(Bloomberg) — Authorities have arrested some employees of China’s Evergrande Group’s money management business, a sign that the saga surrounding the defaulting developer at the heart of the country’s property crisis has entered a new chapter involving the criminal justice system.
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The company’s shares fell as much as 25% in opening trading in Hong Kong and then reversed. As of 11:20 a.m., the stock was up 3 percent.
The police in the southern city of Shenzhen said in a statement on Saturday that they “recently” arrested their staff and identified one of the detainees, surnamed Du. No charges were announced and the statement did not say how many people were in custody. Police have asked investors to give leads to authorities, including filing complaints online.
Evergrande Financial Wealth Management Co., located in Shenzhen, is a wholly owned division of Evergrande, founded in 2015. The general manager of the company is Du Liang, according to his LinkedIn profile. Bloomberg News could not confirm whether he was among those arrested.
Evergrande sits at the center of a credit crisis that has roiled China’s real estate sector and curbed growth in the world’s second-largest economy. The debt-laden developer has offloaded various assets, including trophy land parcels and stakes in other financial institutions.
The arrest comes as China launches a crackdown on illegal fundraising to protect consumers. Li Yunze, head of China’s National Financial Administration, gave a speech on Friday to address several key issues to protect the rights and interests of consumers.
More importantly, Beijing has been cracking down on alleged corruption in the country’s financial industry since 2021, handing out stiff penalties, including the death penalty, to top executives.
Evergrande has missed payments for 40 billion yuan ($5.6 billion) in wealth management products due in 2021, sparking nationwide protests and pressure on Beijing to find a solution to avoid further unrest. More than 70,000 people, including many Evergrande employees, bought the products as the cash-strapped developer cashed in on them.
Evergrande’s money management arm said on August 31 that it could not make payments on investment products due to liquidity problems.
China Evergrande is undergoing the country’s biggest restructuring process yet, and the process remains uncertain as key votes on the offshore debt restructuring plan have been delayed until October.
The government has also formed a joint venture to take over the insurance arm of China’s Evergrande. State-backed Hai Gang Life will manage Evergrande Life Assurance Co., according to notifications issued by the National Financial Supervisory Authority on Friday.
(Adds continued stock performance in second paragraph.)
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