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Managers on trial for fraud scheme

Five general managers of four companies went on trial yesterday for conducting a scheme to defraud nearly 600 victims of 244 million yuan (US$35.72 million).

Prosecutors say the five borrowed money with the promise of interest of 10 to 20 percent from 2005 to May 2008. They borrowed the money in the name of Boda Auction Co Ltd, and Nanpu Pawn Shop, a subsidiary company of Boda, acted as warrantor, prosecutors said.

The hearing at Shanghai No. 2 Intermediate People's Court is due to last for three days.

The defendants are Zhang Xiaoming, former legal representative of Boda, Fan Xiaogang, general manager of Tianjin Zhongrong Investment Consulting Co Ltd, Bo Peijun, deputy general manager of Zhongrong, Huang Wenjie, legal representative of Nanpu Pawn Shop, and Chen Guoming, legal representative of Shanghai Tiancheng Investment Industrial Co Ltd.

Zhang said his company was in deficit in 2005 and in urgent need of money. Fan's company offered a financial consulting service and he said he could collect money from clients and act as an intermediate agency for Zhang.

Zhang agreed to borrow money from Fan with a yearly interest of 20 percent.

"At first I lent my own money and money from friends to Zhang and got satisfactory interest," Fan told the court. "I then thought it was also a good chance for my clients and I could earn commission."

Fan then told his clients that an auction company would borrow money at high interest and a profitable pawn shop would be the warrantor.

Meanwhile, Tiancheng, another agency, helped Zhang and Huang collect capital in the same way. They published ads in a securities newspaper to borrow money from the public. The ad claimed the interest was at least three times of that of a bank. Debt payment was guaranteed with the claim that the pawn shop warrantor had major capital and earned huge profits, prosecutors said.

Chen instructed his employees to make random phone calls to borrow money, according to prosecutors.

Nearly 600 individuals and companies lent 244 million yuan to Boda, lured by the prospect of huge profits. At first they got regular interest but the scheme was exposed last May when Zhang didn't have money to pay the interest or the capital, prosecutors alleged. Zhang denied he had intended fraud and had planned to repay the debts.

Prosecutors have also charged Chen with illegal business operation as he instructed employees to sell stocks of unlisted companies without a license. More than 10,000 stocks valued at more than 3.3 million yuan are alleged to have been sold.


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