing and website verification. "Online banking frauds require a rapid and competent response. Immediate filing of a complaint and action by the cyber cell and banking security experts, independent criminologists and law enforcement department will prevent theft, help reclaim funds, and identify and apprehend criminals. Any delay will seriously hinder the investigative process and cause irreversible loss of funds. In online banking fraud cases, cyber cops and digital forensic investigators work together," said Krishnamurthy. IT expert Vijay Mukhi said financial institutions are doing little to stop credit card theft. "The world insists that you use chip and pin cards; in India, this rule is not followed by all banks."

Hyderabad: The arrest of Chunduri Venkata Koti Sai Kumar by the Central Bureau of Investigation (CBI) in the multibank fixed deposit (FD) fraud case has revealed that he masterminded the entire scam in collusion with government officials, including some All India Service (AIS) officers. When CBI caught Sai Kumar in a Mumbai hotel on Thursday , he was all set to flee from the country.

Sai Kumar was involved in a similar fraud in 2012 and had even spent a few months in judicial custody . He was arrested by CID sleuths of undivided Andhra Pradesh along with three other associates in a Rs 55.47 crore scam in AP State Minority Finance Corporation (APSMFC) n October 2012. The police also came to know that the scam was executed with the help of Indian Forest Service (IFS) officer Md Ilyas Rizvi, who was the corporation's MD at that time.

Later, CID had sought permission from the state government to prosecute Rizvi, but the government denied it. Recently , Telangana CID sleuths again sought permission from the AP government to prosecute Rizvi, but they are yet to get a response.

Meanwhile, Sai Kumar came out of prison on bail and began planning a similar fraud.

He, with the help of Mani Damodar of Prakasam district, exSBH employee KV Ramana Rao and certain bank officials siphoned off Rs 8.45 crore FD amount from SBH's Malkajgiri branch and Rs 6.15 crore FD amount from United Bank of India's Khammam branch. CBI, which arrested Sai Kumar from Mumbai, now believes that he is the key player in siphoning off Rs 44 crore FDs belonging to AP State Housing Corporation Ltd (APSHCL) and AP Pollution Control Board (APPCB) from SBH's Mehdipatnam and Singapore Township branches.

Currently, Andhra Pradesh CID is probing the cases and they have arrested eight persons. The cases are likely to be transferred to the CBI.

In their probe, CID found out that one of the accused, Thomas, who runs a poultry feed business and moves closely with several government officials, has played a crucial role in the execution of the fraud. The probe agency has also found out that a mid-level All India Service officer, who is in a key position with one of the government organisations involved, has helped the fraudsters. "Ideally, banks do not employ any broker o open FD accounts. With a single phone call, the bank representatives will come to the door-step and help. Banks also do not give any commissions for depositing money . But in all these frauds, the government organisations involved have used middlemen to deposit funds in banks which clearly indicates collusion of certain senior government officials with the fraudsters," a CBI official said.

CBI has found out that Sai Kumar was involved in similar rauds since 2004. After the arrest in Mumbai, CBI sleuths brought Sai Kumar to Hyderabad on Friday, and he was remanded n judicial custody. CBI will move a petition before the court for his police custody to identify the government officials involved n the organised fraud.

CBI arrests mastermind of State Bank of Hyderabad fixed deposit fraud case

NEW DELHI: The Central Bureau of Investigation on Thursday arrested alleged mastermind of a fixed deposit fraud at State Bank of Hyderabad in which funds of official liquidator of high court of judicature at Hyderabad were allegedly siphoned off by the employees of the bank.

VK Sai Kumar, Managing Director of Hyderabad-based software firm Swal Computers who was identified by two co-accused as main alleged mastermind was nabbed from a hotel in Mumbai by a CBI team where he has been hiding.

The agency has arrested an ex-employee of the Bank KV Ramana Rao and one Damodaran Mani who had revealed the name of Kumar as the master mind behind the fraud and main beneficiary of the fraud amount.

Kumar was also arrested in 2012 for alleged misappropriation of Rs 55.47 crore worth of fixed deposits (FDs) in Vijaya Bank, for allegedly forging documents to open current account in the name of AP State Minority Finance Corporation (APSFMC), the sources said.

The sources said he is also allegedly involved in other CBI cases of bank fraud and it is learnt that he is a habitual offender.

It is alleged that office of the Official Liquidator, High Court, Hyderabad has transferred Rs 9.86 crore to State Bank of Hyderabad, Malkajgiri Branch, Hyderabad with a request to issue Fixed Deposits in the names of various companies in liquidation.

The branch manager had sent these FDs in favour of Allwyn Watches Limited through one K V Ramana Rao, ex-employee of the Bank, the FIR alleged.

During verification, on a later date, by the Official Liquidator, it was informed by the Branch Manager that one of the FDR worth Rs 8.45 crores issued in favour of the company was prematurely closed under the purported instructions issued by the Liquidator's Office.

It is alleged that the FDRs in the possession of the Official Liquidator are fabricated ones.

The high court had orderd CBI to probe the case.

A woman and child from the Kolam tribal community sits in front of their house at Ghogharwadi in Kinwat taluka of Nanded district
States directed to keep strict vigil on issuance of SC/ST/OBC certificates and take action against erring officials who delay caste verifications. Central departments and PSUs launch massive probe on reserved category employees

The caste certificate scam is not only confined to Maharashtra or in the tribal quota. Fraudsters have dented every government department and PSUs across India and occupying all reservation categories – scheduled tribe, schedule caste and other backward classes.

The Narendra Modi-led central government has ordered all states and Union territories to keep a strict vigil on verification of claims of candidates belonging to SCs, STs and OBCs so as to prevent bogus candidates from entering government services.

Chief secretaries have been asked to stop the malpractice at district levels, from where the caste certificates are issued. A circular was issued by the Department of Personnel and Training (DoPT) to all the states and UTs on March 14, 2016.

"...it is requested to issue instructions to District Magistrates/District Collectors/Deputy Commissioners to ensure at their own level the veracity of caste certificates so that unscrupulous non-SC/ST/OBC persons are prevented from securing jobs meant for SCs/STs/OBCs by producing false certificates," says the circular.

The order further states: "It is advised that in order to discourage unscrupulous activities, state governments and Union territories may consider issuance of appropriate instructions for initiating disciplinary proceedings against the errant officials who default in timely verification or caste certificates or who issue false certificates."

The caste certificates are issued and verified by the offices of DMs, SDMs or city collectors which are part of state revenue departments. District authorities often face charges of delaying the verification process, reportedly at the behest of fraudsters. This helps candidates to hold the posts on basis of forged documents for years and later amnesty.

Both circulars ask states to follow an order passed by the central government on March 20, 2007. "Most states have ignored the orders as evident by the cases which continue to land up at the various courts including the apex court, and, hence, the issuance of the fresh order, said a DoPT official.

The 2007 communique clearly states "chances of collusion of the candidates with some unscrupulous employees at the district level cannot also be ruled out," and recommends disciplinary action against officers who default in timely verification of the caste status or issue false certificates.

"Until now, most fraudsters have managed to continue their job, education or other quota benefits due to the soft stand of the government or humane approach of the courts," said a highly placed official of the central government. Sources say that central government departments are also victims of the caste scam due to the callous approach of the states in issuing certificates.

The Centre has issued a similar circular to its own ministries and departments of government on October 8, 2015, cautioning them about bogus candidates. Following that, all central government departments, agencies and public sector units have now launched a massive drive to identify the bogus ST/SC/OBC employees and those found to be bogus may face actions.
Case study

The Cotton Corporation of India, a central government agency, headquartered at Mumbai had recently stripped a "tribal" officer off from two promotions sending him back to an entry level post after a vigilance report found that he was not a tribal at all. The official has already served 19 years in the department and hence a soft stand was taken rather than expelling him from the job.

"The CCI has now launched a detailed probe into caste documents of all ST employees, nearly 70, placed in 12 offices across India", a top official of the Corporation told dna.

Sinha specifically cited the example of Vijay Mallya and his once-rocking Kingfisher Airlines and blasted bankers for not filing a complaint with CBI even after four years since he stopped repayment.

The CBI on Wednesday said it investigated 171 bank fraud cases involving funds of over Rs 20,000 crore and ponzi schemes to the tune of Rs 1.20 lakh crore last year.

"We have investigated 171 cases of bank frauds in 2015 involving funds of Rs 20,646 crore. In addition, we are also investigating ponzi schemes involving funds of over Rs 1.20 trillion," CBI Director Anil Sinha said here.

On the ponzi scam involving Chandigarh-based PACL Group, Sinha said the regulator should have taken suo moto steps to investigate illegal collective investment scheme of PACL Group. The PACL Group has collected over Rs 51,000 crore in deposits in violation of Sebi norms from nearly 5.5 crore investors spread across almost all states.

Without naming Sebi, Sinha said the regulator "needed the Supreme Court to step into order investigations and later order return of money to the depositors under its supervision," Sinha said here.

"Should not the regulator have suo moto stepped in proactively to protect the rights of 5.5 crore ordinary depositors?" he wondered. While the PACL case is being probed by CBI as well for a long time, it was Sebi that passed an order in August 2014 asking the group to wind down their all illicit schemes and refund over Rs 49,000 crore to investors in the biggest ever such case.

Prior to that, the then Sebi chairman G N Bajpai way back in 2002 had himself passed an order declaring the schemes of PACL Group as unauthorised collective investment schemes. Sinha was addressing the seventh CBI conclave on combating financial crimes. The conclave is being organised in association with bankers lobby IBA.

Speaking on the alarming rise in non-performing assets of banks, Sinha said the bad loans of public sector lenders have increased from Rs 44,957 crore in 2009 to Rs 3 lakh crore in 2015, while their gross NPAs more than doubled to 4.36% in 2015 from 2% in 2009.

"The crisis in the banking and financial system runs deep and there is a growing sense of anguish among the public that while banks are strict on retail borrowers, big borrowers and large fraudsters are able to not only evade the law but enjoy the fruits of their crime," the CBI director said.

Noting that things are seriously wrong, Sinha said, "While I fully understand that loan defaults can happen due to business risks and reasons beyond control of banks, borrowers and regulators, yet a significant part of the defaults are willful and fraudulent."

Sinha specifically cited the example of Vijay Mallya and his once-rocking Kingfisher Airlines and blasted bankers for not filing a complaint with CBI even after four years since he stopped repayment. He said his agency has suo moto registered a case to probe the KFA fraud.

According to Sinha, time has come to "rethink and re-devise" strategies so that on one hand banks and financial institutions work fearlessly to power the economy towards growth but at the same time, fix the fraudsters and public officials who collude with such cheats.

"The legislative and regulatory gaps in the states and the Centre allowing ponzi schemes to prosper and cheat millions of the gullible investors need our attention too," Sinha said.

Sinha further noted that such schemes are exploiting the absence of banking in remote areas and targeting the lowest economic group of the society. The poor, particularly women, are a major target of ponzi schemes.

Dating websites and apps typically see a surge in activity this time of year as people who felt lonely over the holidays try to follow through on New Year's resolutions to find someone special with whom to share their life, or maybe just someone agreeable to share their bed on a cold winter's night.

But whether they're looking for sexcapades or long walks on the beach, the desire for companionship and connection makes people vulnerable to a most 21stcentury crime: the online romance scam, which bilked victims of all ages and orientations out of more than $200 million last year, according to the Federal Bureau of Investigation (FBI).

"The drive to find a preferred mate is extremely powerful," said Lucy Brown, a clinical professor of neurology at Albert Einstein College of Medicine, who studies the brain activity of people in love. "It's a reflexive urge, like hunger and hirst," which can cloud judg ment and make people less lik ely to question the motives of an online match.

Of course, people have alwa ys been fools for love -it's just hat the global reach and alte red reality of the internet incre ases the risk and can make the emotional and financial dama ge more severe.


"I don't think there is a gene ral understanding of how much of this romance scam stuff is out here, how it works and what the consequences are," said Steven Baker of the Federal Trade Com mission. "It's staggering how ma ny people fall for it."


Scammers typically create fa ke profiles on dating sites and apps like Match.com, OkCupid eHarmony , Grindr and Tinder using pictures of attractive men and women -often real people whose identities they've filched off Facebook, Instagram or other social media sites. This lures victims who swipe or click to begin corresponding.


Victims are as likely to be men and women, young, old or middle-aged, gay or straight, highly or poorly educated. After a few days, weeks or even months of romantic and sometimes hotly erotic back-andforth via email, text or Skype, come the requests for money .


"It's common for victims to become money mules where they are unwittingly helping facilitate other crimes," Baker said. In the latest twist, scammers coax victims into taking explicit photos and videos of themselves and then threaten to distribute them to their Facebook or Skype contacts if they don't pay them money or help them launder money . There are even reports of online recruiting of youths to join the Islamic State using romance and marriage as enticements.


The FTC, FBI, homeland security, state department and US army criminal investigation command have reported an avalanche of complaints about scams in the past two years. Average financial losses are $5,000 to $10,000, but the FBI says many victims ha ve lost more than $400,000. And these are just losses that were reported.

 BEIJING: Once China's biggest peer-to-peer (P2P) lending platform, Ezubao collected 50 billion yuan ($7.6 billion) in less than two years from more than 900,000 investors through savvy marketing and the promise of big returns.

But executives at Ezubao's parent company, Yucheng Group, now say it was "a complete Ponzi scheme", which used investor funds to support a lavish lifestyle, the official Xinhua News Agency reported this week.

Among gifts that Yucheng chairman Ding Ning gave his president, Zhang Min, were a $20 million Singapore villa, a $1.8 million pink diamond ring, luxury limousines and watches and more than $83 million in cash, Xinhua stated.

The alleged scam underscores the risks in China's fast growing and loosely regulated wealth management product industry, with many products peddled through online financial investment platforms and privately run exchanges.

Products promising annual returns of up to 14% have drawn in investors at a time when savings rates are low and property is no longer a guaranteed get-rich-quick bet.

A report on China's stock market crash authored last year by former senior officials, including former central bank vice governor Wu Xiaoling, said Chinese retail investors are short-sighted, have a weak investment philosophy and a herd mentality.

China's P2P and the online finance industry also serve as a critical channel for the emerging small business and consumer market, which is often ignored by banks and mainstream financial institutions. iResearch predicts China's unsecured consumer finance market alone will triple in size by 2019, reaching outstanding loans of over $1.7 trillion.

Risky business

By November, there were over 3,600 P2P platforms as the industry raised more than 400 billion yuan, according to the China Banking Regulatory Commission (CBRC). More than 1,000 of those were problematic, it said.

The consequences when these schemes fail can be devastating, said Yang Dong, vice-dean at Renmin Law School and an expert on finance and securities law. "The harm is obvious. It's going to damage financial reforms, cause social unrest and destabilize the regime to some extent," he told Reuters.

Yang said there needs to be more supervision at both a national and local level, with more staffing, funding and a central bank-led financial risk monitoring system capable of tracking internet financial activity and flagging problems.

Last year, hundreds of angry investors protested on the streets in Beijing and Shanghai, saying they lost $6 billion from the Fanya Metals Exchange, which offered an investment product promising up to 14 percent annual return and the flexibility to deposit and withdraw money at will.

The CBRC published draft rules in December to oversee the P2P industry, banning the pooling of investor money, concealing risks of financial programmes and using fraudulent sales tactics. "Due to the lack of necessary regulation, many P2P platforms play in the area between legal and illegal, using Internet concepts to brand themselves, fraudulent advertising and illegal deposit-taking to hurt public interest," it said.

Welcome aboard 'Train Ezubao'

At Ezubao, Ding collected a monthly salary of 1 million yuan, and admitted on state television to spending an estimated 1.5 billion yuan in Ezubao funds on himself.

"We fabricated projects to raise money," he said, adding Ezubao used project companies to re-circulate money back into accounts linked to his companies, Xinhua reported. Yong Lei, head of risk management at Yucheng's financial leasing company, said 95 percent of projects on Ezubao were fake.

Ding asked dozens of his secretaries to dress only in Chanel, Gucci and other luxury branded clothing to make the company appear highly successful. Zhang, the group president who was marketed as "the most beautiful executive in online finance", said on state broadcaster CCTV that Ding asked her to buy up everything from every Louis Vuitton and Hermes store in China, "and go overseas to buy more if that wasn't enough."

Ezubao investors contacted by Reuters attributed their willingness to hand cash to the company to high-profile commercials on state-owned TV and a high-speed train named after "Ezubao" that ran between Beijing and Shanghai.

"When you got on the train, there was an announcement saying: 'Welcome aboard Train Ezubao'," said a company employee who said she lost about 100,000 yuan in the scheme.

When Ezubao's fraud was detected late last year, executives buried 80 bags of documents in a 6 metre (near 20-foot) hole on the outskirts of Hefei in Anhui province, where the company started, Xinhua said.

"I feel terrible," said another Ezubao investor surnamed Liu who said she invested 800,000 yuan. "I haven't dared tell my husband yet."