Anbang's Wu Accused of $10.4 Billion Fraud as Trial Begins

(Bloomberg) -- A Shanghai court accused former Anbang Insurance Group Co. Chairman Wu Xiaohui of masterminding a 65.2 billion yuan ($10.4 billion) fraud, using unauthorized sales of investment-type policies to prop up the acquisitive company’s capital.

The charges in court statements, which offer an unprecedented glimpse into Anbang’s inner workings, allege wrongdoing going as far back as 2007. Wu ordered up fraudulent financial statements and used money raised from fraud for investment, debt repayment and personal use, the Shanghai No. 1 Intermediate People’s Court said in a Weibo statement Wednesday.

Wu is the first executive to publicly go on trial amid a government crackdown on risk that has ensnared other companies in recent months. Anbang burst onto the global scene in 2014 with the purchase of New York’s Waldorf Astoria hotel, for which it paid a record price at the time. Much of its growth was powered by sales of short-term, high-yield products that the company used to fund purchases of long-term assets such as real estate -- a duration mismatch that had long worried analysts and regulators.

The government’s charges against Wu center around the sales of such investment products, which exceeded the amount approved by regulators by more than $115 billion over a six-year period.

Based on the amount cited, it’s the biggest fundraising fraud case ever in China, said Zhang Yaojun, a senior partner at Beijing Zhongwen Law Firm. Should he be convicted, “Wu will probably be sentenced to more than 10 years or lifetime imprisonment,” he said.

According to the court, Wu:

  • Got control of Anbang and its property insurance unit in 2011 through an industrial company he secretly owned
  • Ordered up fraudulent financial statements from Anbang Property & Casualty Insurance to get sales approvals from the regulator
  • Set “massive” sales targets after already, by July 2011, exceeding the sales approved by the insurance regulator
  • Falsified solvency margin numbers
  • By Jan. 5, 2017, had raised 724 billion yuan more than the regulator approved, by selling investment products

China’s government last month seized control of Anbang for at least a year and said it would prosecute Wu for alleged fraud, after he led a multiyear deal spree that spanned the globe. Wu is also accused of wrongly transferring a combined 10 billion yuan from sales of insurance policies to his own industrial company in 2007 and 2011, without booking the transactions.

Some of the money went to the industrial company’s debt repayments and some went back into Anbang’s property and casualty insurance unit, to bolster its capital base, the court said. The scale of Wu’s illegal fundraising and embezzlement was “massive,” the court said. It didn’t specify how it calculated the 65.2 billion yuan total for the overall fraud.

The case is helping clear up speculation over just who owned Anbang: read more here.

Wu disputed both the facts and the charges, saying that he didn’t understand the law and didn’t know if his behavior amounts to crime, according to the court.

Other executives have landed in the cross-hairs of Chinese authorities as President Xi Jinping moves to rein in excessive leverage and risk in the financial system. Financier Xiao Jianhua, who led the Tomorrow Holding Co. empire, was taken away by Chinese authorities in early 2017, the South China Morning Post reported at the time. The newspaper subsequently cited mainland sources as saying that Xiao was helping with investigations into matters that included “bribery and stock market manipulation.”

CEFC China Energy Co.’s chairman and founder Ye Jianming is said to have been investigated by authorities and will step down from management.

To contact Bloomberg News staff for this story: Zhang Dingmin in Beijing at dzhang14@bloomberg.net.

©2018 Bloomberg L.P.

With assistance from Zhang Dingmin