Global asset managers in China grapple with fraudulent investor schemes

SHANGHAI  – Global asset managers that have been opening shop in China are grappling with rampant scams where online fraudsters dupe investors with juicy returns using their brands and logos, a practice known in the market as “pig butchering”.

Fidelity International and Neuberger Berman, which are launching their maiden mutual fund products in China, say they are battling cheaters who use their trademarks to raise money illegally via the Internet and social media.

Other new entrants including Van Eck and Alliance Bernstein have also fallen victims to tech-savvy swindlers who play cat-and-mouse games with the police.

Such scams have become so widespread that China’s securities regulator issued a rare statement on Thursday cautioning investors against fund-raising schemes purporting to be from foreign asset managers.

The online rackets add reputational risks for global asset managers 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, and that the cost of online cheating in China is low.

“This is quite annoying,” said Yin Ge, a lawyer at Han Kun Law Offices, who 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 April 3, said on its website that its name and logo is being used “inappropriately” on some websites and social media applications in China.

“We would like to remind investors that they need to be vigilant of 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 is being used by fraudsters to raise money illegally via websites, wechat groups and mobile apps.

Neuberger Berman said in an October statement that it had reported the issue to the police, who were investigating.

“Swindlers mushroom when the economy is bad,” said an executive at a consultancy that serves global asset managers in China.

The executive, who declined to be identified, said frausters would seek to capitalize 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 said. “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 mid-last year.

Scams using Van Eck’s brands first emerged in China’s southern Guangdong and Southwestern 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 frausters are 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 have grouped together in collective action to try to recover their losses through reporting to the police. Some in the group were defrauded of several million yuan ($435,000).

Alliance Bernstein, which is seeking a retail fund license in China, last year “strongly” urged investors to be “highly vigilant” to fraudulent schemes using its name.

Lawyer Ge said such statements are necessary means for institutions to protect their reputation.

“We also ask investors to make basic due diligence before putting down their money.”

($1 = 6.9001 Chinese yuan renminbi)