Conglomerate being investigated for illegal fundraising

Guangxi-based private conglomerate Zhengling Group has allegedly been involved in illegal fundraising activities, Liuzhou Public Security Bureau said late Tuesday, underlining an ongoing nationwide crackdown on financial fraud.

The bureau is investigating the case and asked creditors to report their lending information to the authority between May 29 and June 13, according to a statement posted on the bureau's official Weibo.

It is the largest illegal fundraising case in South China's Guangxi Zhuang Autonomous Region, with more than 2,000 people involved. The case involves around 7 billion yuan ($1.11 billion) that came from banks and another 3 billion yuan raised from private lenders, news portal sina.com.cn reported Wednesday, without clarifying the source.

Calls to Zhengling Group went unanswered on Wednesday. Liuzhou's public security bureau declined to disclose further information when contacted by the Global Times.

Zhengling Group's businesses include auto and machinery manufacturing, real estate development as well as guarantee and small loan companies. The group has assets of over 10 billion yuan and has more than 10,000 employees, according to information on the company's website.

The private conglomerate was earlier reported to be facing bankruptcy, and five local banks were investigating their credit exposure to the group, according to a report published on house.qq.com on April 4.

However, Zhengling Group later denied the report in a statement posted on its website on April 8, saying that the report was inconsistent with the facts and that it had a negative effect on the group.

According to the Bank of Liuzhou's annual financial report for 2013, Zhengling Group was the bank's 10th largest client in terms of outstanding credit facility. The bank's investor relation office declined to comment on the issue on Wednesday.

Some private lenders have already taken action ahead of the local police announcement.

"We've been accepting cases from victims of Zhengling Group since February, and the total value [of what is owed to them] is nearly 400 million yuan," Pan Yongda, a lawyer with Liuzhou-based Jingyao Law Firm, told the Global Times on Wednesday.

Pan said their clients are all private lenders, who were promised an annualized return rate of 20-30 percent by Zhengling Group.

"We've applied for the court to seize the group's assets, but our clients might not get back all their money, as the court will first pay back bank loans," he said.

Illegal fundraising has been rampant in recent years especially among private entrepreneurs. The China Banking Regulatory Commission vowed in April to crack down on illegal fundraising activities.

"Many private entrepreneurs resorted to the high-interest private lending market as they couldn't get bank loans," Feng Xianghe, an analyst at Beijing Unbank Investment Consultant, told the Global Times Wednesday. "Some later found they could not repay the loans due to investment losses amid the weakening macroeconomic environment."

The trial of another illegal fundraising case began Tuesday in a court in Wenzhou, East China's Zhejiang Province. Seven executives of private firm Liren Education Group illegally raised nearly 5.2 billion yuan from more than 6,000 investors between 1998 and 2011, the court said. No verdict has been announced so far.