China announces 234 arrests in provincial banking scam promising high rates

Authorities in central China on Monday announced the arrests of 234 people involved in a scam to bilk people out of their savings with the false promise of high interest rates on deposits in obscure rural banks.

The scandal drew national attention after investors seeking answers about where their money went were prevented from reaching the Henan provincial capital of Zhengzhou when the health status displayed on their mandatory COVID-19 cellphone apps was suddenly changed to red, preventing them from traveling.

Multiple bank customers interviewed by the AP said they had been interrogated and threatened by police.

Another attempt in July was met by gangs of unidentified men in white shirts who attacked depositors while police stood by.

The statement from the Xuchang city government said the alleged mastermind, Lu Yiwei, and his associates had taken control of four county-level banks and lured investors with promises of interest rates as high as 18% annually.

At present, the public security organs have apprehended a large number of criminal suspects, among whom 234 were arrested," the statement read.

Significant progress has been made in the recovery of stolen goods and damages. The investigation and handling of the case is being carried out in depth according to the law."

The statement said the originators of the scheme who later absorbed" the funds had talked up the investments to other people who deposited hundreds of thousands of dollars, giving the scam the appearance of a Ponzi scheme.

No mention was made of any suspected collusion between local officials, police and the suspects.

The scam unfolded as thousands of customers opened accounts at six banks in Henan and neighboring Anhui province that offered relatively high interest rates. A sharp decline in China's economic growth and miniscule returns on savings in state banks have prompted many Chinese to invest in unconventional and often risky or even fraudulent financial vehicles.

The customers of the Henan banks later found they could not make withdrawals after news reports that the head of the banks' parent company was wanted for financial crimes. A parent company linked to the banks is under investigation by police.

Bank authorities have said they will give some bank customers their deposits back, but many are still waiting to find out when they will be reimbursed.