Jia Yueteng fled to the United States but is still committing scams within China.

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Source: Niu Brothers

An investor invested 30 million RMB into a fund company in the role of a “partner,” but was unable to change the business registration for a long time. This “partner” sought to use the “executing partner” theory, only to face all kinds of obstruction. He then tried to get help from the CSRC and the Asset Management Association of the fund industry, only to find that this fund had never been filed in the official system at all. This fund company is “Shenzhen Leyi Industrial Investment Fund,” which has close and tangled ties with the big fraudster Jia Yueting.

In April 2016, “Shenzhen Leyi Industrial Investment Fund” participated in the Series B financing of LeEco Sports, with an investment amount of 1 billion RMB, accounting for about 4.63% of the shares. Meanwhile, “Shenzhen Leyi Industrial Investment Fund” was established on March 7, 2016, with registered capital of 1 billion RMB. Obviously, the purpose of its establishment was to become a shareholder of LeEco Sports. At the time, LeEco Sports promised that it would IPO and go public by December 31, 2018. One was called “LeEco,” the other “Leyi”—its clever design is easy to understand at a glance.

But by December 2016, LeEco Sports suddenly disclosed an earth-shattering piece of news: the de facto controller of LeEco Sports, without approval from the board of directors or the shareholders’ meeting, “unilaterally” lent more than 4 billion RMB to LeEco Holdings, and thus LeEco Sports could not operate normally. After leaving behind this clever mess, Jia Yueting fled to Los Angeles in the United States on July 4, 2017. Now it appears that although Jia Yueting made a lot of legal arrangements and fled after extracting large amounts of funds, the “Shenzhen Leyi Industrial Investment Fund,” as his accomplice, is still clearly discernible.

Many people think that funds are basically money raised from others, managed by a group of fund managers on their behalf, and that management fees are charged. In fact, there is another type of fund that is a partnership—for example, “Shenzhen Leyi Industrial Investment Fund” is a partnership. Its full name is “Shenzhen Leyi Industrial Investment Fund Partnership (Limited Partnership).” Its main business includes entrustment-based management of equity investment funds, equity investments, investment consulting, and other services. The fund contributor (LP) is Shanghai Changjiang Wealth Asset Management Co., Ltd., with a contribution ratio of 100%. The executing affairs partner is Tianjin Yingcheng Asset Management Co., Ltd.

Evidently, LeEco Sports was a fraudulent platform orchestrated by Jia Yueting. According to the listed company LeEco.com’s description, LeEco Sports was established in March 2014, introduced Series A+ financing in April 2015, with total investment payments of 579 million RMB. In April 2016, Series B investment was introduced, with total investment payments of 7.833 billion RMB, including the 1 billion RMB from “Shenzhen Leyi Industrial Investment Fund.” To raise funds, both rounds of investment agreements included a repurchase clause for original shareholders (i.e., LeEco.com, LeLe Interaction, Beijing Pengyi): if LeEco Sports failed to complete the listing work recognized by the investors by December 31, 2018, the original shareholders would, within two months after receiving the investors’ written repurchase request (decided separately by each investor), repurchase all company equity held by the investors at the agreed prices in cash form and pay all consideration as stipulated in the agreement.

After Jia Yueting fled, he used a series of talking points and deception to trick LeEco.com and the shareholders of LeEco Sports, and to deceive public opinion in China. It wasn’t until 2020 that the shareholders who participated in LeEco Sports’ Series A+ and Series B financing reached a consensus and initiated arbitration with the Beijing Arbitration Commission.

On November 9, 2020, the Beijing Arbitration Commission ruled that LeEco.com Information Technology (Beijing) Co., Ltd., LeLe Interaction Sports & Culture Development (Beijing) Co., Ltd., and Beijing Pengyi Asset Management Center (Limited Partnership) were to pay the Shenzhen Leyi Industrial Investment Fund the repurchase principal of 1 billion RMB, plus the minimum consideration amount of about 500 million RMB.

However, an arbitral award is not the same as being able to get the money. The Shenzhen Leyi Industrial Investment Fund and others then filed a compulsory enforcement lawsuit with the Beijing Third Intermediate People’s Court. In September 2021, the Beijing Third Intermediate People’s Court released the enforcement ruling documents [((2021) Jing 03 Zhi 1177)]. The ruling result was that the court froze and transferred the bank deposits of the judgment debtors (i.e., LeEco.com, LeLe Interaction, Beijing Pengyi) of 1,499,597,703.43 RMB, and also the minimum return to be paid, the debt interest during the delayed performance period, the application for enforcement fee, and the actual expenses incurred during enforcement. However, the case process information shows that currently this case has become a “final enforcement case” because the judgment debtors have no property available for enforcement.

LeEco Sports obtained 8.8 billion RMB in two rounds of financing, then passed it on to borrow 4 billion RMB to LeEco Holdings. After Jia Yueting fled to the United States, he lived comfortably, leaving many investors with nothing to show for it. Whether arbitration or litigation, the results were all: “Jia Yueting and his interest-related parties have no money to compensate you.” These “afterplays” are nothing more than helping the fraudster realize his returns.

In this series of scams involving “Shenzhen Leyi Industrial Investment Fund,” Jia Yueting is a top-tier fraudster. “Shenzhen Leyi Industrial Investment Fund” is merely the executor and the willing accomplice. Under “Shenzhen Leyi Industrial Investment Fund,” there are also salespeople for the fraud—for example, Mr. Chen bought a product of “Shenzhen Leyi Investment Fund Partnership (Limited Partnership)” from “Shenzhen Qianhai Luoke Investment Co., Ltd.” in 2018. Luoke’s sales method was: sign an equity partnership agreement with investors, or sign a partnership agreement and a supplementary agreement. This makes it possible to split the proceeds by tranche and circumvent the minimum investment threshold for qualified investors. Many investors who could not meet the investment threshold were lured by product promotions promising capital protection and high returns, and indirectly invested in the equity of so-called listed companies and companies aiming to go public.

Zhang Yinghao, chairman of “Shenzhen Qianhai Luoke Investment Co., Ltd.,” played the same runaway game as Jia Yueting, which can be described as the wave following the wave. According to media reports, on November 11, 2023, Zhang Yinghao arrived at the Hong Kong border by car and exited Hong Kong. Two days later, he left a message to the company executives: “I’m leaving—you should also leave.” The company executives reported the matter to the police, but investors’ money also went down the drain. Currently, the funds that Luoke has failed to recover total 1.2 billion RMB.

If Jia Yueting is a “top-tier fraudster,” then Zhang Yinghao is a “bridge fraudster.” Without Zhang Yinghao’s underlying sales team, many ordinary people would not have been able to buy Jia Yueting’s equity— even if through indirect channels. Without a top-tier fraudster like Jia Yueting designing so-called “capital products,” it would be difficult for the fraud to be carried out all the way to the end of the food chain.

Implementing filing and regulatory oversight for investment products is an important way to crack down on the fraud industry chain of Jia Yueting. On August 21, 2014, the CSRC issued the Interim Measures for the Supervision and Administration of Private Investment Funds. Article 12 provides that “qualified investors in private funds are those who have corresponding capabilities for risk identification and risk bearing, and invest amounts in a single private fund of not less than 1 million RMB, and whose financial assets are not less than 3 million RMB, or whose average annual personal income in the most recent three years is not less than 500,000 RMB.” On December 20, 2020, the CSRC issued Several Provisions on Strengthening the Supervision of Private Investment Funds. Paragraph 2 of Article 7 provides that “no entity or individual may circumvent the standards for qualified investors or restrictions on the number of investors by means such as splitting and transferring private fund units or their beneficial rights, or by setting up multiple private funds for a single financing project.”

Private fund products without filing carry the following risks: 1) information is not transparent. Investors cannot verify relevant information about the fund through the website of the Asset Management Association of China. Once purchased, they effectively give up their statutory channels for rights protection on their own. 2) the fund product operations are not regulated; investment decisions, fund flows, and so on are determined entirely by the manager. Illegal operations are carried out without restraint, making it difficult for investors to exercise their rights. 3) after holding fund units, if a dispute arises, it may be hard to bring a case and investors may end up with nothing and lose everything.

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Responsible editor: Song Yafang