Global asset managers in China grapple with fraudulent investor schemes
GLOBAL asset managers setting up shop in China are grappling with rampant scams where online fraudsters dupe investors with juicy returns using their brands and logos, in a practice known in the market as “pig butchering”.
Fidelity International and Neuberger Berman, which are launching their maiden mutual-fund products in China, said they were battling cheaters who used their trademarks to raise money illegally via the Internet and social media.
Other new entrants, including Van Eck and Alliance Bernstein, have also fallen prey to tech-savvy swindlers playing cat-and-mouse games with the authorities.
Such scams have become so widespread that China’s securities regulator issued a rare statement on Thursday (Mar 3), cautioning investors against fundraising schemes purporting to be from foreign asset managers.
The online rackets add reputational risks for global asset managers, who are already suffering from trademark disputes, geopolitical worries, and cut-throat competition in China.
The popularity of such scams – named after the practice of fattening a pig before slaughter – shows how many investors are starved for returns in an economy with limited allocation options. It also shows that the cost of online cheating in China is low.
Ge Yin from Han Kun Law Offices said: “This is quite annoying.” The lawyer helps her asset-manager clients deal with Chinese victims – often from smaller cities – coming after “big name” institutions after being duped.
“There are too many swindlers in China… and investigators may not own adequate technology and human resources to bust each and every case.”
Maiden products
Fidelity International, which will launch its first mutual fund in China on Apr 3, said on its website that its name and logo were being used “inappropriately” on some websites and social media applications in China.
“We would like to remind investors that they need to be vigilant about fraudulent investment schemes that pretend they are acting on behalf of known and established institutions, such as Fidelity, in order to gain legitimacy.”
Neuberger Berman, which launched its first China retail fund this week, said its name was being used by fraudsters to raise money illegally via websites, WeChat groups and mobile apps. The financial services company said in an October statement that it had reported the issue to the police, who were investigating.
An executive, who declined to be named, said: “Swindlers mushroom when the economy is bad.” The executive, who works at a consultancy that serves global asset managers in China, said fraudsters would seek to capitalise on the news of foreign fund brands entering China, and target more gullible investors in small cities and counties.
“Cheaters and life-long learners… some tech-savvy ones would even copy the programming of a foreign money manager’s website,” he added. “The chance of being caught is slim, so the cost of online fraud is very low.”
Pig butchering
There’s no official estimate of the size of “pig butchering” scams targeting foreign asset managers, but a source with direct knowledge said Van Eck has been grappling with several waves of online scams since the middle of last year.
Scams using Van Eck’s brands first emerged in China’s southern Guangdong and south-western Guangxi provinces, and later sprung up in central Sichuan province, the source said. Fraudsters typically shut down operations after money is raised.
On its website, Van Eck said some fraudsters were using its brand to lure investors with “high returns” and “low risk” in meticulously crafted schemes.
A victim of the Van Eck-branded fraud, who declined to be named, said her husband was among about 300 investors who grouped together to mount collective action, to try to recover their losses by reporting to the police. Some in the group were defrauded of several million yuan.
Alliance Bernstein, which is seeking a retail-fund licence in China, last year “strongly” urged investors to be “highly vigilant” to fraudulent schemes using its name.
Han Kun’s Ge said that such statements were necessary means for institutions to protect their reputation.
“We also ask investors to make basic due diligence before putting down their money.” REUTERS
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