© Reuters. FILE PHOTO: Investors play cards during a lunch break at a brokerage house in Shanghai, China July 8, 2015. REUTERS/Aly Song
SHANGHAI (Reuters) – Global asset managers who have been opening stores in China are dealing with widespread scams in which online fraudsters lure investors out of lucrative profits by using their brands and logos, a practice known in the marketplace as ” pig sacrifice”.
Fidelity International and Neuberger Berman, which are launching their first mutual fund products in China, say they are fighting cheaters who use their trademarks to illegally raise money via the Internet and social media.
Other new entrants, including Van Eck and Alliance Bernstein, have also fallen victim to tech-savvy scammers playing cat-and-mouse games with the police.
Such scams have become so widespread that China’s securities regulator issued a rare statement on Thursday warning investors against fundraising schemes purporting to be from foreign asset managers.
Online scams add reputational risk to global asset managers already suffering from trademark disputes, geopolitical concerns and fierce competition in China.
The popularity of such scams, named for the practice of fattening a pig before slaughter, shows how many investors are hungry for profit in an economy with limited allocation options, and that the cost of cheating online in China is low.
“This is quite upsetting,” said Yin Ge, a lawyer with the Han Kun Law Offices, which helps her asset manager clients deal with Chinese victims, often from smaller cities, going after “big name” institutions after have been deceived.
“There are too many scammers in China… and investigators may not have the right technology and human resources to solve each and every case.”
FIRST PRODUCTS
Fidelity International, which will launch its first mutual fund in China on April 3, said on its website that its name and logo are being used “inappropriately” on some websites and social media apps in China.
“We would like to remind investors to be on the lookout for fraudulent investment schemes that purport to act on behalf of well-known and established institutions, such as Fidelity, to gain legitimacy.”
Neuberger Berman, who launched his first retail fund in China this week, said scammers are using his name to illegally raise money through websites, chat groups and mobile apps.
Neuberger Berman said in an October statement that he had reported the problem to police, who were investigating.
“Scammers multiply when the economy is bad,” said an executive at a consultancy that caters to global asset managers in China.
The executive, who declined to be named, said scammers would seek to capitalize on news of foreign fund brands entering China and target more gullible investors in small cities and counties.
“Cheaters and lifelong learners… some techies would even copy programming from a foreign money manager’s website,” he said. “The chance of getting caught is slim, so the cost of online fraud is very low.”
SLAUGHTER OF PIGS
There is no official estimate of the size of the “pig slaughter” scams targeting foreign asset managers, but a source with direct knowledge said Van Eck has been dealing with several waves of scams online since the middle of last year.
Scams using Van Eck’s trademarks first emerged in China’s southern Guangdong and southwestern Guangxi provinces, and later emerged in central Sichuan province, the source said. Scammers often shut down operations after raising money.
On his website, Van Eck said some scammers are using his brand to lure investors with “high returns” and “low risk” into meticulously crafted schemes.
A victim of the Van Eck brand fraud, who declined to be named, said her husband was among about 300 investors who joined in class action to try to recover their losses by reporting them 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 “very vigilant” of fraudulent schemes using its name.
Lawyer Ge said that such statements are necessary means for institutions to protect their reputations.
“We also ask investors to perform basic due diligence before depositing their money.”
($1 = 6.9001 renminbi)
